How Fonda has retained its customer base despite a changing hospitality industry

There’s no shortage of challenges for the hospitality industry as it seeks to settle into a new normal after years of disruption.

Having dealt with the existential threat posed by the early stages of the COVID-19 pandemic, those restaurants that were able to survive now face a tight labour market, inflation, and shifting consumer expectations.

Fonda co-founder Tim McDonald says the world hospitality businesses find themselves in today is quite different to that which existed prior to the pandemic. And while that does include those aforementioned challenges, he says the experience of the pandemic has reinvigorated people’s love of going out to eat.

“People seem to have a heightened appreciation of the joy of eating and drinking out,” he said.

“That was taken away from us, particularly in Victoria with the extensive lockdowns.”

Founded in 2011, Mexican restaurant brand Fonda now has seven locations across Victoria and two in New South Wales. McDonald says the business has spent the past few years moving itself away from the nimble entrepreneurial startup it was initially, to a more structured, disciplined business that will help it scale.

“We’re in a healthy position to capitalise on the blue sky that Australia has for Fonda and build some more restaurants,” he said.

While McDonald wouldn’t go into detail, being in a healthy financial position means Fonda is looking to add between five and 15 restaurants over the next few years.

The team is currently examining sites in Queensland, and that will likely be Fonda’s source of growth.

When McDonald examines the state of hospitality in Australia he sees an opportunity.

The market is less competitive than before the pandemic, given many restaurants were not able to survive.

Combine that with what he views as a shift among consumers away from both fast food and high-end dining and you can see why he’s optimistic.

“We’re seeing a lot of what would be fine dining restaurants offer a bit more of a casual, order as you go, cheaper, quicker experience,” he said.

“And conversely I think we’re seeing some more traditional fast food models scaling up their quality and freshness, and focusing a bit more on a premium guest experience.”

One sore point which remains is the fee being charged by delivery partners. McDonald says with margins being squeezed by the labour market and inflation, more and more restaurants will turn away from these platforms, unless something changes.

“I don’t think those delivery platforms were ready, or set up for the success and demand that has clearly been there for that service,” he said.

“Because of the fierce competition among the delivery platforms they’ve tried to keep the delivery fee for the customer really low. And they’re actually passing on a very high percentage to the restaurant.

“In a lot of cases it’s 30% or above. And there’s just not enough margin in hospitality in Australia for restaurants to be paying a 30% margin to a delivery partner and for that to be sustainable.”

So, he expects that until that drops closer to 18%, you’ll continue to see restaurants opt out.

“There might be a bit of a lag in truly understanding the profitability, or lack thereof in home delivery,” he said.

“More and more are saying no. Customers are having a shit experience waiting an hour for cold food so it’s damaging our brand. We’re not making money because we’re being charged 30%, and it’s clogging up kitchens and diminishing the experience for people who are coming in to dine and might have to wait longer.”

Today staffing those kitchens is also an issue.

“It really is harder,” he said.

“But it’s also an opportunity that if you’ve got a good culture and are open to different remuneration structures then you can differentiate yourself. You’ve got the ability the attract and retain good people.

“Now I think businesses that don’t have a great culture are finding it difficult to succeed and flourish because they’re finding it hard to hang onto their staff.”

Restaurants are also seeing the impacts of inflation, and McDonald says while those increased costs do need to be passed on, so far Fonda’s customers have been able to absorb them.

“With the slim margins we make, we really need to pass on any increase in the supply chain to customers. For Fonda, we don’t appear to have an overly price sensitive customer, so we have been able to pass them on.

“I think there might be other cuisines, businesses and brands who aren’t able to pass those price increases on to their customers.

“As long as everyone’s earning more and prices are going up across the board, it should be a zero sum game. So far, it’s been manageable.”