The latest January Business Risk Index from credit reporting agency CreditorWatch paints a grim picture for Australia’s cafes and restaurants.
The report found that 10.4 per cent of food service businesses closed over the past year, the highest rate of any industry and double the economy-wide average. However, while pubs, clubs and bars are also closing at above-average rates, they are proving far more resilient, with annual failure rates closer to 8 per cent due to stronger cash flows and asset backing.
The contrast is also noticeable in the overdue invoice data. While business-to-business invoices overdue by more than 60 days jumped to 12.4 per cent in food service, pubs and clubs have maintained much lower delinquency levels of 3.1 per cent.
CreditorWatch CEO Patrick Coghlan commented, “Asset‑backed pubs and clubs are holding firm, but cafés and restaurants are operating on razor‑thin margins with very little room for error. When overdue invoices in food service are running at more than double the national average, that’s not cyclical noise – it’s sustained financial stress.”
Smaller food service operators are particularly vulnerable, with many accumulating trade payment arrears and tax debt. Formal insolvencies in food service jumped sharply over the past year, surpassing pre-pandemic levels.
While policy measures such as easing inflation or targeted support could eventually relieve some cost pressures, CreditorWatch has warned that hospitality remains Australia’s standout high-risk sector and further closures are likely without a lift in discretionary spending.
Pressures facing cafes and restaurants
CreditorWatch also noted that cafes, restaurants, and takeaway outlets face intense pressure due to a combination of rising operating costs and subdued consumer spending. This has been compounded by rising wages, sharp rent increases, food prices rising 7.5 per cent over the past year due to supply chain disruptions, extreme weather, and electricity costs, and by accumulated high debt in the wake of the Covid-19 pandemic, while having only limited access to credit.
Softening consumer demand is compounding these pressures. With real wages under strain and interest rates higher, households are trimming discretionary spending. Retail data shows café and restaurant turnover has remained largely flat since early 2023, as Australians dine out less often and spend less per visit.
There have been some exceptions. Liquor-focused venues have fared better, benefiting from higher beverage margins and less exposure to volatile fresh food prices.
“This is less about a sudden collapse and more about an extended squeeze,” Coghlan said. “Businesses without pricing power, diversified revenue or cash reserves are being exposed, and the pressure has been building for months.”
Broader economy shows renewed strain
CreditorWatch found that while insolvencies across the Australian economy eased through much of last year, thanks to income tax cuts and interest rate reductions, the trend was optimistic as the year ended with 1366 insolvencies recorded in December, the third-highest monthly figure on record.
CreditorWatch data noted that insolvency risk rises sharply once businesses begin defaulting on invoices or accumulate ATO tax debt of $100,000 or more. Trade payment and tax defaults improved early in 2025 before deteriorating later in the year, with January figures close to previous highs.
CreditorWatch chief economist Ivan Colhoun stated that the outlook for this year remains challenging, citing global geopolitical uncertainty, cost-of-living pressures and uneven sectoral recovery.
“While unemployment remains low, households are still under significant financial strain,” Colhoun said. “As a result, business conditions are likely to remain difficult, and insolvencies are expected to stay elevated or rise slightly over the year ahead.”
This article was first published on sibling website Inside Small Business.
