Surcharging - what you need to know
There has been a lot of confusion over the new requirement not to surcharge that was brought in with amendments to the Trade Practice Act last year.
 
The ACCC advice on this issue is as follows:
 
Component pricing
Component pricing is where a business represents the cost of a good or service to consumers in, or as the sum of, multiple component parts. Where no total price is given, consumers may be unaware of the full amount they will have to pay to obtain that good or service. They may be left with the impression that the good or service is being offered at a lower price than it actually is.
 
Surcharges
The advertised price of food and beverages on a menu, sign or other advertisement should state the single total cost of each item. Where a percentage surcharge is imposed on top of everyday prices, all advertising needs to provide prices for each item that includes this additional cost if and when it applies.
 
However, a surcharge imposed as a flat rate per person is not quantifiable—each individual customer pays the same rate no matter how many menu items they order. This type of surcharge is not within the scope of s. 53C of the Trade Practices Act, although to meet the broader requirements of the Trade Practices Act it is important that you adequately inform consumers of any surcharge that applies.
 
A menu that does not provide a single price and includes the 10 per cent surcharge (like the one in this article) is likely to breach s. 53C of the Trade Practices Act. On days the surcharge applies, customers need to be provided with a price list that includes the surcharge and reflects the total price.
 
In short what is acceptable is:
• A separate menu with prices clearly indicated on days where a surcharge applies
• A surcharge which is a fixed amount (that is clear)
 
What does not comply:
• A % surcharge
 
More information can be found in the document – ACCC – News for business - Component pricing 
 

The chefs who really cut it

Story - Australian Financial Review/Friday 22nd January 2010
by: Rachel Lebihan

The downturn has been good for food culture, making restaurateurs sharper and more competitive.
It will be at least eight weeks before Justin North sees a return on investment from his $2000, 260-kilogram, organic, grass-fed, waygu beef carcass. That’s how long it will be dry-aged. By then it will have lost 30 kilograms in weight and North will be out of pocket.
But the chef and owner of Sydney fine-diner Becasse will eventually see a return. A big one. He expects to make about $18,000 from this fattened calf - $11,000 from burgers alone.
Buying several whole carcasses a month instead of individual cuts of meat, and breaking them down himself, is just one way North has been working smarter since the economic downturn squeezed corporate dining budgets. It’s more economical, more profitable, and customers get a good deal, too - more flavoursome dishes using secondary cuts that North previously didn’t use as often.
The upshot is that while an economic downturn typically spells bad news, this one has been good for food culture. It’s made operators sharper, more competitive and customers are reaping the gastronomic rewards. “You’ve just got to work more cleverly,“ North told the Weekend AFR. “It’s really hard to save on labour, so where we really had to save was on our food - not by buying cheaper stuff, but by missing out the middle man and going to the markets more.
“We started buying more cleverly like buying whole carcasses.“
Restaurants operate on small profit margins - about 2 per cent at best - so it doesn’t take much to tip a business over the edge.
Wages account for about 40 per cent of expenses and top restaurants are loath to let go of long-term talent they’ve trained, so savvy restaurateurs are having to make strategic decisions about savings. North saves
about $200,000 a year by going to the markets himself rather than paying a supplier to deliver fresh produce - and that’s for Becasse alone.
North and his wife, Georgia, opened a stylish bistro, Etch, in November 2008. They also own Plan B cafe, so the cost savings of doing their own shopping is greater. They opened another venue, Le Grand Cafelate last year. Starting a business during an economic downturn is risky, but for North it was a no-brainer.
The retreating corporate lunch crowd hit high-end dining hard, whereas middle-tier restaurants and cafes at the lower end of the food chain haven’t felt the pinch quite as much as customers opt to trade down.
A more casual dining scene in Australia grew by stealth during the boom. Higher wages, employment, and longer working hours mean eating out is more of a lifestyle than a luxury. Restaurants have shifted from a discretionary spend to a necessity in the eye of the consumer. And the downturn is helping the more casual dining environment to flourish. Revenue at Plan B has quadrupled in the past three years, North says. And last year it doubled, while takings at Becasse declined.
Melbourne restaurateur Chris Lucas took a similar plunge. He noticed customers were becoming more discerning during the downturn. They went out less and when they did go out, they wanted “to leverage the best possible experience“ for their money.
His upmarket Asian fusion restaurant Pearl has operated in Richmond for eight years. Revenue dropped between 10 and 15 per cent when the downturn hit.
 
So he opened Cafe Pearl nearby. Revenue from the venture has grown between 3 per cent and 4 per cent each month, he says.
“When we went back and revisited what we do, we felt we’re very good at food and creating beautiful dishes but we needed to appeal to a much broader market - we needed to take our upmarket product to a much larger scale,“ Lucas says.
“So we’re taking what we do, which is beautiful Asian fusion food, and casualising it, stripping back the restaurant concept and making it more accessible and bringing the price point down but still maintaining the quality.“
The move has been so “phenomenally successful“ that Lucas plans to open another cafe soon, and a middle-tier venue called Pearl Canteen.
By diversifying their businesses, operators like North and Lucas have spread the pain brought on by the economic downturn. It also means customers can tuck into better quality mid-tier meals.
“What we’re giving them is a restaurant quality experience but in a cafe model,“ Lucas explains.
Food writer and restaurant critic Simon Thomsen says the notion of value appears at times of financial uncertainty, and “a tendency towards the notion of comfort food“. Diners flock to venues that serve good, honest, wholesome food at an affordable price. And mediocre operators are flushed out.
Thomsen highlights the emergence of the “meal deal“ last year, when restaurateurs enticed customers with low-cost lunch specials. “It’s the first time that started to emerge as a competitive pitch in the marketplace,“ he says.
The downturn also put a lid on rising menu prices. Main meals in the average bistro were getting above $30 and there was often just a $10 gap between an entree and a main, Thomsen says.
“Now we’re seeing more sub-$20 entrees, and more sub-$30 mains.“
Pearl Restaurant didn’t discount its menu, but added a number of non-protein dishes that were cheaper to make: for example, watermelon and sunflower shoot salad with fetta cheese, green olives and clear tomato jelly.
“The result was customers were actually getting far more interesting dishes,“ Lucas says.
He also reduced the wine list by 50 per cent, refocused on “quality and value for money“ and as a result wine sales grew. He says revenue at Pearl has grown by about 20 per cent in the past three to four months - a sign of a turnaround in the economy, but also a result of his efficiency drive.
The head chef at Guillaume at Bennelong restaurant at the Sydney Opera House, Guillaume Brahimi, has been going over his books with a fine-toothed comb.
Sales dropped 12 to 15 per cent last year mostly due to a downturn in corporate lunches and private functions, although Christmas brought a turnaround that has continued this month.
“I can’t be cheaper - I’ve got 70 staff to pay - I’m not going to drop my price,“ Brahimi says. But it made him work more efficiently.
He sent staff on a four-day week. (They returned to five days in November.) And instead of cellaring wine for five or 10 years, he’s put bottles from Bennelong’s extensive wine cellar on the wine list rather than buying superfluous stock. “I think we are a smarter business,“ he says.
At Bistro Guillaume at Melbourne’s Crown Casino complex, $30 and $42 lunch specials were added to the menu.
At that price, Brahimi barely breaks even. It’s a marketing tactic to get punters in the door and hopefully they’ll spend more.
Sixty per cent of them do. And it’s better to have a full restaurant than an empty one, Brahimi says.
He is one of many chefs who became less complacent and more competitive during the downturn. Countless restaurants began offering special meal deals.
Sydney’s prestigious est. restaurant launched its “credit crunch lunch“ at that time, and others followed suit. However, Sydney’s Flying Fish restaurant took an unsuccessful $35 lunch special off the menu after a year. Chef and co-owner Peter Kuruvita says businesspeople didn’t want to be seen eating out even if money wasn’t an issue.
When the downturn was looming, he cut the restaurant’s budget by 20 per cent. He hasn’t laid off any staff, but those that left haven’t been replaced.
 
The restaurant still made a loss for the first time in financial year 2009, despite his efforts.
“It wasn’t devastating - we’re still here,“ Kuruvita says. “It was an awakening and also it made everyone realise we were probably a little bit excessive, and I can say from my side we were probably running a little bit fat.“
Kuruvita says the business is now running leaner and meaner and is stronger as a result.
John Hart, chief executive of Restaurant and Catering Australia, says restaurants adapted well to the global financial crisis.
“They changed their offer and shifted the balance away from corporates to the household diner during this period,“ he says.
As the underlying trend is for people to eat out more often, this worked well with the cafe and restaurant trade. Most months in 2009 showed growth on the previous year, according to the Australian Bureau of Statistics. In November 2009, turnover for the sector was $2.5 billion, a 14.7 per cent lift on the previous November.
The financial crisis has proved beneficial for other businesses in the food sector, too.
Jonn Close runs a restaurant and hospitality business consultancy and brokerage company. He says the number of restaurants for sale were unprecedented in the past six months. But from June to December 2008, it was deathly quiet because potential investors bunkered down and the banks weren’t lending.
There have been a few fire sales, but given it’s an industry with no barriers to entry and a high failure rate, it’s likely the downturn just accelerated the demise of businesses that would have failed anyway, he says.
The businesses that are now changing hands are good, solid businesses, getting fair and reasonable prices, Close says.
“In the last 12 months, we’ve restructured a lot of corporate catering contracts because they were dysfunctional; we’ve worked with a lot of small to medium-sized businesses to restructure, and we worked with a lot of people on exit strategies or how to diversify to grow into the future and build revenue to have a safety net,“ he says. “We’ve done a lot of re-negotiation of leases and have found that landlords have been receptive to not taking up annual increases and reviewing rents in order to keep a tenant.“
John Fink, general manager of The Fink Group, which owns Sydney restaurants Quay and Otto, has haggled with his landlord over rent. He’s stopped buying from fruit providores and goes directly to market. He says every chef “worth his salt“ is doing it these days.
Of course, that’s had a flow-on effect. Fruit and vegetable provedore Matt Brown says the businesses he’s lost in the past year, “pretty much without exception“, have been those buying direct from the market. The drawback, he says, is that they don’t have access to the exclusive range of product he supplies. Overall, he says, his sales are down a few per cent.
Fish supplier Jules Crocker hasn’t been so lucky. He didn’t lose clients, but they started placing smaller orders, which forced him to inject funds into his business to keep it afloat.
On the upside, the financial crisis proved to be the final nail in the coffin for some of his competitors, with two companies being acquired by bigger outfits.
In a sense then, the economic downturn has had a Darwinian effect on the restaurant industry: the strongest - or the most adaptable - survived.
Unfortunately, the same can’t be said for the young waygu that ended up in North’s cool room.
Premium cuts like sirloin and fillet will go to Becasse and Etch. More difficult cuts like silverside will be turned into rare-roasted peppered beef for sandwiches in the cafes. And tough shoulder blades and rump knuckles will be minced and mixed with fat trimmings from the brisket for Plan B’s famous gourmet burgers. Not a morsel will be wasted. Bones will be used for stock and marrow roasted for rich sauces in a mix of kitchen creativity and restaurant thrift, which - given the tougher economic climate - is the nature of the
beast.

Danger traps in the cafe dream: slip-ups

Helene Zampetakis | July 31, 2009
Article from:  The Australian

WITH redundancy payouts more commonly to hand, starting up a cafe may seem like a good way to secure a new income, but there are hidden costs to buying a food business that can undo the novice.

Besides the purchase price, stamp duty and legal fees, there are a string of other expenses that can blow projections sky high.

"There are virtually no barriers to entry into the food services and retail coffee industry, so many people with no prior experience are attracted to it, but if you don't have a business plan in place you can lose everything you've got," says Peter Panagiotopoulos, owner of law firm PNA Legal.

The biggest source of concern is the lease. "If there is going to be a trap, it will be there," Panagiotopoulos says. Scrutinising the technical details of the lease may reveal refurbishment clauses that call for a refit of the premises hot on the heels of the acquisition.

Regular refitting is a condition of buying a franchise and can amount to hundreds of thousands of dollars every five years.

"You need to make sure when to take transfer of the lease that you have enough time to make your money back," Panagiotopoulos says.

Market rent reviews on the anniversary of the lease also can trip up the unwary.

Panagiotopoulos encourages owners to aim to pay rent of about 6 per cent of turnover. "It's optimistic, but many landlords ask for 15 per cent and that can be crippling," he says. "If you get your figures wrong in the beginning, you will never fix it."

Indeed, figures released by the Australian Taxation Office show that cafes employing fewer than four people lost money at a rate of minus 2.6 per cent operating profit before tax in 2006-07.

So although buyers are more savvy than they used to be, according to Jonn Close, principal consultant of business advisers and brokers Close Encounters, they still need to be astute.

With the food sector often trading under the counter, many expenses are not visible, so it pays for the buyer to dig deeper to verify the running costs of the business. The owner may pay wages and some supplies in cash, for example, making it look as if these costs are lower. Revenue can be bumped up during pre-sale trials by the vendor's friends and relatives acting as customers.

Up-front fees include bank covering costs such as three to six months' rent, rates and GST, and can exceed the sale price.

Close cites a restaurant he is selling as an emergency exit for $15,000, which has a bank guarantee of $33,000. "A lot of people are looking for bargains but often these can also be mutton dressed up as lamb," he says.

Other up-front expenses will include general insurance, workers compensation and operating capital.

For Leo Sun, owner of Bagel Boy at St Leonards in Sydney, owning a cafe was a dream that he'd nurtured for more than six years and he thought he had considered all the expenses.

Nevertheless, he had overlooked one important thing: checking whether the council had approved all of the cafe's outdoor seating.

The previous owner had based his sale price on turnover that included income from 13 unapproved seats on the footpath. By the time Sun found out, he was already in too deep to reverse the sale. "I was a bit naive. But because I'd committed myself, I just kept going," Sun says.

It took him four months to get council approval for the extra seating as well as the cost of the architect, solicitor and development approval.

He also found he needed to fork out $3000 to $4000 in workers compensation before he even opened. After 12 months in business, however, Sun is optimistic that things are working out and he's aiming for an exit plan two to three years off.

"These unexpected costs make it more difficult to achieve your goals, but if you look after your customers you can be successful."

Nevertheless, industry experts urge buyers to treat their business as an investment.

PNA Legal's Panagiotopoulos says: "You have to beable to make a capital gain when you sell or you may as well put your money in the bank and get a job for free."

In For The Long Haul

By Zach Jones
A chef by trade, Anjela began her hospitality career with an apprenticeship in Brisbane, before transferring to ‘The Edge’ in Sydney. However, soon afterwards Anjela left the hospitality industry and travelled, spending over a decade out of the industry.

After moving back to Sydney, she and her brother (previously the executive chef of Leeuwin Estate in Margaret River) moved to Scone in search of a new challenge. Six months of searching led them to buying premises from a woman who had been a fan of Leeuwin Estate, and who wanted a restaurant established near Scone.Opening in July 2004, in the first few months the Hjorrings’ ‘Quince’ did excellent trade, but developed a reputation that the management was not eager to pursue. Patrons began to view the restaurant as being exclusive, a place for special occasions, and a place where bookings must be made months in advance.

To combat this, the Hjorrings made changes to the menu in line with the launch of Quince’s courtyard, making the restaurant more accessible to the general public, thereby increasing popularity.

After 18 months of trading, the Hjorring’s put Quince on the market with Close Encounters. They continued to trade up until May 2007, when they were forced to close due to Anjela being diagnosed with lymphoma.

In May 2008 Quince settled, the buyers having first looked at the restaurant on the 24th April 2006, the same day Anjela was diagnosed with lymphoma.

After 2 years and 8 months with Close Encounters, Quince’s Anjela Hjorring says her expectations were exceeded.

From Law Student to Restaurateur

Brenden Lawless’ journey in the restaurant industry
By Zach Jones

Brenden Lawless, the founder of the successful Five O’s restaurant group, began his hospitality career as a law student, who worked regular shifts as a glass washer in a local pub.

“I fell into the restaurant industry by accident. Once I realised that I didn’t see a future in law I quit my degree, and focused on my job and getting ahead in the hospitality industry.

I worked my way up by being available for any shifts that I was offered, and by treating the business like it was my own. I became a barperson, then a shift supervisor, and moved on to an affiliated pub and worked as the manager there for three years.

Moving on from there I established a stocktaking business for hotels and restaurants (a fairly revolutionary idea at the time), and phased out my job as a pub manager. I quickly attracted over 30 local venues as clients.

One of these clients wanted help with a hotel, and I ended up running my stocktaking business from an office in his hotel, and developing the hotel as well. I then bought a pubnear Wagga, and operated that for 4 years.

While operating the pub I developed a low price menu for food, and realised that I could do this in a restaurant as well. This concept led to me establishing 5 O’s Coogee, a restaurant with barely anything on the menu over $10. We focus on high turnover, resulting in a great atmosphere, and on putting affordable, high quality food on the plate. Later I opened Five O’s Campbelltown, and sold Coogee through Close Encounters.

Five O’s Campbelltown is now on sale through Close Encounters – to inquire call (02) 9326 0132 or 0414 992 351

Change With The Times

Lela Radojkovic, partner with Matthew Kemp in renowned Sydney ‘Restaurant Balzac’ says the best a restaurateur can do is keep a positive outlook and be prepared to change.
By Zach Jones

Why did you decide to buy Restaurant Balzac?

We were living in Randwick at the time, and there was nowhere to go out to. The destination didn’t exist in that area, so we decided to create it. We had some money saved and found the original Restaurant Balzac premises and started on the first day with 10 customers.

How did you grow from that point?

Within 4 months we had a review in the paper in which we scored 15/20, publicity helped enormously.  After only a few years we relocated to larger premises, Restaurant Balzac is now housed inside a rustic, two-story sandstone building.

Our concept has always been simple, but unique. We use high quality, fresh Australian produce to create dishes with imaginative flair. We are different to normal restaurants because we incorporate all dishes in different sizes, allowing people to eat whatever they want from the menu as a snack, a meal or a 10 course banquet. Wine also comes in 4 sizes allowing the same flexibility.

Tell us about Burlington Dining?

We were looking to expand, and Michael Fisher from Close Encounters rang us to see if we were interested in premises at Crows Nest. They were initially out of our league, but after a while and talking to Michael we were able to purchase the property on Burlington St.

What do you see in the future?

This is a very fickle industry. The future will bring what it does, the best we can do is keep a positive outlook and change with the times.

Restaurant Balzac is located at 141 Belmore Road Randwick NSW 2031 Ph: (02) 9399 9660 or visit www.restaurantbalzac.com.au

Burlington Dining is now open at 6 Burlington St, Crows Nest NSW 2065 Ph: (02) 9439 7888