Cash flow and Philip Lowe: Sydney’s Burger Head shares candid reasons behind restaurant closures

Sydney restaurant chain Burger Head has delivered an unvarnished view of life in the hospitality business, using a series of public posts to explain the “devastating” decision to close its remaining brick-and-mortar stores.

Richard Borg, Timothy Rosenstrauss, and Joshua DeLuca, a trio of young chefs with fine dining experience, opened the first Burger Head restaurant in Penrith in 2017.

Their mission to provide high-quality burgers across Sydney expanded with another venue in Botany.

The business grew to four locations in 2022 with the addition of Blacktown and Casula outposts, and a production kitchen in Wetherill Park to support the physical locations.

But Burger Head closed its Blacktown location only months later and revealed the closure of its Casula restaurant on September 1 this year.

A week later, Burger Head revealed its Botany location, and its original Penrith restaurant will also close on October 29.

Burger Head will continue with a focus on food truck offerings, the business said.

Juggling growth and cash flow

News of Burger Head’s restaurant closures comes amid a brutal period for hospitality ventures, which have seen profit margins squeezed by surging inflation, interest rates, and a downturn in consumer discretionary spending.

While those struggles are not unique to Burger Head, the business took the somewhat unusual step of publicising the factors behind those restaurant closures through a series of insightful social media posts.

Taken together, the messages provide a first-hand account of the struggles and setbacks of operating a business.

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The first major setback was the push to establish the Blacktown and Casula stores in a spurt of post-lockdown expansion, Rosenstrauss and DeLuca said.

“It’s something you heard over and over from teachers and parents… to just SLOW DOWN… The advice we should’ve taken in our business too.”

The business dreamed of 100 locations nationwide but found growth “very, very expensive”, to the point where a fifth location in Box Hill never got off the ground.

“This growth was something we weren’t as well prepared for as we should’ve been and we ran into our first hurdle….Managing your CASH FLOW!” they said.

“We had budgeted the builds well however it was other issues we ran into in the process that blew things out and didn’t enable better execution of some things.

That period of rapid growth “can almost be pinpointed at the time things started to unravel for us,” they said.

“In hindsight, if we’d only done 1 of these stores and kept our existing prep kitchen we would’ve had the resources to really execute store #3 and would still be in business.

This rapid growth can “almost be pinpointed at the time things started to unravel for us,” they added.

“A voodoo doll of Mr Lowe”

As those expansion costs weighed on the business, so too did the cost of ingredients and wages.

That led the business to highlight the outsized influence of former Reserve Bank of Australia governor Philip Lowe, who oversaw a dozen interest rate hikes in 13 months.

“If you own any property or a business there’s a good chance you know this fella and if you’re like us you have a voodoo doll of Mr Lowe,” the business said.

Noting that Lowe alone was not responsible for those rate hikes, Burger Head drew a clear line between spiking loan repayments, lower consumer spending, and shaved profit margins.

“That dreaded first Tuesday of every month for the past year and a bit was always dreaded,” the business wrote.

“A fraction of a percent up and BANG. Revenues would immediately plummet that week and then not recover ever. If the brick and mortar revenue was a game of snakes and ladders let’s just say lots of snakes, not many ladders.”

The financial toll also came at a cost to the team’s mental health, the business revealed, describing the effort of keeping the enterprise afloat as “almost overwhelming”.

“I (Tim) am writing this post and I’ve watched my best mate (Josh) say goodnight to his daughter over Facetime too many times or learning about a ‘first time she did this’ over Facetime,” Rosenstrauss wrote.

“We started a business to provide a life for loved ones but at what point is the sacrifice worth it. It makes you really ask what is really important to you, the business or your family.

“To be honest a lot of our decision to shut the stores down has come down to protecting our quality of life and our mental health.”

Solving the restaurant pricing mystery

Burger Head’s most recent behind-the-scenes post debunks myths about restaurant pricing, exposing diners to the financial realities of operating a commercial kitchen, and what the business described as “an accountant’s worst nightmare”.

Like other burger chains, Burger Head has struggled with ingredient price inflation over the last year: oil has doubled in price, the business said, ahead of major spikes in the wholesale cost of chicken and potato chips.

Ingredient costs and taxes leave the business with $8.40 out of a $14 burger.

But that $8.40 is split between rent, wages, gas, electricity, insurance, internet and software fees, equipment repairs, and panel-beating services for food trucks, the post continued.

“I can assure you there is not a restaurant out there ripping you off,” the business said.

“We all have massive expenses to cover and at the end, we’re just trying to make a dollar off your $14 burger.”

As the business shares candid insights, Burger Head’s Botany and Penrith locations remain open for business until the end of October.

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