Australia / Analyst Insights
Dollars to Donuts: Food Businesses Revived As Restrictions Ease

What information do you want to see from IBISWorld on COVID-19? We'd love to hear from you

by Yin Yeoh
Nov 23 2020

Despite the negative economic effects of the COVID-19 pandemic, the Restaurants industry in Australia is expected to grow by 5.1% in 2020-21, to $18.5 billion. This growth is expected to stem from states easing social distancing restrictions from mid-May 2020, allowing restaurants to reopen with limitations on venue capacities. However, a few factors are anticipated to constrain industry growth in the current year:

  • The continued temporary closure of Australia’s international borders
  • Victoria’s extended lockdown from July to October
  • A fall in discretionary income, decreasing household consumption expenditure

Similarly, industry revenue for the Cafes and Coffee Shops industry in Australia is anticipated to rise by 6.3% to $9.6 billion. In March 2020, the federal and state governments enforced social distancing requirements and restrictions on non-essential activities, limiting cafes and coffee shop operators to takeaway services for over two months. As a result, premium dine-in food sales declined over this lockdown period, as most cafes and coffee shops shifted operations to selling cheaper takeaway options, such as sandwiches and pastries. Some consumers are also likely to have shifted to homemade coffee during the pandemic, to limit trips outside the home, placing downward pressure on industry demand. However, as restrictions are gradually relaxed across Australia following low or no new cases of COVID-19 cases, cafes and coffee shops have reopened, supporting a recovery in revenue. 

 

The COVID-19 pandemic has benefitted the Online Food Ordering and Delivery Platforms industry. Industry revenue is expected to grow by 12.1% in 2020-21, to total $847.9 million. While the pandemic has provided operators with a key opportunity for expansion, its overall effect has been mixed. The deterioration in economic conditions attributable to the pandemic has led to a rise in the national unemployment rate and placed downward pressure on discretionary incomes. These trends have reduced the income available to Australian consumers to make discretionary purchases, such as takeaway food.

Prior to the pandemic, restaurants, cafes and coffee shops in Australia benefitted from growing foodie culture. The rising prevalence of foodie culture has played a significant role in driving demand for fashionable restaurants and new cuisines. Trends favouring premium food have been reflected in the products offered by cafes and coffee shops over the past five years. Many cafes and coffee shops have repositioned their businesses to target more discerning customers. As a result, menus have changed from traditional snacks and breakfast items to more gourmet equivalents.

Consumers have increasingly viewed eating out as a recreational or cultural experience, keeping track of new venues through review websites such as Zomato and Broadsheet. The strong presence of social media has also boosted customer awareness of new restaurants. Many foodies tend to share photos of their orders and the venue's ambience over social media platforms such as Instagram. However, strong competition has affected both industries. Price and quality are the primary areas of competition for food and beverage service establishments in Australia. Consumers typically have access to many options, which intensifies competition. These trends have resulted in declining profitability in the Restaurants industry and Cafes and Coffee Shops industry. Many operators have been unable to pass on increased operating costs to consumers due to price competition, which has caused profit margins to fall over the period.

IBISWorld industry reports used in this release:

Cafes and Coffee Shops industry in Australia
Restaurants Industry in Australia 
Online Food Ordering and Delivery Platforms industry in Australia