Simple number crunching exposes the reality of Australias chef shortage

Justin Browne, managing director of Edupi, hospitality immigration specialists, analyses a medium sized restaurant's financials to shed light on the real reason why the industry is looking overseas to fill vacancies.

Edupi currently represent about 250 businesses that sponsor chefs from overseas. We have to set these businesses up as sponsors, and in doing so, we have access to their financial reports. This allows us to get a good feel for how the industry is doing in its various sectors.

Let’s concentrate on a typical medium sized restaurant (reflecting a reasonable percentage of our clients), which has 180 seats and trades seven days for lunch and dinner in Sydney. Its annual costs look something like this:

• Gross Turnover: $3,049,202
• Cost of Sales: $1,945,243 (includes labour of $998,380)
• Operating Expenses: $540,027
• Admin: $23,146
• Rent: $224,529
• Gen Expense (dep): $74,966
• Operating Profit: $241,075
• Net Profit (after tax): $166,091

This is a lean machine running on industry averages, but the two owners are easily putting in 65 hours a week to make this happen. That equates to $83,045 each at an hourly rate of $24 per hour. Without discussing the worth of the venture, needless to say I don’t think anyone could argue $24 per hour is a fat cat salary.

My point is, if we are to pay chefs more money, where does that money come from? If you take any more money from the owners, then they have to shut up shop. That is then 36 young people, in this example, looking for employment. If you raise the prices will you lose diners? Probably. Sydney is already very expensive for a restaurant meal so there isn’t really any room to grow there.

Can you lower operating costs? The restaurant above is part of a franchise and already has very good deals on nearly everything they purchase and as I stated, they run a tight ship. Another problem is there are so many moving parts to a restaurant and a lot of statutory compliance that they deal with every day, making cost cutting difficult whilst still meeting WHS and food safety standards.

This business employed two apprentices for this period and paid them above award rates. However, due to the penalty rate structure the kitchen hands regularly made more money than the apprentices and the relatively low skilled wait staff could make the apprentices’ wage just by working two spilt 10 hour shifts on a Saturday and Sunday (which were the only days they were available).

It is interesting that the current penalty rate and wage structure is unfairly biased towards people who can only work a limited roster, have no interest in pursuing a career in hospitality and at the end of the day see it as a means to an end. If you have a look at the table below we can compare an apprentice through their work cycle with a food and beverage attendant under the Restaurant Industry Award 2010 on their minimum full time hourly rate.

The apprentice never catches up with the waiter. A third year apprentice is a valuable team member. They are still learning but they have mastered the basics and they are highly productive. A grade three waiter is your standard waiter who does not have any administrative duties or supervisory responsibility. They wait tables and greet and seat. Yes, they have to up-sell and the good ones are fantastic, but I still don’t believe they add anywhere near the same value as the third  year apprentice.

Another issue that has been raised is that kitchens don’t hire apprentices. Whilst it is true that there are many kitchens that have just given up, a quick look on SEEK today shows 2,504 jobs for chefs and cooks in total with 218 of those being for apprentices, so around nine percent. Compare that to electricians there are 850 jobs with 109 apprentices, or 12 percent. That is not a big difference when you take into account that chef advertisements are 340 percent higher than electricians. If you also consider that a lot of kitchens have just given up trying to attract apprentices that figure is probably a lot higher.

Where the real problem arises is the average weekly earnings for a qualified chef. In the scenario above, a qualified chef’s weekly salary is $950 per week as opposed to the electrician on $1,415 per week according to the government’s Job Outlook resource. It is no surprise that there is a shortage of local talent when you look at the outcome after you are qualified.

So what is the solution? Probably less restaurants is a good start, but then everyone thinks that they can run a good restaurant. Many will leach customers away from other established businesses for six months or so, work out they are never going to get a return on their investment and either default the lease or go into administration leaving suppliers out of pocket and staff without jobs.

Pubs don’t have it quite as hard because many have poker machines that can subsidise the $10 steak and so they can afford to pay a little more than their restaurant counterparts. Similarly, large restaurant groups can move staff around and tend to have better control over costs so can also afford to pay reasonably well. It will be sad though when the small well run suburban restaurant that everyone loves can no longer afford to compete with the bigger operators and we end up with a generic product much like has happened in the States.

What is clear is that the current scenario is not sustainable. If penalty rates and apprentice wages are not addressed in a rational and sensible way, the problem is not going to go away. The reliance on international chefs will be here for a while, but there is also a risk of the government increasing the minimum salary for all 457 visas anywhere from $57-$60K in the coming months. This would place a massive burden on an industry that has no short term choice but to use overseas chefs to fill the gaps. It would also potentially lead to many businesses either dumbing down their product or closing the business altogether.

Hopefully the current debate may find some creative solutions, but in the meantime I urge all parties to think about what’s been discussed here before blaming the restaurateur for making too much money.