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Downturn takes bite out of eating out

Despite expectations that the economy will recover from the global financial crisis, consumers are still keeping their wallets closed. To keep a restaurant business going is even harder now.
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More and more customers are downgrading, opting to eat in rather than out, or simply choosing a cheaper food outlet.

According to the Restaurant Association of SA, at least 1400 restaurants, coffee shops and take-away outlets closed down nationally last year under financial pressure.

This year, between 600 and 700 eateries have closed, the association says.

“There has been a big ‘buy down' trend in the industry, and it looks like getting worse,” says economist Mike Schussler.

“People in the restaurant industry are certainly under a lot of pressure because customers are choosing to eat at cheaper places.

“The restaurant industry has been struggling since November 2008 because food inflation has been stubbornly high since then,” he says.

Restaurants owners say their main problem is that they now have to work for the 31.3% electricity price hike and 15% in rates and to add to that, rental for landlords not willing to be lenient in these tough trading conditions.

“We feel landlords should come to the party. Restaurant operators are not closing down because they won't pay, but the landlords are asking for too much,” says Restaurant Association of SA CEO Wendy Alberts.

“Landlords should not charge more than 8% of the turnover. If they do, then restaurants are working for landlords.”

Restaurants at big shopping centres are charged 18%-24% of turnover for rental.

Alberts says what surprises her is that the landlords later call her to ask her to try and find them a restaurant to fill the space at a reduced rate for the second operator after having refused to reduce for the previous operator.

She says shopping centres should not argue that they have to pay off their own mortgages because they have long been paid off.

“Restaurants are expensive to run, it's certainly no longer an easy business to run,” she says.

Auctioneers have reported an increase in the number of restaurants and coffee shops going under the hammer. Some the high-profile Cape Town restaurants that have closed down in the past few months include Summerville Restaurant in Camps Bay, The Show Room Restaurant, Riboville in St George's Mall, Madame Zigara and 48 on Hout.

Although restaurants nationwide are under pressure, the Western Cape, being famous for its cuisine, has been more vulnerable to the economic climate, industry players say.

“We have seen a dramatic increase in the number of restaurants being sold or liquidated. In 2007 we closed down at least 90 restaurants in the Western Cape alone and last year that number went up to 104,” says director of Western Cape Auctioneers Stef Olivier. “It's all down to a simple fact that people are struggling and eating out is too much of luxury,” he says.

The auctioneer says restaurants are closing at the rate of one a week.

Olivier warns against going into the restaurant business with a view to cashing in on the 2010 Soccer World Cup.

“We haven't hit rock bottom yet. But there are a lot of people trying to open restaurants and that might not be such a good idea. There might be a slight decrease in the number of restaurant closures building up to 2010, but there are going to be a lot more after the event,” he says.

Rael Levitt, CEO of Alliance Group, which operates nationwide, agrees with Olivier that the number of restaurants going under the hammer has been on the rise in the past few months.

“This year we have closed at least 50 restaurants and coffee shops — a clear sign that everyone is feeling the pinch. We have seen this trend around the country, especially it in up-market restaurants,” Levitt says.

He emphasises that the difficult times are not being experienced by South African eateries alone. “It's an international trend,” he says.

In Johannesburg, venues such as Rivonia Square have had many restaurant closures. Ocean Basket and Primi Piatti are among them.

“We are likely to see a lot more fast-food outlets and caterers closing down.

“The Spurs of this world are probably better placed than independent restaurants,” says Levitt.

According to Alberts, purchase prices of restaurants have dropped 20%-30%.

Although it might be too late, Alberts and Schussler advise restaurant owners to start being innovative and think of new ways to attract business.

Another suggestion is that restaurants might consider reducing portion sizes and menu sizes.

Restaurants such as Moyo are among those likely to weather the storm. “We have been lucky. We have felt the downturn but because we are more a destination type of restaurant, events such as the Confederations Cup and the IPL have boosted business for us,” says Moyo's founder, former economist turned restaurateur, Jason Lurie.

Despite the downturn, Moyo will be opening two more outlets (Pretoria and Cape Town) in the next three months to bring its total to six.

Lurie says they have survived because they have fewer, but bigger, branches and because their model is such that they benefit the locations they are situated in.

Nevertheless, Moyo's expansion plan will not be enough to fill the increasing number of vacant spaces in shopping centres.

Source: Business Day

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