חיפוש

Why restaurants keep closing in Israel

The foodservice market is faced with ongoing challenges caused by numerous regulations. One major regulation is the foreign workers fee, which makes employing foreign workers more expensive. Another new law, which began in January 2019, requires paying tax on waiters' tips causing waiters to make less money unless the restaurant is willing to pay the tax on tips, and because restaurants need waiters, they will usually take the blow, decreasing their own profit. Furthermore, business licenses have become more difficult to maintain due to health and safety regulations which continue to increase. These components have caused a strong increase in salary expenses and establishment costs in the foodservice industry.


Manpower has become the biggest issue as employee costs are very high, and this is driving many restaurants to close. In addition, this problem is causing a shift to fast food and street food restaurants as these locations require less manpower. Moreover, value for money encourages opening more fast food style restaurants which require less investments, lower rent costs, and cheaper expenses. Since the foodservice market is unstable, it is safer to avoid larger potential losses.

Restaurants should strive to minimize manpower as much as possible whether through technological or other means.


Another strong component in the success of restaurants are third party players. Companies such as Wolt, Ten Bis, and Cibus focus on food ordering, easy payments, and delivery. These companies play a large role for businesses, as many companies will provide their employees with a Ten Bis card, for example, which allows them to buy lunch from all restaurants that work with Ten Bis. Therefore, in locations such as Tel Aviv where there is a very large high-tech community, any restaurant that does not collaborate with a third party, has a significant disadvantage. Furthermore, online platforms are growing on all fronts; food apps are very convenient and are only expected to increase over time.


There is however a downside in collaborations with third party players, and that is the fact that these companies take very high commissions which decrease the profitability of the restaurant. Wolt is a delivery service that functions within a city, Ten Bis has also added deliveries to their services in the same format. The delivery format is such, that instead of delivering to each location and then returning to one restaurant, deliveries are mapped out in a way that after each delivery, the deliverer will then pick up from a restaurant nearby and will continue delivering and picking up from nearby locations, riding electric bikes for better efficiency. So, on the one hand this causes growth in the delivery market as it is an optimized system, and on the other hand, this increases the restaurants' dependence on third party players.


In summary, profitability is decreasing for restaurants due to various regulations, and many restaurants are not making enough to survive, causing them to shut down. The success of restaurants in the market may very well depend on a restaurant's ability to adapt to these new boundaries, possibly by creating a new, more suited business model. Perhaps this will be easier for new restaurants rather than for long existing ones.