Café-Nomics in Hard Times

Life behind the café counter, post GFC

by Gordon Campbell

The thought of owning and running a café is one of the more alluring ways of making a living and/or losing your money. Honey, lets jump off the competitive mousewheel and get ourselves a little place that serves healthy food and great coffee, and it’ll be fun and it’ll be ours and we’ll meet some great people. We’ll get in a flamenco guitarist on Sunday night and…hey, maybe we could put a Spanish-themed menu on that night, you know? It’ll be so neat.

OK, and here’s the reality check. A story on Slate a few years ago offered a rough economic breakdown that showed just how hard-headed café-owners have had to be in order to survive, even when people still had jobs and money to spend. Rent, according to this ancient formula, will soak up 25 cent of your turnover, another 25 percent will go in paying your staff and approximately 35 percent into the cost of buying and making what you sell. What’s left – about 15 percent if you’re very lucky and/or hard assed – will be what you and your honey get to live on. Slate also put that same equation in an even harsher light. If you can’t make your monthly rent in four days trading you won’t turn a profit, and if you can’t hit that figure in a week you won’t break even. Thus, if you’re not hitting those marks after a month, you should close down.

David George, of the Lido café in Wellington, has been making those sort of equations pan out for him, his staff and his customers for 22 years now – from the onset of the early 90s café scene, through to the leaner, meaner times of late. The Lido, which seats 60 when full, has evolved into a solid, dependable part of Wellington café life – blessed by its location (close to the Library, Town Hall, Civic Centre etc) and by its architecture. It sits on a curving corner where cars need to slow down, reducing ambient noise. The Art Deco building‘s curved shape and naturally lit interior has made it a gathering point for boomers rich and poor, ever since the age of espresso began to displace the old Cona machines. It’s a comfortable, light-filled place. “We get a lot of people on their own,” George says. “They can prop themselves up at the bar and get a view of what’s happening on the street.” George declined to divulge his current cost breakdowns, other than to drily observe that “your 15% by way of profit is somewhat generous in the current climate.”

>For him, running a cafe wasn’t an obvious vocation. George was 39 when he opened the doors at the Lido. Prior to that, he’d spent four years in his 30s working on a law degree, and picked up experience within pioneering café outlets like City Limits, and ran De Luxe for twelve months. It was an era of limited competition and larger than life figures like Geoff Marsland, Tim Rose, and Craig Miller – all of whom are still players in a vastly different cafe environment.

No, George says, its not so much that the depressed economy and the cutbacks in the public service have decimated the clientele. “We still have larger numbers of people coming in, but they’re spending less.” Some days lately, the café will be nearly full, but the kitchen will be barely ticking over. At other times – when the World Of Wearable Art show was recently in town – people spend as if it’s the early 1990s again. It has changed, though. Back when he first opened…during the lunch hours, all tables were for the exclusive use of people actually lunching. “Nowadays of course, if all you want is a coffee, take a seat.”

Coffee remains an important profit centre for him, but the margins on coffee have shrunk and so has the volume sold. “When we opened here, we probably sold twice as much coffee as we do these days, and the margins were better.” By his reckoning, there used to be a 300% mark-up on coffee. “The food was an adjunct really to the coffee, and we didn’t concern ourselves with making too much money from it,” but the profit margin on coffee has halved, he figures, once you factor in the current price of milk.

Most of the tightening, he believes, is due simply to the explosive growth in the number of cafes. At the same time, the café work force has changed. Back in the 1990s, waiting on tables was a fleeting, minimum wage thing you did to sustain life while at university or drama school, when the minimum wage was only $8-8.50 an hour. Now, George says, it’s considered a desirable job in the hospitality sector and people often stay at it for years… and their wages go up accordingly. He runs 13 shifts of 3 people in the kitchen and 2 to 5 in front of house, and employs more than 20 people, overall.

Like most cafes, the Lido offers counter food – of a range and at a price calibrated so as not to displace items on the menu that make more of a contribution to the turnover. By George’s reckoning, counter food is 5-7% of his overall turnover, with 50% being take-away sales. A bowl of chips has been a perennial Lido offering – and the price has risen to ensure it doesn’t negatively affect other menu options. On average, the café goes through 150 kgs of potatoes a week, a figure that’s been constant for the past 20 years.

George still rents the Lido space, in the bottom floor of the curvilinear Racing Conference building, an Art Deco oddity built in 1961. The reverberations from the Christchurch earthquake are still being felt at the Lido, in a variety of ways. In May, the Dom-Post carried a dire story about the state of the building:

The Racing Conference Building on Victoria St is home to the Lido Cafe, which opened in 1990. Opus International Consultants carried out a seismic assessment of the building. The Dominion Post has obtained a copy of the report, which found it was below 33 per cent of the new building standard.

“This means that the risk of collapse is up to 20 times higher than that of a building at the same site built to the current code. There are also elements of the building that will not perform in a ductile manner and could lead to catastrophic collapse,” the report said. The report found the building’s floor slabs and columns were not designed to resist seismic forces.

The building has been yellow stickered accordingly – one of about 470 buildings in the city confirmed as earthquake-prone, which means they rate at less than 34 per cent compliance with the building code. Most yellow stickered buildings, such as the Racing Conference Building and St Mary of the Angels church in Boulcott St, have been given a remarkably compassionate 15 years grace to do their strengthening, and come up to scratch. Beyond the obvious concerns, George feels that once the developers have paid to ensure that Wellington’s publicly used buildings are safe from earthquakes, they will be seeking to recoup those costs. Cafes, rosily perceived from bygone days as being a cash cow, may be expected to bear the brunt of it.

Dazed and Confused.

The customers? It is much the same eclectic mix as always, weighted towards an older crowd. Not only do current 18-30s have less disposable income than they used to, they have other café options. Places like the Matterhorn, George suggests, cater for that younger, more sophisticated group, really. “ Not that the people who come here lack sophistication, but its not as sort of…groovy.” He uses the archaism deliberately. Always more in its groove than groovy, the Lido soldiers on, regardless.