Last night as I was scrolling Instagram, I was hit with a post announcing that my favourite sauna would be closing. Effective immediately.

The Instagram post gave scant details, saying that despite being consistently booked, its financial pressures were insurmountable. How is it that a beloved business that is booked out almost every day across three locations can't make it work?

I woke up the next day to discover that Bluesfest, one of the most iconic events in Australia, would be making its 2025 festival the last. It's been running for 35 years. We can now officially add this national treasure to the long list of events we've had to say goodbye to.

Splendour in the Grass is gone. Falls Festival is out. Groovin the Moo is finished.

It's not just festivals and events either. It seems like every day we hear of the closure of another beloved restaurant. Eastern Suburbs institution The Unicorn Hotel is shutting its doors. Famed Tetsuya is shutting after 35 years in business. Even generational family-run operations like The Olive Jar in Melbourne are closing shop.

These closures aren't just due to a lack of popularity alone, we're also seeing the death of businesses that are booked almost every day and night. How does this happen?

 

Operational costs are too high - and pricing them in is more than what people can afford

It all comes down to (you guessed it) cost of living pressures.

You know those electricity bills or rents and mortgages that you can't afford? Businesses have to pay these costs too. And they're often higher than those shouldered by households.

On top of skyrocketing utilities and the cost of renting or mortgaging a premises, businesses have to pay for things like public liability insurance. And for some, insurance costs have doubled. Especially for events like festivals that happen outside. Extreme weather events (thanks to our old friend climate change) are more likely than ever, and insurance companies know this. They price in the cost of covering an adverse weather event across the board. It means public liability insurance is astronomical, but even things like simple contents insurance has increased drastically.

Then there's the cost of food. We all know the price of groceries is through the roof, and this obviously impacts restaurants and festivals (who need to pay food vendors) too.

With only a faint hint of interest rate cuts coming soon, business loans and mortgages are incredibly difficult to service at current rates.

What this means; in order for a business to cover all its costs and turn a profit, the goods and services they sell need to be priced at a certain level or a "fair" price. But with cost of living pressures the way they are and many people unable to pay their own basic bills, the "fair" price is one that consumers are not willing or able to pay.

Pricing your products or services "fairly" means you risk scaring away the few customers that actually are able to visit a restaurant now and then.

This leaves businesses with the option of trying to operate while charging a price that leaves them with only a thin margin, and makeup the gap by increasing volume. For example, some restaurants are mandating table time limits to increase the number of customers they can serve. But of course, when you operate with thin margins, it only takes one big bill or mishap to send your house of cards tumbling. The other option? Simply walk away and close outright.

 

Disposable income needs to change

Bluesfest Director Peter Noble said: “My greatest fear is what our live music industry is going to look like in a couple of years if we don’t get disposable income to a point where people will spend their money.”

We saw this earlier in the year when Splendour in the Grass was cancelled. When tickets went on sale, they were priced at around $450 for a GA ticket and $650 for a VIP - a cost that was likely indicative of high cost of insurance and the astronomical cost of paying international artists to attend when the buying power of the Australian dollar is at an all time low.

Unfortunately, the price of the tickets was too high for the average festival goer, with many taking to social media to vent frustrations about being unable to afford the cost. The result? Ticket sales were lacklustre, meaning there was little chance of covering cost and the festival was unable to proceed.

I went to Coachella in 2017, and the price for that 3-day festival was $500 US for general admission - a much higher price when you adjust for inflation and the exchange rate. And let me tell you, the festival was full, with plenty of international attendees.

People are indeed willing to pay the money required to attend an event. But the cost of living compared to incomes is strangling our ability to be able to afford anything except our bills.

And that is partially by design.

 

The Reserve Bank is keeping interest rates high

The real kicker? The current strategy behind Australia's monetary policy is designed to keep disposable income low. The Reserve Bank does not want excessive spending of disposable income on anything beyond the essentials; in an effort to quell demand and tamper inflation.

The RBA raised interest rates to a 12-year high of 4.35% and has left them sitting there with no reprieve since November 2023.

The result? The average household with a home loan is spending half of their income (47%) on their mortgage alone. It's not a pretty picture looking at renters either, half of renters report spending 30% or more of their income on rent (often a flow on affect from high mortgage rates).

The goal is drive down spending in the economy to encourage businesses to drop inflated prices to a manageable level. And while we can see in recent economic data that spending is way down and retail business have indeed been dropping prices to keep their customers - often to prices the businesses cannot sustain - it's service providers like utilities, insurance, healthcare and petrol that are keeping their prices high, thus propping up inflation.

We're at a stalemate: spending in the economy is at a low, but the prices of service essentials just won't drop.

 

Patron the businesses you care about

So what can we do? Unfortunately, not a whole lot.

If you can, patron the businesses that you care about. The ones you don't want to see a sad Instagram post from. Cost of living is keeping many of us in a chokehold, so we can't all freely dine out or shop like we used to. But if you are heading out for a celebration or occasion, think carefully about who you're giving your money to.

Don't shop at Temu or Amazon or eat at a global chain restaurant. Your money is so much more appreciated by a local business who could use all the help they can get right now.

Maybe the birthday present you ask for from your parents is concert tickets rather than another handbag? Maybe your anniversary dinner with your partner could be at the newly-opened small plates restaurant than at a restaurant that is part of a big chain?

We can also continue to put pressure on the Government and the ACCC to legislate against anti-competitive behaviour. Like the price-gouging allegedly being perpetrated by our national supermarket duopoly. Or the huge profits recorded by the insurance industry who claim that their price increases are due to increased costs. Increasing competition and ending anti-competitive behaviour helps to bring down inflated prices, returning disposable income to our pockets. You can write letters to the ACCC, or even share articles calling out anti-competitive behaviour with your friends or on social media.

It all helps.

 

Image: Splendour in the Grass