By Rosemary Anderson, FEDHASA Inland Board Member
If you stand at the pass on a Friday night, the dining room still looks full. However, the P&L tells a very different story. Across the restaurant industry, for independents, franchises, and national groups, the last few months have quietly become one of the most difficult trading periods we’ve seen since COVID recovery. Not a collapse or a shutdown, but something arguably worse: busy restaurants that are not profitable. We are now operating in what operators call a margin compression cycle.
What the numbers on the ground are showing
Discussions with franchisees, group operators, and supplier representatives consistently reveal the same pattern. The sales mix has shifted dramatically:
- Premium and destination restaurants: Down double digits year-on-year in revenue
- Casual dining: Flat to slightly negative
- QSR/takeaway: Reporting 3–5% nominal growth (which is a real decline after inflation)
What this means in restaurant terms:
- Covers are similar; average spend per head is not.
- Guests are still going out, but they’re trading down inside the same visit.
We are seeing:
- Fewer starters ordered per table
- Dessert attachment rates dropping
- Shared mains
- Guests requesting tap water instead of bottled still/sparkling
- No after-dinner drinks
- Early bill requests
- The industry term: “guest spend suppression.”
The most noticeable change: The drinks basket
The clearest red flag in the sector right now is the beverage mix. Operators everywhere are reporting a steep decline in premium drinks consumption. Guests are ordering fewer bottles of wine, with many choosing to order by the glass instead. Craft beer sales are slowing, and there has been a significant drop in the sale of digestifs and liqueurs. Cocktail sales are also down sharply. Historically, beverages carried restaurants. Today, the wet GP is disappearing.
This matters because restaurants typically can’t survive on food margins alone – their profitability depends on the higher margins from beverage sales. Food GP after wastage, shrinkage and prep loss is typically 55–65%. Beverage gross profit often sits at 70–80%. When wine and cocktails disappear, profitability collapses even if the dining room looks healthy.
The coffee problem
Coffee has quietly become another major pressure point. International green bean prices have surged, and roasting costs have risen. Operators are now facing higher bean, milk, and electricity pricing, as well as higher electricity costs to run machines and lower consumer tolerance for price increases.
The challenge is largely psychological – customers are more willing to accept a R350 increase on a steak than a R4 increase on a cappuccino. As a result, many operators now run coffee as a loss leader simply to maintain daytime foot traffic.
Input costs: The invisible crisis
Restaurant businesses are uniquely exposed to input inflation because they are energy conversion businesses – we convert electricity and gas into hospitality. Major increases we face include:
- Electricity tariffs
- Cooking gas
- Oil and fryer fats
- Cold chain refrigeration
- Card machine fees
- Delivery platform commissions
- Staffing
- Increase in theft/shrinkage
A kitchen is effectively an industrial facility operating 16 hours per day, running ovens, extraction, refrigeration banks, ice machines, dishwashers, coffee equipment, and air conditioning. As such, energy is now a primary line item. Many operators report electricity increases far exceeding menu price increases, meaning price increases are not covering cost inflation anymore.
The overlooked side of the disposable income shift
There is a new competitor for the hospitality industry, and it’s not another restaurant. It’s online sports betting and instant gambling apps. Operators across multiple regions are reporting a noticeable behavioural shift – customers who previously dined out weekly now dine out monthly, with gambling habits playing a part in this.
Even more concerning, restaurateurs are reporting staff requesting advances more frequently, cash flow desperation among employees, and in extreme cases, internal theft. There have been multiple incidents reported across the sector of employees and even junior management “borrowing” from tills or manipulating POS cash-ups to fund gambling activity, with the intention of repaying after a win, before it is noticed.
This is not a matter of labour discipline, but rather a societal shift in how disposable income is allocated. Money that historically circulated through restaurants, cinemas, and leisure is now circulating through gambling platforms, and restaurants, being discretionary spend, are the first casualty.
Why takeaways appear to be growing, but aren’t
Quick service and takeaway brands are reporting growth, but operators must understand the nuance. A 5% increase in turnover during high inflation is a decline in real terms. Consumers are not spending more on food; they are replacing dining experiences with caloric consumption. Instead of families dining out together and ordering drinks and dessert, we now see a single takeaway meal shared at home. While this may keep volumes steady, it erodes value across the broader hospitality ecosystem.
The margin squeeze
Restaurants are now caught between three immovable pressures:
- Guests resist menu increases
- Suppliers continue increases
- Labour costs cannot be reduced below operational minimums
This creates the classic hospitality trap. We are selling more work for less money, at higher risk. Many operators are maintaining standards, staffing levels, and trading hours purely to protect brand reputation, while absorbing reduced profitability.
The reality
The industry is not failing, but it is fragile. Currently, for most restaurants:
- Cash flow is tight
- Stock levels are kept lean
- Wastage is being aggressively reduced
- Management hours are being cut
- Maintenance is delayed
- Refurbishments are postponed
And critically, operators are now relying on peak days (Fridays, month-end, holidays, and events) to sustain revenue for entire weeks.
What this means for restaurateurs
Hospitality businesses are early indicators of economic stress because we depend entirely on discretionary income. Right now, the signals are clear. Consumer confidence is weak, and premium leisure spending is shrinking. Beverage revenue is collapsing, cost inflation is outpacing menu pricing, and disposable income is moving into non-hospitality digital platforms. We are no longer trading in a recovery environment. We are trading in a survival environment.
Right now, restaurants are surviving on sheer commitment rather than profits. Hospitality has always been, first and foremost, a people business. We employ more people per square metre than almost any other sector. Every shift feeds families, pays school fees, trains young staff into careers, and creates places where communities gather, celebrate milestones, and simply feel human again after long days and difficult times.
We know the hours are long, the margins thin, and the risks real, but we also know why we stay. We do it because restaurants matter. They are economic engines, social anchors, and training grounds all in one. The sector has weathered recessions, load-shedding, pandemics, and regulation before. Operators are, by nature, resilient entrepreneurs. We adapt menus, re-engineer costs, refine service models, and reinvent experiences – this is what hospitality does best.
As the old industry saying goes: People may postpone dining out, but they never stop needing places to come together. While this is undeniably a difficult trading cycle, it is not the end of the story. We will tighten, innovate, support one another, and continue serving – because we care about our staff and the communities built around our tables.
And as we always have, this industry will do what it has done time and again: We will survive, and then we will thrive.
