Why a piece of bread, half an avocado and crumbs of feta costs $16

Wed, 08 Feb 2017  |  

This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/why-a-piece-of-bread-half-an-avocado-and-a-few-crumbs-of-feta-costs-16-045746860.html 

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Why a piece of bread, half an avocado and crumbs of feta costs $16

Have millennials trimmed their spending on smashed avocado brunches and other food indulgences and started saving for a house?

No one can be sure, but there might some tentative evidence that the smashed avocado debate of last year had some influence on consumption patterns and not just away from smashed avocadoes, but overall spending in restaurants and on takeaway food.

The retail sales data shows that spending in cafes, restaurants and take-away food shops has dropped in recent months. In October last year, when the smashed avocado debate reached its pinnacle, spending in cafes, restaurant and on takeaway reached a record high $3.6383 billion.

In November, spending was $36.6 million lower than this peak, while December spending was still down $30.7 million from the October high. Something was happening in this segment of retail trade.

This weakness was not the result of some overall, broadly based weakness in consumer demand – retail spending outside cafes and restaurants jumped $74.8 million in November and in December was still $48 million higher than in October. The economy continued to trundle along, with retail sales growing at a moderate pace.

There was something specific to cafes and restaurants in those two months that could otherwise explain the spending decline. It could be the community acknowledging that some financial sacrifices are needed if people are ever going to be ever able to afford their first house.

Eating out and buying takeaway coffee is really nice, which probably explains why so many people do it. But as I wrote in my 2015 book, Myth Busting Economics, when you go to a café or a restaurant, that $50 you spend for two people includes the cost of the labour of the chef and waiter, the rent of the café, the electricity in the coffee machine and blender, the businesses insurance, the interest on the overdraft, the plates, the cups, the tables and chairs and cost of cleaning the shop plus a lot more.

And of course, the café owner needs to add in a margin for profit so they can pay themselves a wage. This is why the 30 or 40 cents of inputs into a cup of coffee turn into a selling price of $3.50 or more and why a piece of bread, half an avocado and a few crumbs of feta, which would probably cost $4 or so at the local supermarket, is marked up to $16, $18 or even $20.

The key issue on housing affordability remains saving for the deposit. Once people have a loan and buy a house, affordability is currently very favourable – low interest rates are a huge benefit for new mortgage holders even with a large loan. Saving a deposit for a house, for a given income, means, by definition, spending less today, saving more today, so that a deposit can be accumulated.

Sure, it is difficult to save and not much fun, but for anyone who wants to buy a house, saving the required deposit means spending less elsewhere.

Maybe people are starting to do that and are trimming their spending on eating out. Let’s wait for the next few months of retail sales data to see whether this continues.

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This article first appeared on the Yahoo Finance web site at this link: https://au.finance.yahoo.com/news/the-governments-test-in-2020-220310427.html   

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