Finance Consumer Australia’s love for coffee turning into a much-needed economic pick-me-up

Australia’s love for coffee turning into a much-needed economic pick-me-up

Coffee shops are helping Australia's economy.
Australians love coffee, and their taste for it is helping the economy. Photo: The New Daily
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Australians are braving trips out of their homes for a good cup of coffee – and it appears to be driving the start of an economic recovery.

The ABS’ preliminary retail turnover data for July shows Australians outside of Victoria have swiftly returned to cafes and restaurants.

Spending at these establishments helped lift overall retail turnover by 3.3 per cent for the month, supported by ongoing strength in household goods spending and an increase in clothing sales.

And although this data predates the worst of Melbourne’s stage 4 lockdowns, BIS Oxford Economics chief economist Dr Sarah Hunter said it shows the green shoots of a recovery.

Much of that is attributable to spending on household goods, which increased as Australians began to ‘cocoon’ themselves at home amid the lockdowns.

Money normally spent on holidays and going out was instead directed to DIY projects or updating home offices and entertainment areas.

“But we’re also seeing a bit more of a recovery in that cafes and restaurants category. People are generally getting more comfortable going out and eating out,” Dr Hunter told The New Daily. 

Cafe spending appears to have increased in July. Photo: Getty

In Victoria – where Sydneysider Dr Hunter controversially said the best coffee is made – things are less promising due to ongoing lockdowns.

And this will undoubtedly look worse in the August data when the effects of the Stage 4 lockdowns are captured.

Drink to our economic health

Buying a coffee may seem like an insignificant indulgence, but when thousands of Australians visit their local coffee shop the total money spent adds up.

Australians consume close to two kilograms of coffee a year, with the Australian coffee market’s annual revenues expected to hit $5 billion this year, according to Statista.

But the money spent on coffee creates a ‘positive spillover’, Dr Hunter said.

When a coffee shop – or indeed any retailer – sees an uptick in demand, they make more money, and can put on more staff.

Those staff then see their incomes lift, allowing them to buy other goods and services, which boosts demand and creates jobs further down the economic chain.

“It’s not a zero sum game,” Dr Hunter said.

“If I have a job and get paid a wage, I can go out and spend money, that money goes to a business that employs other people, they get a wage and they go out and spend.

It all filters through and spills over the whole economy.”

This is why governments typically embark on infrastructure programs during recessions. The projects create paying jobs in the construction sector.

And while the single coffee you purchase for yourself each morning won’t be enough to save someone’s job, the nation’s cumulative caffeine addiction will create a lot of revenue.

‘Long tail’ for recovery

Although Friday’s ABS data shows early signs of a recovery, Dr Hunter cautioned the lift in cafe and restaurant spending comes after significant falls at the height of the lockdowns.

“It’s not a complete recovery by any stretch,” she said.

Melbourne’s stage 4 lockdowns are yet to appear in the ABS’ data either, meaning August data could actually show a reversal of the improvements recorded in July.

“When we get the [the final ABS data for July] it’s still going to be below where it was pre-COVID,” she said.

Outbreaks in New South Wales and – to a lesser extent – Queensland could also constrain spending as nervous Australians may opt for the safety of their homes over visiting cafes.

“Behaviour tends to move before government does,” Dr Hunter said.

“As the health outcomes get worse, Australians get less confident and more uncertain and decide to spend less, and then we see restrictions put in place.”

It will take until well into 2021 or even later before Australia sees a full recovery, Dr Hunter said.