Opposition Leader Tony Abbott this week echoed the claims of industry groups, high-profile restaurateurs and daily newspapers when he told a community forum in South Australia that penalty rates were forcing businesses to close their doors and creating a barrier to employment. Yesterday The Australian said penalty rates were “killing our weekend cafe society”. The hospitality industry is crying poor.

But are penalty rates really overly generous and forcing businesses to shut up shop?

The figures tell a different story: households are spending more on eating out than ever, turnover is increasing year on year, and employment in hospitality continues to rise. According to the most recent figures in the ABS household expenditure survey, households spend 25% of their weekly food bill on eating out, up from 22% in 1998-99.

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This has led to 25% more turnover in the restaurant/cafe sector between 2008-09 and 2011-12, according to the ABS. Retail trade figures show that between February 2010 and February 2013, growth in the wider cafe, restaurant and takeaway sector was 12.9%. For some perspective, during this same period department store turnover shrank (department store workers receive much lower penalty rates than the average hospitality worker as they’re covered by enterprise bargaining agreements).

More people eating out, greater turnover: it doesn’t seem to paint a picture of an industry doing it tough.

Still, despite high turnover, making a profit is still tough. Hospitality businesses have always had slim profit margins — data released five years ago show an average profit margin in the industry of 3.6%. But hospitality workers’ average weekly earnings are the lowest for any group of employees in Australia.

Tony Eldred, a hospitality management consultant for over 20 years, is adamant current penalty rates are unsustainable, and that penalty rates are leading some of his clients to choose not to open on weekends. “[Penalty rates] are a huge factor, but also the laws of supply and demand affecting competition … and there are big shortages of skilled staff,” he said. Fierce competition among businesses has led to lower menu prices, a lower average spend among consumers and lower margins.

ABS figures show restaurant and cafe businesses have a high churn rate — that is, a high number of businesses  are entering the market, competing for consumer dollars, and a high number of businesses are closing. However, despite this churn there is net growth in the number of restaurants and cafes operating. The industry continues to grow and closures — supposedly the fault of penalty rates — are outnumbered by new businesses opening.

Annual employment growth of 2.6% per annum to 2014-15 is predicted, according to a submission by Restaurant and Catering Australia to the Productivity Commission — the same industry body that in a case to be heard in May will push Fair Work Australia to abolish weekend penalty rates.

The introduction of modern awards, met with fury by some in the industry, is actually lower than the Victorian and South Australian awards it replaces.

Penalty rates have been a feature of Australia’s wage system for decades and up until this point have not halted the growth of the cafe and restaurant industry. The claim made that they are strangling the industry does not stand up to scrutiny.

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Peter Fray
Peter Fray
Editor-in-chief
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