Costs keep rising: Cafe faces impossible choice

Angela Clements says the decision to close Pure Café in Whangārei is the result of increasing pressure from multiple directions - and economists are warning the situation could get worse.Pure has been open for six years but will close on 27 November.She said a lot of things had become a lot more expensive over that time. "We've been in the industry for about 15 years and things like dairy, milk cheese, those things have gone up probably 60 percent."I think the hardest thing is that the things we used to buy that were good quality are now out of our price range and the things that we can afford are just rubbish."Take cocoa powder, for example. We used to buy good quality cocoa powder for a reasonable price. Now the rubbish cocoa powder is the same price as the good stuff and the good stuff is out of our range."We either use a poor quality product or we put our prices up exponentially and then people just can't, they just don't buy, you know. Or the third option is the one that we've been taking lately is that we use a good quality product, but we don't put our prices up and then we just swallow the cost ourselves."The cost of things like gas and power had also increased a lot, she said.Stats NZ data showed restaurants and cafés may be trying to pass on some of the increases. The "restaurant and ready to eat" food group was up 3.1 percent over a year in its most recent data, compared to overall food price inflation of 2.4 percent.Restaurant Association general manager Nicola Waldren said that group included everything from restaurants and cafés to takeaway food and it could involve a lot of different cost structures.Restaurant Association general manager Nicola Waldren.Supplied"Looking at the September index where prices in the group rose 3.1 percent, and 0.2 percent for the month, the annual rise is similar to grocery food at 3 percent and meat, poultry and fish at 3.2 percent, although the overall food figure is lower mainly because fruit and vegetable prices have fallen."Beyond food costs, hospitality businesses have also been dealing with some large increases in other costs they can't easily avoid. The same release shows household electricity prices up 9.5 percent over the year and gas up 11.4 percent. Commercial rates vary, but energy is a significant cost for businesses running kitchens, refrigeration and hot water throughout the day. Petrol prices also rose sharply in September, and some businesses are seeing higher fuel costs passed on through delivery surcharges."Having said that, we know any menu price increase is carefully considered, and our businesses are very aware that many households are under pressure. It's a careful balance between offering value for customers and keeping the business sustainable."Clements said she was stuck in a position where the business could not afford to support even one full-time person."We consider ourselves fairly resilient but that's kind of running out. I don't think there's a great future for the industry for people that actually want a quality product. I'm uncomfortable serving up something that is not good for you and not made with quality ingredients. Look at bacon. We used to buy only New Zealand bacon but now New Zealand bacon is twice the price of imported bacon. So do you buy New Zealand bacon and price yourself out of the market or do you put imported bacon on a plate and feel bad about it?"Westpac senior economist Satish Ranchhod said its internal card spending data indicated there had been a lift in spending on takeaways and at restaurants since the start of this year.But he said it was clear ingredient prices had increased, especially meat."Just as that's adding to households' grocery bills, it's also adding to the cost of producing takeaways and restaurant meals. I haven't heard anything from restaurant operators about fuel prices affecting their production costs. However, I have heard anecdotes from those in the agricultural sector about fuel prices pushing up their operating and transport costs. Over time, that could flow through to higher food prices."BNZ chief economist Mike Jones said consumer demand in some of the discretionary spending categories was under significant pressure again as higher energy costs were felt.Clements said she did not think there would be an improvement in the sector until households were feeling less pressure."It's not just the cost of stuff for us. It's the cost of people's grocery bills and power bills … we still have a lot of the same customers we used to have they just come less often and spend less money."Hospitality was responsible for 15 percent of liquidations in the year to August, at a rate of 1.4 percent.Sign up for Money with Susan Edmunds, a weekly newsletter covering all the things that affect how we make, spend and invest money.