Sydney's Hospitality Sector Is in the Throes of Its Most Challenging Era Ever — Here's How the Industry Is Fighting Back

Sat in the newly minted fitout of a recently opened venue, the afterglow of a successful launch still buzzing in the air, talk of imminent closure seems needlessly pessimistic. It's a Wednesday night and the bar I'm in is more than half full with lively punters chatting, laughing, sipping cocktails — a respectable midweek crowd. And yet, such a turnout is far from a certainty, David Spanton, owner of Kings Cross oyster joint The Hook, tells me.

"Someone who might have gone out three nights a week is now going out just once a week. And if the weather's bad or there's a festival on, that makes a dent in the number of people we see too," explains Spanton, who also operates Potts Point classics Piccolo Bar and Vermuteria. "Everyone's still going out at the weekend — Fridays and Saturdays are still generally strong. But you can't run a business on just two decent days. This is the worst I've seen things in my 25 years working in hospo and certainly in the five years I've been running businesses. The industry is on the edge — you can have an extra-quiet Wednesday and then it rains on the Saturday, and you're finished."

David Spanton

Since the beginning of 2024, Sydney has lost an alarming number of hospitality venues of every scale. Beloved community institutions like Cornersmith in Annandale, Donut Papi in Darlinghurst and The Unicorn Hotel in Paddington; high-profile operations like Kylie Kwong's Lucky Kwong and Matt Whiley's Re, both in South Eveleigh, Josh Niland's fast-casual concept Charcoal Fish in Rose Bay and Maybe Group's Sammy Jnr in the CBD; revered stalwarts like Bentley Group's multi-award-winning Cirrus and the 35-year-old Tetsuyas; and much-lauded newcomers like Raja in Potts Point, have all succumbed to a closure crisis driven by the city's soaring living costs.

This is not the first time Australia's hospitality industry has suffered a drop in consumer spending. Our dining scene has had plenty of experience weathering economic headwinds in the past, most recently during the COVID-19 pandemic shutdowns and the gruelling periods of trading restrictions that followed, but also during recessions in the 1990s and a decade later during the Global Financial Crisis. Throughout those fiscally fraught moments, restaurants, cafes, pubs and bars were among the first business casualties, but the shocking rate at which hospitality ventures are shuttering today sets the present moment apart.

The hospitality crash is by no means contained to Sydney — the rate of insolvencies for hospitality venues nationwide is at a five-year high, according to financial reporting bureau CreditorWatch. Another of its forecasts grimly predicts that as many as one in 13 hospitality businesses in Australia could go under within the next year — a sobering 5000 venues across the country. However, the breadth and stature of the businesses failing in Sydney is unmatched. 

The Race to the Bottom

The challenges facing Sydney's hospitality operators might appear straightforward enough: soaring interest rates have forced consumers to tighten their belts and when discretionary spending begins to shrink, luxuries like dining out are typically the first expenses cut. Such a seemingly simple problem might imply an equally simple solution, but as Spanton points out, the reality is far more complex.

"It's not just hitting consumers — our costs are higher too. Rent is higher, wages are higher, produce is more expensive. We have to be so careful with the way we operate to make sure our costs are in line and that wages are in line, while we also try to make sure we're delivering the best product possible. You just can't get into a situation where you're playing catch-up for a bad week, trying to make it up the following week.

"We understand that when people go out they are looking to spend less, but you end up in a situation where venues are in this race to the bottom — and that's not great and it's not sustainable. Ultimately, it hammers quality of experience and your customers' confidence in what you do as a venue."

Notwithstanding the risk of eroding customer satisfaction, merely slashing overheads is unlikely to be enough to stave off the threat of closure for most Sydney establishments. Where the current crisis differs from previous moments of economic uncertainty is the confluence of compounding factors — financial, behavioural, generational and environmental — whipping up a perfect storm that is proving increasingly difficult to endure.

While lockdowns are now a distant memory for most business owners, the more insidious impacts of the COVID-19 pandemic continue to put the hospitality sector under pressure. For example, in the CBD, the WFH revolution that took root during the lockdown era has gutted the influx of white-collar workers coming into the city which has in turn impacted takings at inner-city venues formerly reliant on the lunchtime and after-work crowd. 

Nick White | Daryl Kong

"The whole model has shifted so much," Nick White, owner of YCK Laneways small bar stalwart Since I Left You, shares. "Fridays were always when we made our money. Really reliably, every Friday, by 5.30pm we'd be at capacity. Now we don't get anywhere near that until at least 7.30–8pm, and sometimes not even then. The whole culture of after-work drinks has just seemingly dried up." 

Another unforeseen pandemic hangover is Gen Z's diminished interest in traditional nightlife, as documented in a World Finance report that found Gen Z'ders on average consume 20 per cent less alcohol than Millennials. A rise in conscious consumption combined with the pandemic restrictions that forced this generation into isolation at an age when they would typically be partying has seen non-alcohol-centric activities replacing an evening out in a bar or a pub. 

Ironically, one of the brightest silver linings of the pandemic's immediate aftermath has now turned into one of the greatest challenges faced by long-established venues. Two years on, the surge in openings driven by the enthusiasm for dining out that followed the lifting of stay-at-home orders has barely slowed despite the economic downturn, with businesses banking on Sydneysiders' near-Pavlovian response to the word "new" to ensure success. Meanwhile, existing venues have struggled to hold onto punters whose dwindling going-out budgets have been reserved for the latest openings. 

Add to these issues Sydney's skyrocketing rental market — the nation's most expensive, which set a new all-time-high median price of $750 per week in 2024, according to Domain's annual Rental Report — plus extreme weather conditions impacting al fresco dining and the cost of climate-sensitive fresh produce, and the uniquely multi-layered conundrum facing Sydney's service industry comes into focus. 

Helping the Bottom Line

Much as they did during the pandemic, hospitality businesses are now searching for solutions to this knot of challenges. Some operators are even innovating opportunities to reduce overheads that not only avoid compromising their offering but also deliver benefits beyond mere cost-cutting.

YCK Laneways — a cooperative of 23 service, entertainment and accommodation businesses spread over York, Clarence and Kent Streets in the CBD — is working with another similar business cohort in Surry Hills at Hollywood Quarter, supported by the City of Sydney, to develop more eco-minded operations that can save money as well as the enviroment. 

"The goal is to create a framework that businesses can follow to make themselves more environmentally sustainable. But obviously that only works and people are only ever going to adopt it if it also means helping the bottom line as well," Nick White of SILY shares. Amongst the green initiatives being explored are plans to centralise food prep and waste management. "There's a lot of things that all of the venues do that punters probably never even think about. Like juicing limes and lemons. There's a huge amount of waste from that that generally doesn't get properly sorted and if you're paying a bar manager to spend hours doing that kind of task, it isn't really financially sustainable," White adds. 

Centralising this type of common prep to service multiple businesses through one production space also creates opportunities for expanding the hospitality workforce, White says: "Whether it's people living with disability, refugees or young people, this type of program can employ these folks and bring them into the industry with lots of opportunity to progress."

(L–R) Rebecca and Rosie O'Shea

A boom in happy hours and meal deals across Sydney has also gone some way to coaxing back consumers. Some operators are going a step further, making bolt-on bargains a cornerstone of their business. Sisters Rosie and Rebecca O'Shea, who co-own Bar Nina in Darlinghurst and Arms Length in Potts Point, have leant into a broad-spectrum day-to-night concept at both venues, offering breakfast, brunch, lunch, dinner, nightcaps and late-night eats to capture the widest possible range of punters, with bottomless deals that diners can choose to add to their order at any point available throughout the day.

"I feel like we've 98 per cent perfected the art of bottomless," Rebecca says. "At Bar Nina in particular, we have a very loyal clientele that come back for our bottomless deals time and time again, whether that's for a birthday or celebrating a hen's or whatever. I think the key factor is, that people want to have a good time without worrying about their wallet. Here, they know the price they're going to pay upfront, so they can relax."

A few doors down from Arms Length on Kellett Street, Teddy is similarly tooled to meet the current economic moment, but this wasn't always the case for this site. Hospitality duo Nick and Kirk Mathews-Bowden opened mod-Indian fine diner Raja at the same address in July 2023 to much critical acclaim. Yet despite these plaudits and even a handful of Best New Restaurant gongs, a dearth of customers forced the Mathews-Bowdens to close Raja in May 2024, less than a year after its launch. 

"We put a lot of creativity and heart into making a venue that three or four years ago would have really thrived, but things changed very quickly — that was quite a rude awakening for us," Kirk says. "We opened Raja in the most challenging market we've ever seen and we've been in this industry for 20 years. The venue just wasn't right for the current market and it's disappointing that we had to close but at the same time, we feel incredibly lucky that we get the chance to try again."

(L–R) Kirk and Nick Mathews-Bowden

Rather than letting Raja's failure defeat them, Kirk and Nick rapidly developed a new concept — one that fit perfectly with the new normal of Sydney's dining scene. Teddy is a kitsch, laidback, nostalgia-fuelled neighbourhood diner and bar with an affordable offering, generous daily happy hours and a relaxed vibe that diners can return to regularly without blowing their budget. 

"It's quite rare in this industry to get another bite of the apple," Nick adds. "Closing Raja when we did gave us the chance to collect ourselves, reflect and really make peace with the fact that we can't control the market that we're playing in but we can control our actions within that market."

Reinventing a venue's offering has been a similarly successful tactic for several other Sydney business owners. These include Bentley Group's Nick Hilderbrandt and Brent Savage, whose CBD stalwart Monopole was transformed from a pan-European wine bar into a classical French restaurant in June, and brother-sister team Kenneth Rodrigueza and Karen Rodrigueza-Labuni, who closed down their popular Filipino bakery Donut Papi in July, relaunching in September as House of Papi, a broader-spectrum meryenda concept showcasing Filipino flavours beyond merely the sweet. The power of this strategy is twofold, not only allowing businesses to tailor their overheads to fit with customer demand but also tapping the reliably attention-grabbing hype of bringing something new to Sydney diners. 

Getting to the Other Side

Revered chef and restaurateur Neil Perry is also navigating the choppy waters of Sydneys dining decline, having recently opened two new ventures in Double Bay: Song Bird, a sprawling three-storey Cantonese fine diner and chic basement martini lounge Bobbie's. However, the hospitality veteran is no stranger to operating restaurants in less-than-ideal economic conditions. 

"Developing an idea for a new restaurant can take two to three years of planning and of course, you never plan to open in economically difficult times. I didn't plan to open Rockpool in the middle of a recession in 89 and I didn't plan to open Spice Temple during the GFC, or for COVID to close Margaret on the day we were supposed to open. But these things happen and it's how you respond to those challenges that counts," Perry says. "As a business owner, you've got to be prepared for some level of uncertainty. It comes down to playing the conditions in front of you — start the restaurant and figure out what your niche is, why people are going to come back and how you're going to keep up some level of continuity and consistency of business so that you can flourish and function. Then, when you do get to the other side of the crisis and times are good again, you're in a great position to be able to take advantage of that.​​"

Neil Perry | Petrina Tinslay

With more than three decades of experience at his back, Perry has seen similar periods of turbulence come and go, but he also believes that diners need to play a key role in supporting a vibrant dining scene through tough times. 

"Without diners, we're nothing," he explains. "Whether it's having a coffee and a baguette in the morning or a bite before going to a movie or splashing out on a great celebration and a fantastic meal at a brilliant restaurant, diners need to remain supportive of the hospitality industry if they want it to survive. 

"It's then our responsibility, as restaurant operators, to make sure that when people do go out and they spend their hard-earned money, that they feel good about that decision. When guests dine with us we want to create a great memory for them and a great experience so that they feel like it's a night they're going to remember for a long time and that they can't wait to come back. That's what we have to leave people with every time they engage with us."

Top image: Christopher Pearce