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Let’s do Lunch!

Let’s do Lunch!

It’s Good Food Month in Sydney so now is the time to come over to our office in Pyrmont and allow us take you to lunch at one of the fantastic restaurants in The Star complex. Uh, well, actually…no. We can’t. Why? Well unless it’s Friday – they’re closed.

Yep, Sydney isn’t open for lunch if the restaurant you want to go to likes to offer a higher level of service – typically measured by a higher wait-staff-to-patron ratio.

I caught up with Stefano Manfredi recently at his restaurant, Balla, and he shook his head in dismay while telling me that he was paying up to $90 an hour for a contracted dishwasher on a public holiday.

We have written extensively of Australia’s flailing competitive position, and sadly we are unlikely to see much improvement in the important first 100 days of the new government’s term.

A lot needs to be done to fix Australia, whose geographic disadvantages liken it to a vacant block at the end of the global cul-de-sac.

Firstly, we need to add value to our exports so that Andrew Robb can no longer describe the current account deficit of the Balance of Payments as “structural”, and so that we become the acquirer of overseas income producing assets, rather than being beholden to overseas acquirers conquering us.

We need a new tax regime that taxes revenues rather than profits, and a regime that allows small start-ups to enjoy a tax holiday such that market forces can identify the sectors and industries Australia is naturally skilled at, while allowing them to employ, in aggregate, larger numbers of people.

We need governments run by social and business entrepreneurs, not career politicians and lawyers, and we need to even the playing field in our own back yard so suppliers and small competitors aren’t screwed by big businesses under the disingenuous veil of ‘helping the consumer enjoy lower prices’. In the meantime, we need the technocrats leading our country to stop selling long-term assets for short-term budget band aids.

Ok, with Australia almost fixed there’s only one thing left – and this is what really has my goat today. Let’s give Fair Work Australia a subtenant called Fair Business Australia.

The Fair Work Commission has just rejected a push to cut pay loadings of up to 250% for staff working on weekends and public holidays. Did you hear that? 250%.

A quick trip over to Singapore – on one of those $350 dollar airfares provided by one of those airlines going broke (good thing we have those cheap fares though!) – reveals a culture of service where the tourist is greeted in a friendly and cheerful manner by almost everyone. This was decreed by the Republic’s first Prime Minister, Lee Kuan Yew, and to this day even the most lowly paid people greet the traveller with smiles and kindness.

Let me know if you get the same cheery smile from a waitress in Sydney working on Sunday on the minimum award wage of $34 per hour.

How can our tourism operators and restaurants – those businesses that are the face of Australia during the holiday season – survive when they are paying so much more for their staff than competitors around the world – competitors who also enjoy much greater foot traffic and stopover visitors? Is it any wonder that a traveller to Pyrmont on a weekday finds restaurants Sokyo, Momofuku and Black all closed?

Restaurant and Catering Association Chief Executive John Hart is reported by The Australian Financial Review as saying, “We have already seen a third of businesses closed on Sunday that weren’t closed on Sunday 12 months ago”.

Truly vibrant societies need thriving cities, and thriving cities require ‘happening’ streetscapes and the culture that comes with them. Rows of closed shops, reminiscent of ghost towns, do not inspire repeat custom. While salaries remain prohibitively high, the rot will not be reversed. Conditions must change for the symptoms of the disease to be alleviated.

The Fair Work Commissioner, Anne Goodley, said there was no empirical evidence to support employer claims that lower wage costs would encourage restaurants to hire more cooks, waiters and bar staff. Surely Anne could have however found ample evidence that higher wage costs reduce the numbers of hours cooks, waiters and bar staff are employed for?

With friends like these, what small business and restaurant needs enemies?

Go Australia – you lucky country you!

INVEST WITH MONTGOMERY

Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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16 Comments

  1. Roger, when I used to come up to Sychrony’s office for meetings, near where you are or maybe in the same building ( Sychrony/Symix are now long gone). Next door was a great sandwich place and that did me for lunch!!

  2. Your example of restaurants at the Star being closed during the week goes against everything that a casino complex should be. If there was a 24/7 tourism business than thats it. If i got to the Bellagio, i can get a dinner reservation at the same restaurant any night and it seems time of the week.

  3. For me the most sense I have heard about how Australia needs to reform have not come unsurprisingly from any of the politicians we have been drowning in the past 6 months, but from an address from the Grattan Institute’s CEO John Daley at the National Press Club who gives us the truth.

    Australia is in trouble fiscally, Increased spending in Health and infastructure now need decsions to be made on how we can afford it – but as he points out we need to “condition” the electorate before the inevitable changes come.

    See this link.

    http://www.abc.net.au/news/2013-10-09/national-press-club-john-daley/5012180

  4. Dear Roger,

    Interesting article – with such media savvy, I could see Montgomery’s finest make a successful entry into politics!

    Certainly, there are vital issue to be addressed:

    1. Declining labour productivity

    ABS figures are being spun in many unhelpful, and often misleading, ways. Labour productivity needs to improve and a return to Work Choices or some more sane industrial relations legislation would be helpful, but not sufficient.

    2. Growing dependency ratio and falling participation rate

    With the baby-boomers beginning to retire, governments urgently need to allocate funds more efficiently to meet rising healthcare and social security costs. Australia’s Future Fund has not grown in line with comparable funds (e.g. Norway’s or, at a stretch, Abu Dhabi’s) and, by itself, cannot make-up the shortfall.

    The retirement age will be further increased. Harder measures – like doing away without our wasteful, and anachronistic, system of state legislatures – probably will not. With so many vested interests, the constitutional reform required would likely break whoever attempted it.

    3. Behind the border impediments to trade

    We need to be more than the world’s open cut mine. We need to build internationally successful brands. We need competition in the services sector. We need to foster entrepreneurs and we need to be outward looking.

    The Hawke-Keating reforms of the 1980s and 1990s went a long way to boosting Australia’s international competitiveness. But while much emphasis was placed on reducing tariff barriers, much still needs to be done to further harmonize legislation and processes across state lines. Meaningful efforts would increase labour mobility, reduce the heavy administrative burden corporate Australia suffers from, and increase competition.

    4. Political short-termism

    Australia needs to have a sense of where we are going. If the overriding medium-to-long-term objective is growth, jobs and rising living standards governments (Australia’s and many others) need to have to courage to govern and not be consistently side-tracked by lobbying and vested interest.

    5. A enormously complex and inefficient tax code

    To increase productivity, growth, provide jobs and ensure higher living standard, increase the GST, cut corporate rates of tax and radically simplify the tax code (sorry MMS). Further ameliorate social welfare issues through education and transfer payments (not via the tax code).

    The list goes on – but the above would be a good start!

    Richard

  5. This might be a naive question to ask but….. Haven’t we had penalty rates on the weekends for a long time? I remember when I was working by first job 17 years ago in a supermarket and earning penalty rates on the weekend and evenings. Why has this become such an issue now?

    • Hi Peter,

      One of the reasons is because of wage inflation. Doubling a $20 per hour rate is a much more significant impost on business than doubling a $10/hr rate when the price of the goods those businesses sell are suffering deflation.

      • You argue that weekend & public holiday penalty rates as the problem, but then say the restaurants you cite – Sokyo, Momofuku and Black – are closed on weekDAYS.
        If they’re closed on weekdays but opening on weekends then weekend profitability must exceed penalty rate costs whereas weekday demand doesn’t cover the base rates.
        Your example demonstrates the exact opposite of your argument (unless there article contains a typo and meant to say those restaurants are closed on weekends).

        Re: wage inflation: Like Peter I my first job was in a supermarket – not exactly the same as restaurants, but still unskilled service work and I know the wages for that job so that’s the example I’m able to use. The wage inflation for store staff working at Coles since 1996 when I worked there has been ~47% (this may vary in different states), this is roughly in line with (but slightly below!) the ABS published inflation figure for the same period. You’ll need to cite some good data if you want to argue wage inflation at the bottom end of the job market is the problem.

      • Thanks Colin,

        if you are paying penalty rates on weekends, you can’t afford to be open at other times….And if you are telling me you are relying on ABS published data for your inflation measure, you need to cite some good data. More importantly we have been in a deflationary environment for many businesses. the price at which they can sell their goods has fallen (rather than risen) and their salary expenses have risen. The real story is not revealed by ABS stats but as told by our investors who are also business owners…

  6. alex.baker.3745496
    :

    hahaha..

    One solution:

    Move your business to Melbourne.

    You have no idea what a dynamic city it’s become..

    Thousands of new central city inhabitants being added every month.. :)

  7. High Australian wages I believe has been a problem for years, Gerry Harvey has been singing about it. To get your car washed costs $35. But this is because it costs those labourers a lot at the supermarket, rent is high, electricity prices are high. If you were getting $15 an hour, you couldn’t survive, you have bills to pay. This is why unskilled labour can cost a lot. So I believe the problem is the high cost of living.
    The problem is low competition in supermarkets, not enough land being released to bring house prices down, electricity prices being high. These high costs for everyone is the problem.
    State govts making it hard for Aldi to compete with Coles and Woolies by having a lot of red tape and not releasing land rights to them. Bad local govt policy.
    The privatisation of electricity assets bought by the likes of Origin energy and upping electricity prices whilst declaring tax losses.
    Not doing enough to make housing affordable.

    I also agree strongly that we need to do more value adding to things we export. But this can’t happen until we become more competitive.

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