Hospitality businesses in Warragul are hopeful the modest cut in interest rates yesterday will filter down to their cash registers, but there is pragmatism about whether it will lead to a quick spike in profits.

The Reserve Bank of Australia (RBA) cut the official cash rate by 0.25 percent, from 4.35 percent to 4.1 percent. It was the first ray of sunshine in a long time for mortgage holders, who had endured 13 RBA rate hikes between May 2022 and November 2023.

Sweet treat sales suffer as belts tighten

Trevor and Tracey at Koffee Central have owned and operated cafes in Gippsland for over 20 years. 

“The pressure has been there for over 12 months,” Trevor said. “People won’t buy biscuits, they won’t buy muffins, they won’t buy cupcakes - but they’ll buy coffee.”

He said they should be charging more for coffee, but that keeping prices down “helps bring people back”.

Someone with a $600,000 loan will have a reduction of around $100 per month on their  repayment. All four major banks (Westpac, NAB, CBA and ANZ) moved quickly to pass on the RBA cuts to consumers.

Trevor is doubtful that the mortgage relief will make much of a difference to the cafe’s bottom line.

“People won’t go out and spend the extra money,” he said.

Perfect storm as owners face multiple hikes

Leea Dent and her partner run Frankie's cafe on the corner of Palmerston and Victoria Street in the heart of Warragul. 

“Being busy doesn’t always relate to profit,” Leea said. “It’s not just because the cost of produce is going up, it’s also increased wages and the increased cost of deliveries, especially to regional areas, going up drastically.”

Although increased wages make it harder for businesses to run at a profit, Leea knows her employees are also feeling the pinch. “We see more staff these days that have multiple jobs because they’re trying to get by,” she said.

While a lot of cafes and restaurants close on public holidays due to the increased labour costs, Frankie’s is open, so people have a place to eat and staff can make extra wages.

Treasurer Jim Chalmers described the cut as “the rate relief Australians need and deserve”.

He acknowledged “it won't fix any and every challenge we have in our economy and household budgets” but said it “will help”.

Where do we find a profit?

Trevor is not so sure. With a 2.5 percent increase in his rent, and the potential for another increase in wages in July, he is feeling the squeeze.

“It used to be that you would make almost no money on food and almost all of your money on coffee. Now that wages and the price of coffee beans have increased there is no money in food and no money in coffee.”