Complex CARBS: The Changing Dynamics of the Food Business


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Complex CARBS: The Changing Dynamics of the Food Business

The emergence of new technologies, online ordering and food delivery have been mixed blessings for cafes and restaurants. The industry is re-examining the ‘menu of services’ it offers to meet the demands of an unpredictable customer base. 

Where would we be without CARBs? We’re talking about Café And Restaurant Businesses, of course.  They address a basic human need for sustenance – food.  And they also satisfy our higher order desires for social interaction and multi-sensory physical pleasure. 

Not surprising, then, that according to the Australian Bureau of Statistics’ tracking data, CARB has been the fastest growing retail sector in Australia over the last 10 years. Equally unsurprising, given the required high standards, and the intense levels of competition, to please a fickle dining public, it can be a very difficult industry and one that requires great attention to detail and deft financial management.  

Many CARBs are taking advantage of new technologies, to introduce a range of new offerings, such as online ordering and meal delivery, including third-party services like Menu Log and Uber Eats.  On the surface, these new enablers appear to provide opportunities and give the sector cause for optimism, but there’s a note of caution. How can CARBs exploit the advantages of adopting these technologies, while avoiding a number of unintended consequences for their core business?

The CARB Business Model

The traditional business model for CARBs is a high service model with labour accounting for the largest cost. Serving multiple course meals, add-ons and alcohol (provided the relevant licence is obtained) has allowed successful operators to cover the costs of doing business by maximising the docket and margins, and using pickups and takeaways as top-up revenue sources and an opportunity to convert sampling to visiting. Although alcohol licenses and requirements involve some costs, these are more than adequately covered by the high mark-ups in this model.

The On-line Delivery Service Model

The new technology that has enabled electronic meal ordering and home delivery services potentially provide restaurants and café operators with access to a new set of customers – those who want a variety of meal options with the convenience of straight-to-the-door delivery. This might result in a higher number of meals sold, resulting in greater volume moving through the capital-intense kitchen facilities and, therefore, higher gross revenue. 

Adopting this model, however, has potential consequences that need to be considered:   

  • Additional costs and lower margins: This model attracts the additional cost of the home delivery service provider, which the CARB must often meet
  • Reduced average ticket: Customers of home delivery services often ‘cherry-pick’ a menu, usually preferring main courses, and choosing to consume their own wine, coffee, and perhaps desserts.
  • Price comparisons: The model allows easy menu comparisons, which leads to price competition. This often has a downward impact on margins or a negative impact on regular customers, who ‘price compare’ their favourite CARB with new options.
  • Customer attrition: Intense competition adds a further threat: loyal and frequent customers might be enticed away by the ease of responding to another restaurant, or a pop-up offering another cuisine. Competition might mean customers who were regular visitors at a higher average docket can now pay less for their order.
  • Complications for the business model: These services are usually demanded on a fast turnaround. This can add complications to the kitchen model and result in a reduction of food quality and overall experience for dine-in patrons, and for home delivery ‘samplers’.

The Changing Dynamics of the Market 

There’s evidence that commercial, economic and other pressures are being brought to bear on what is already a volatile market.

  • CARBs are beginning to question the benefits of some new technologies and delivery services and there has already been a movement away from the use of third-party providers – for commercial reasons, and because of community concerns about these providers’ business and staffing models.
  • When economic times are tough and there are pressures on household discretionary spending, dining out, and ordering in, are often the first expenses to be rationalised. Latest consumer spending reports indicate that this is now having an effect.
  • Some CARBs are taking extraordinary steps in a desperate attempt to survive. Measures to ‘cut corners’ include reducing the quality of their raw materials, delaying payments to suppliers, failing to pay taxes, and underpaying their employees.

These factors might well be linked to the noticeable increase in retail and restaurant liquidations over the last 12-18 months.

The Fair Work Ombudsman’s recent food precincts report found that many food enterprises in selected streets in Sydney and Melbourne had failed basic compliance standards in everything from OH&S, food preparation and hygiene, wages, superannuation, taxes and more. We also see this non-compliance in the case of CARBs that go into liquidation or administration, which must be reported to ASIC for further action. There is no excuse or justification for CARBs failing to comply with the law; it also creates a situation of unfair competition for those who comply fully.

In summary, CARBs operate in a finely tuned, and constantly evolving world in which customer preferences are continually shifting, according to their individual cost-benefit evaluations. Although a pool of potential new customers, revealed by the technological advances in home delivery services, reflects bright new benefits, it has darker depths. Like any modifications to current business operational models, this change, if adopted, needs to be integrated carefully and exploited creatively if it is to meet business goals.

Although many third-party providers argue that operators in the CARB sector must adopt new technology and new service options or be left behind by their competitors, such a decision is not straightforward and no outcome – positive or negative – can be guaranteed.

CARBs should keep a level head. When considering available options, they must weigh up the benefits and disadvantages for their particular situation, and adjust them to meet the demands of what can often be an unpredictable customer base.

If you have a CARB, or know someone who has, and you have reason for concern, it is important to be proactive and obtain help early. This is one of dVT Group’s specialty industries, and we will be happy to have a no-obligation discussion with you, to determine what options are available

If you would like to speak with someone about your particular situation, please call dVT Group on 02 9633 3333 or email us at mail@dvtgroup.com.au