One of Australia’s top commercial credit reporting bureaus warns that the country’s food and beverage sector is set to see more businesses fail in the new financial year as households tighten their budgets and operating expenses stay high amid mounting cost of living pressures.
Among the others, defaults on trade payments between businesses have surged by 31 percent in the year to May, led by the Food and Beverage sector, which the agency predicates face the highest risk of failure over the next 12 months.
“While the construction sector continues to gain the most media attention due to insolvencies, the food and beverage sector has the worse insolvency rate in the country,” the agency says, referring to restaurants, pubs, café, and other hospitality venues.
More Job Cuts, Higher Insolvency Level
CreditWatch Chief Economist Anneke Thompson expects economic conditions to decline further, as Reserve Bank’s ongoing monetary tightening will take a heavy toll on jobs and dispensable income.“The latest monthly inflation and unemployment data suggests that we will be hit with more rate rises in the coming months, adding to the challenge,” she said, noting that she was expecting no ease of interest rate hikes until mid-2024.
“Sentiment in the business community has shifted down now that it is clear that core inflation is proving hard to tame. It is now unlikely we will see any downward movement in the cash rate until mid-2024 at the earliest.”
This comes as the unemployment rate is set to soar with further interest rate increases, which will have an immediate impact on the food and hospitality sector.
“While unemployment remains at near historic lows, it is likely that businesses will start to trim headcount in the coming months as trade slows and costs increase,” the agency says.
“So far, most Australian employees have felt quite comfortable in their employment and therefore have been more confident to continue to spend and book holidays and tables at restaurants.
As the unemployment rate inevitably moves higher, however, this trend will reverse, and a lot more belt-tightening will occur.”
This will further push up insolvency levels in the new financial year, as “many businesses confront a reduced revenue forecast in their new budgets.”
Food Industry is Resilient but Needs Help: Peak Body
Some leading players in the sector have already taken action to navigate tough times.However, Suresh Manickam, the CEO of the Restaurant and Catering Industry Association of Australia (R & CA), is confident in the resilience of the sector.
“ It is an industry that has survived during periods of major economic upheaval yet managed to recover and thrive despite this,” he told The Epoch Times in an email.
However, he believes governments are needed to help tackle the incoming challenges, with rising costs and skill shortage standing as two major pressure points for the industry.
“The current cost of living crisis is straining both businesses and consumers,” he said.
“As we approach the new financial year, it’s likely we'll see an increase in belt-tightening.
“Whilst industry operators are keeping up with the cost of supplies, wages, rent, and energy–these inputs are having an increased impact on businesses.
“According to our recent Industry Benchmarking Report, 8 in 10 respondents predict a rise in meal and menu costs as a direct response to the rise in living costs.”
The report also shows that skill shortage remains the major issue since the pandemic, with 83 percent of respondents “experiencing some form of difficulty in hiring new staff and 54 percent finding it more difficult compared to the previous financial year.”
Manickam requests immediate action from all levels of government.
“With electricity prices predicted to rise as much as 29 percent for small businesses, there needs to be energy subsidies, and we call upon the federal government to deliver this,” he said.
“In addition to this, we call upon the federal government to urgently invest in apprenticeships and skills in order to reduce the impacts of the skills shortages.”
