Beyond Calombaris: Is the hospitality industry sustainable? The consensus is no

Following news this week of administrators being called in to take over George Calombaris' Made Establishment, we reached out to business owners within our community to discuss the realities of staying afloat in a challenging market

With administrators having been called in to take over George Calombaris’ Made Establishment, its 18 eateries and some 500 employees, criticism of the controversial underpayment of $7.83 million to staff has resurfaced. But amid the flack being thrown in the former MasterChef’s direction, a deeper dialogue has surfaced about how sustainable running a hospitality business is these days. With business owners facing high rents, quarterly GST payments, payroll tax, penalty rates, insurance, licencing fees, and rising food and beverage costs, the question is, is the current model sustainable?

Owner of Philhellene, John Rerakis has been in the industry for 25 years. He says there’s no denying costs across the board have increased, and cannot see how those establishing a new business today will be able to make ends meet long-term.

“I just can’t see it being sustainable for anyone who wants to open up a business, rent a place, fit it out and everything involved in running a business. I just can’t see how they’ll be able to maintain it. That’s why you see places just come and go unfortunately,” Rerakis told Neos Kosmos.

He counts himself lucky, with a business model based that works by being largely family-run. Meanwhile to bring food costs down, he grows much of his own produce.

“I’ve just come back from picking about 500 zucchini flowers, which for me to buy, that’d be exorbitant,” Rerakis notes.
Owner of Captain Moonlite, chef Matt Germanchis says the current model can be sustainable for larger businesses that do high volume, but not so much for smaller businesses.

“Through my experience of hospitality I had to design my model of my restaurant on low rent and when it comes to staff, assessing can a kitchen survive with two chefs in there on a quiet night compared to four chefs?” Germanchis said.

Meanwhile when it comes to increasing penalty rates, he says small businesses are often running at a loss to cover wages.
“A couple of years ago they put double time-and-a-half for Easter weekend. As a regional restaurant that’s our bread and butter and for four days we can’t sustain that. It’s like we’re just opening for nothing, almost less than nothing,” he says.

READ MORE: Calombaris’ hospitality empire on the brink of collapse

Angie Giannakodakis understands both sides; she started her hospitality career as an employee at Calombaris’ The Press Club and is now the owner of Epocha and Elyros. She says the industry hasn’t been sustainable for at least the last 10 years.
“There’s different costs now associated with running a business that we never had. The technology that we are using now is costly to establish … it also shows that things are changing, and you must change with that business model,” she says.

John Aitsinis sold his business two years ago, after 35 years in the hospitality industry, and agrees that the last 10 years were particularly hard.

“I love this industry [but] the rising costs of everything; I remember through the years for example the calamari was $4.00 then it was $40.00 a kilo,” he recalls. “Also rent and all the taxes; it’s a lot of expenses to run a restaurant. People think at the end of the night you’re going to make x amount of money, but they don’t know all the hidden costs.”
Aitsinis was fortunate to own the premises of both his restaurants, and having been an owner-manager allowed him to make a better profit than many others.

But having been a landlord himself, he says high rents are directly linked to the increasing cost of land tax.

“The government is making it hard. I had a building I was leasing out, and I used to pay 55 per cent of the rent [I received] to the land tax. So the government benefits out of it, not the landlord or the tenant.”

READ MORE: Greek hospitality start-up making global headlines

PASSING THE COST TO CONSUMERS?

When it comes to the rising costs, Germanchis says there’s customers need to understand that there is “no choice in the matter than to charge more now”.

“Or there’s just businesses that are going to be unsustainable; that’s my opinion on it. It’s the simple fact, we live in a very fortunate country here; our wages are fantastic compared to the rest of the world and unfortunately for an industry like hospitality you eventually have to charge that,” he explains.

Aitsinis agrees. He says larger businesses that were once managing to run at a 10 per cent profit are not lucky to be getting five per cent of takings – a very low figure given the time, commitment and sweat it takes to run a business. He says customers that truly understand quality are generally willing to pay more, but in his experience that is the minority.
But Rerakis doesn’t believe that many consumers would be willing to pay a higher price.

He says he has been charging the same prices for most dishes for over 11 years ago, and only recently did he reluctantly decide to pass on the credit card fee to customers.

“You have people come in that want to split bills, so they pull out four or five credit cards and the bill is hypothetically $100,” he says. “We were left with no choice.”

Rerakis in part attributes his reluctance to raise prices to changing dining habits and greater choice and accessibility with the rise of food delivery apps.

“Once upon a time going to a restaurant was a special occasion but now people just want to be doing it more often and people are cooking less. So you’ve got things like your Ubers, factoring into they might buy a bottle of wine, have it at home, and then order the food – and that’s almost as good as going out for some.”

Giannakodakis agrees that the delivery aspect of food has change the dynamics of the restaurant, with more people comfortable in their homes than at a venue, mainly because of the affordability aspect.
She disagrees with Germanchis about high wages in Australia: “I can tell you that a lot of people aren’t making that much money,” she says.

“There are add on costs businesses are incurring, but then the consumer has add on costs to their lifestyle. We’re noticing people don’t have expendable income and so you know when they come to you they’re in the same boat you are. So to think of taking more from them, that’s not sustainable.”

READ MORE: The world’s first ever ‘Foodie Hotel’ to open in Athens

ACTION AT A GOVERNMENT LEVEL

With a number of high profile eateries being investigated for underpayment of staff, and administrators being called in due to businesses being unable to meet costs, the end result could very well see an imploding of a much-loved industry that has built Melbourne’s profile around the world for its rich gastronomy.

Meanwhile thousands could find themselves unemployed, with a need to re-skill themselves in entirely different industries.
Giannakodakis looks to the government to play a role.

“I would expect, or I would hope, that government bodies start engaging with business owners to come up with some kind of Brains Trust type of cooperative that can help us with all those troubleshooting aspects that a business goes through or even regulating some aspects of the business. I mean there’s so much knowledge that we’re missing out on, but we’re also missing out on it because we’re so entrenched in our business that we’re not thinking of going outside of those boundaries and looking at what is happening,” she says.

“One aspect is our labour force, but what else can we do better really? You have to adapt and change and sometimes those changes don’t actually line up with the business model of hospitality.”

SO WHAT NOW?

It has been a fall from grace for Calombaris, who as the face of Made Establishment has faced the brunt of the scandal. He is well and truly paying for his wrongdoings, there is no denying that, and perhaps even for those of others as the poster boy and example for why business owners she stay on top of their books.

Acknowledging Calombaris as a groundbreaking pioneer in the Greek culinary scene, Rerakis says “it’s unfortunate what’s happened to George”.

“Greek food didn’t have a good name in the industry. It was tired and overrun with dips and bad cuts of meat – that was it for years. He introduced a new style of Greek cooking, a better standard of food and service, exposing our cuisine to people,” he said.

While everyone is entitled to their judgements, Giannakodakis says she has been gobsmacked this past week watching on as Calombaris’ empire has come crashing down.

“Greeks are so wonderful at hospitality, that’s our mantra, and that’s what we should be doing right now,” she said.

“As a community, we are proud of our heritage and our cuisine – why haven’t we supported that? It’s horrible, it’s terrible, it’s devastating and at the same time there’s no winners here. I can tell you right now what our industry needs is our community to start supporting.”

* Neos Kosmos contacted the Victorian Minister for Small Business Adem Somyurek, but has yet to receive a response.