Victorian family businesses at risk amidst rising operating costs

Credit: Ruta Alai

The Reserve Bank of Australia’s decision to increase the official cash rate to 4.1 per cent aims to combat the growing economic and geopolitical pressures that are being felt by the whole nation.

However, as borrowing costs increase, family businesses have found themselves swimming in the deep end of increased operating costs and drowning amongst larger corporations who have networks to fall back on.

Mark Gibbs, owner and co-founder of the Melbourne-based Gibbs Bakehouse, has been forced to make the tough decision of closing the doors to his business after only two and a half years.

“There’s a disconnect between rent, advertising and everything else,” Mark said. 

As a small business located in the rapidly growing outer north, Mark said that one of the main reasons behind the closure decision of Gibbs Bakehouse was the lack of advertisement that they received. 

“We don’t have a head office that does all our advertising, makes all our products and ships it out to us,” Mark said. “We still struggle to compete because we don’t have that networking chain behind us.”

This sentiment was reflected by Queen Victoria Market’s CEO, Matt Elliott, who said the biggest challenge small businesses face in competing against larger corporations is visibility. 

“Big retailers have enormous marketing budgets,” Matt said. “Traders at our market can’t match that reach on their own.”

Andre Conate, founder of Victorian Small Business Network, said many small businesses struggle to have marketing capabilities in order to be competitive online.

According to Andre, small businesses often find it hard to justify marketing teams when staff are limited to fewer than twenty employees. 

“It's just a lot of expenses and it's easier for big businesses to have a team to be able to do that,” she said. 

In opening their small business back in 2023, Mark and his wife operated the store independently with a limited number of staff, but were driven by a desire to fulfil their dream of baking bread that people loved. 

“I was in it for the passion,” Mark said.

While, Business Victoria noted that in the last five years business investment across the state has risen more than 30 per cent, with business conditions seeing improvement due to economic activity strengthening. 

Mark and his wife are experiencing a different story. 

“I can’t make a block loaf that you can charge $2.64,” Mark said. “It’s not viable for me.”

Mark noted that in competing with large corporations, Gibbs Bakehouse was no match in terms of price, and could only maintain competitiveness through the quality of their products.

However, he notes that there is no real way to beat a big corporation in terms of cost increases, because they can afford to lose money, while smaller businesses can not. 

The latest data from the Australian Bureau of Statistics found that in the past year the Consumer Price Index rose to 4.6 per cent, sitting above the Reserve Bank of Australia’s predicted 2-3 per cent target band. 

In a conversation with Business Victoria, Economist Devika Shivadekar said that operating costs such as rent, insurance and purchasing costs will cause small businesses to operate with higher costs than many would have had five years ago. 

Mark noted that many small businesses are feeling the pinch in regards to rent, where the operating cost ends up consuming the majority of small businesses’ monthly takings, fueling an unsustainable way of doing business.

“Rent doesn’t come down, but then sales do,” he said, “and we can’t lose 50 per cent right off the bat, and then have to pay wages.”

Andre Conate echoed this same notion, indicating that many small business owners worry about having to pay employees, especially when other large corporations promise more pay.

“It hurts because all that time you've been training someone and they go off and then they take those skills elsewhere,” Andre said.

For Mark Gibbs, who has been a baker for 25 years, the closure of his business means something more personal than just the surface-level of competition against larger corporations.

“I have to go back baking for somebody else until I decide what my next step is,” Mark said. 

“What's my identity going to be for the next five years?”

While Mark notes that Gibbs Bakehouse will shut down, the rental debt that his family will be left with, will not.

“It would essentially put me five or 10 years behind,” Mark said.

Gibbs Bakehouse has now streamlined their trading hours since the decision, helping to alleviate wage and rental cost pressure for the owners. 

As Mark and his wife await for another tenant to take over the lease of their brick and mortar, Mark said it feels like he is taking the collar off of himself – a collar that has been tying him down.

He noted that the rise of rental pressure and lack of advertisement will automatically handcuff the next small business owner to the very building he is stuck in. 

“I’m just trying to stop the bleeding until they can find somebody to come in and take on the store.”