Australia’s cafe industry is on the verge of collapse.
Over the past two decades, there has been an explosion in the number of cafes operating across Australia.
IBIS World estimates that more than 27,000 cafes are operating in Australia, employing 139,000 people.
Competition is intense, with multiple cafes often operating at the same locations. However, there isn’t enough consumer demand to sustain them.
The latest ASIC insolvency data shows that 2,200 hospitality businesses have gone under this year, a 51% increase on last year and 122% higher than in 2023.
Following the largest decline in real per capita household disposable income on record, Australians are questioning whether spending more than $5 on a coffee represents value for money.
Meanwhile, cafe operators are being hammered by rising costs.
Global coffee bean prices have surged over the past eight months.
In 2024, a small-scale roaster on the Gold Coast that supplies 11 cafes, Whyld Coffee, paid around $4 a kilogram for organic green coffee beans. The price has now jumped to $14 a kilogram.
Rents, energy, and labour costs have also surged, compressing cafe margins. It is a perfect storm.
Earlier this week, industry leaders predicted that barista-brewed coffee prices will need to rise significantly for cafes to make a profit.
Todd Hiscock, CEO of one of the country’s largest specialty roasters, Essential Coffee, argued that Australia’s median coffee prices needed to increase to between $8 and $12 per cup.
“We’ve got to come to the party and pay in a competitive global market”, he said.
At current coffee prices of around $5 to $6, we are already witnessing significant demand destruction.
Many Australians either cannot afford or refuse to pay such high prices, meaning they are bypassing cafes for cheaper options, including automated coffee from service stations or 7-Elevens, or brewing coffee at home.
As a result, cafes are being squeezed by lower revenues and rising costs, forcing many to close.
If the average price of a barista-brewed coffee did rise to $8 or above, then demand destruction would accelerate. More Australians would bypass cafes, resulting in a huge number of bankruptcies and job losses.
Barista-brewed coffee is a discretionary purchase after all. Australians can easily go without.
Australia’s twenty-year cafe boom has ended. Now brace for the bust as the number of cafes operating adjusts lower to meet demand.
