Lean times in the food industry

As diners tighten their economic belts, the restaurants that used to feed them are fending off collapse.Things are so dire in the restaurant trade that some business owners are hoping they can feast on the customers of closed eateries long enough to survive the downturn.The hospitality industry says it's having to get cut-throat as restaurant owners weather the latest economic storm.With less money in their pockets, people are hesitant to dine out.Westpac data tracking credit card and debit card transactions shows spending in restaurants is down nine percent in the past three months compared to the same time last year."It's cut-throat at the moment... as these businesses are closing down or trading insolvently, there will be some of us who are just hoping to ride a wave of a few more customers coming through as a result," Auckland restaurateur Krishna Botica told The Detail. The industry isn't going to disappear, "but in saying that, it is having a very tough time", she says. "We caught up with our bank managers a couple of weeks ago and their words were: 'no one's flourishing'." The Detail today speaks to Botica and to Westpac senior economist Satish Ranchhod, who says the sector is facing challenges on two fronts."First is that we've got a very weak environment for household spending," he says."Retail spending levels have effectively been flat for a year now despite some pretty strong population growth. It's discretionary spending areas like dining out where we're seeing a lot of that weakness."The second issue was pressure from increasing operating costs."We're seeing some big increases in areas like electricity and rents," he says."That's quite important because it's one thing to get cost increases at a time when you're seeing strong demand, but at a time when demand is soft like it is now... A lot of businesses are having trouble passing on those cost increases and it means their margins are getting squeezed."Botica explains restaurants historically operated on a "30-30-30" model for expenses, profiting from the remaining 10 percent." for fixed costs, cost of goods, and then wage costs," she says."But the 30-30-30 model doesn't really stack up the way it used to. Because of wage costs going up well over the 40 percent mark, we have to find that margin in other areas."But she disagrees that the industry is precarious by nature. "I believe it's a very resilient industry going through a tough time," she says. "It's a cycle. We will adapt, we will bounce back."…Go to this episode on rnz.co.nz for more details