Australian restaurant closures climb as rates rise

Australian restaurant closures are running at nearly double the national failure rate, and the Reserve Bank's steepest rate rise in years lands on a hospitality sector already short of cash.

One in eight cafés and restaurants shut in the twelve months to July, according to CreditorWatch's Business Risk Index. The sector's closure rate reached 12.03%, against a 6.69% average across the whole economy.

Restaurant closures double the national rate

A fifteen-year-high interest rate just landed on hospitality's thinnest margins yet.

The distress runs deeper than the closures. CreditorWatch found 10.21% of hospitality businesses were more than 60 days behind on payments, nearly double the 5.36% national rate, and the sector's trade default rate of 1.15% was almost four times the economy-wide 0.31%.

"A closure rate of one in eight reflects pressure already absorbed, but the trade payment default rate points to what's still ahead," said Patrick Coghlan, CreditorWatch's chief executive.

Then came September 29, when the Reserve Bank lifted the cash rate by 25 basis points to 4.60%, the highest level in fifteen years, citing inflation running above target. The Board noted that "firms are experiencing cost pressures and are either increasing the prices of their goods and services or looking to do so."

Wages, energy and rent keep climbing

The rate rise lands on a wage increase operators are still absorbing. Award pay rose 4.75% from July 1, lifting the national minimum to $26.44 an hour. Restaurant and Catering Australia's president said the change "will cost hospitality businesses far more than the figure on the page, because penalty rates compound the base rate across the very hours our venues trade."

Electricity costs are up more than 25% year-on-year since rebates rolled off, food costs remain around 7.5% higher than usual, and delivery platforms still take 25% to 30% commission on every order, per R&CA's benchmarking survey.

Not every operator passes the cost straight through. Close to half of Australian restaurants now use some form of AI or automation, from rostering to order-taking, to hold prices rather than raise them again. The wage rise, for its part, was deliberate policy, meant to lift pay in a sector that leans on casual and junior staff more than almost any other. The Board itself described consumer spending as "easing gradually," not collapsing.

CreditorWatch's chief economist, Ivan Colhoun, expects the pressure to persist, and the Reserve Bank has signalled it would raise rates further "if needed." A similar squeeze has already forced profit down at JD Wetherspoon in the UK even as its sales rose.

For now, Australia's cafés and restaurants face the same arithmetic as hospitality everywhere: costs climbing faster than customers are willing to pay. Whether menus or payrolls give first will decide how many venues are still open next July.