Martin: Today, the SME's Uphill Struggles. Hello again, it's Martin North from Digital Finance Analytics, what noise post covering finance and problem news with a distinctly Australian flavour today. I'm joined by somebody deep in the commercial sector with some very interesting ideas around the SMEs and the battles that they're facing at the moment. Eddie, hello, good to see you.

Eddie Pampalian: Hello, Martin. Good to see you. How are you?

Martin: Yeah, pretty good. Pretty warm here today. Actually, I think some has come back, which is what's happening. So, Eddie, great to have you on the show and I think a good place to start with, just for you to give a bit of introduction to you and to your business and then we can go from there.

Eddie Pampalian: No problem. So I'm the general manager at Network Infinity. We are business brokers by nature. We have an office here in Sydney. We have one in Melbourne and one in Brisbane. Fred, we've got. Provisional license business agents solely selling businesses on behalf of those who need our services.

Eddie Pampalian: This gives us a great insight into many businesses, in different sectors, in different industries. We get to see what a lot of people don't see, and we do also get to see a lot of these businesses who are struggling. And unfortunately, a lot of the time when someone wants to sell their business, it's due to, you know, it's not going great for them.

Martin: Yeah, yeah. And has the rate of disposal of businesses gone up or gone down over the last few months?

Eddie Pampalian: But funny enough, it's actually gone down. And we've spoken to several people at the moment who we thought would be jumping at the opportunity to sell their business, and a lot of them are hanging on at the moment. But I believe it's under my personal opinion would be it's on the falls under a false pretence, false economy.

Eddie Pampalian: If you want to say because they're getting things like JobKeeper support, they're getting a reduction in their rent at the moment, their customers are also receiving JobKeeper. A lot of them may have got may have had their mortgages put on hold. So there's this sense of everything is okay at the moment. Or if on the flip side, for some people, it's actually better than it was before the cities are virtually empty in the three states that we deal with. That means that a lot of the well, the people that were working in the city are now working from home. So we're seeing a boost in the suburban businesses, food and hospitality-based businesses. But that does come at a price, Madeleine. It's one of the things I do want to talk about, which is what's been dubbed the frenemies out there. And there is a lot of,

Martin: Yeah, there is something quite weird going on, isn't there at the moment. So let's unpack that a bit more.

Eddie Pampalian: Ok, well, look, I'll start with these so-called frenemies. You've got the Uber Eats is probably the biggest of them all. And I don't know if a lot of these consumers out there actually know by ordering via these third party software or businesses, they're actually hurting the local businesses. So everyone appreciates that they think they're supporting them inadvertently. They are hurting them because I'll put it out there. I know the rates that Uber Eats charges. Everyone out there has different ideas. I've been told different figures. I've had several retail stores myself and I can tell you we were paying between 33 per cent and thirty-eight point five per cent as a commission, so to speak, to these companies. Yes, they do provide a great service. They send a driver to pick up the order and deliver it on your behalf. But they also charge the end user a small delivery fee. Now where I think the problem is, to a degree, these consumers are paying a $5 three-point six dollars, whatever the little charge might be at the end there. They feel like they're paying for the service they're receiving. But the reality is the shopkeeper or the business owner is actually paying a significant amount. So when you've got a, you know, an average basket, I've been told, is between 27 and 32 dollars. Sorry, I should clarify, I'm talking now, predominantly sort of a hospitality takeaway food type business. Sure. So the average basket is between twenty-seven and thirty-two point thirty-two is the higher end now takeaway thirty-eight point five per cent. I'm talking inclusive of GST. But that does equate to a fair amount. Now the ATO apparently has benchmarks, which I don't even agree with.

Eddie Pampalian: Like I said, I've had approximately a dozen food outlets and I believe the benchmark is 30 per cent for the cost of goods. I strongly disagree. I mean, again, we've got the luxury of seeing the back end of 2000 odd hospitality businesses and 30 percent is that, let's call it the benchmark the holy grail of cost of goods sold. Not many businesses actually achieve those numbers. Now we'll go with the ATO's benchmarks, I've been told 30 per cent, also 30 per cent apparently for labour costs, which is very, very rare, very rare. But let's assume that we're up to 60, aren't we? At the 38 and a half for the commission, for the average, let's say, or the likes, I believe that's already in 98 and a half per cent. Am I right? Yeah. Then you've got rent, outgoings, GST, you know, you've got your electricity gas. I can give you a really good example of how much electricity has gone up, so I store that I used to own myself. I know this story actually blows a lot of people's minds. So this store's electricity bill was on average, five hundred and fifty dollars a quarter when I used to run that store. Now, fast forward about eight years as a business broker, I went to sell that business. I can tell you, I don't think that added a single fridge to that shop. The electricity bill was about $200 a month. No longer a quarter a month, and then I read somewhere that electricity costs went up 10 percent. I'm not a mathematician that they don't stack up to. Right.

Martin: So the point you're making is that it's pretty tough, you know, in fact, you could look at retail, you can look at the food and hospitality sector pretty much, you know, wherever you look, the margins are actually quite tight before you start, as you say, rates electricity. And then if you use the likes of Uber or those third party delivery services, basically they take a huge chunk out of the business such that it's very hard to make a return on any of those transactions, despite the fact that, as you say and consumers probably think, well, I've paid my five dollars, so that's fine. And it's really, I think, a really good example of, you know, what's going on if you like below the waterline versus what is actually publicly reported because I suspect many people wouldn't understand these sorts of dynamics.

Eddie Pampalian: Well, no, I agree. And I think you're right to assume that. So a lot of people, I think they've got the right intention. They do want to support their local business. Unfortunately, they're going through these third parties who own and I'll get into a little bit more of where the problem lay, where the problem is like they own the customer, they are the ones putting in the order with the store. But when they have a problem which happens quite regularly, their drivers pick up the food late. The food goes cold and becomes the store's problem. Yet, and they will be the ones receiving the nasty phone calls and whatnot. But at the end of the day, the customer belongs to that third party. And as a store owner, they don't have any control on it. They don't even have the contact details of the end-user to ring them and say, Look, we've made the food on time, according to the system. But unfortunately, the drive is not here. So I've experienced firsthand where these store owners are getting abused and blamed for it. They have no control on it. But now what's even more astonishing to me is these companies aren't satisfied with that. They're starting to open their own dark stores, dark kitchens they call it. They own the customers. They own the database. They know what you like to order, where you are ordering it from, how much you're paying. And to a degree, they know what's in that item. So let's say modern. You like to buy a burger called the Big Kahuna every Friday night from, you know. All right. Sounds good. Well, I'm the third party platform that you generally like to order it through, so I know that the Big Kahuna we advertise has whatever it might be, right? Pineapple Beach. But how hard is it for me as a third party? A company that opened a dark kitchen and make a very similar product. It's almost like Coles doing there. They're black and gold or black. Is that IGA? One of them's doing that right? They're doing their

Martin: Own brand

Eddie Pampalian: There. Own Brand, yes. So now these guys are doing that. So not only are they, they're taking the customers away from them. It's almost like the stores or the owners don't have a choice, really. If they're not on the platform, they're going to miss out on the on that bit of business, but it's not enough to cover their costs. This was always meant to be or it's sold to the store owners as it's on about what you're already doing. But little do they store owners know that their customers eventually start going through the third party because let's face it, it's easier to order it and sit at home than go and pick it up.

Martin: Sure. And this makes the point, isn't it, that actually more and more, it's the digital channels and the data that becomes effectively the critical element of value in the chain between the consumer and the, you know, the retailer. And so if you've got somebody who's intruding in that value chain, they're able to control the chain they can chain. They can control the price, but also, as you say, can then construct alternative offers. So it is as you put your friendly flag, I think is exactly right.

Eddie Pampalian: Yeah. And it's flying high at the moment and it doesn't just end there. Even the feel on the streets is different, right? When there's stores that are predominantly empty. Yes, there might be busy doing hundreds of orders through these third party platforms while losing money for the privilege of it. There's no people in the stores. There's no atmosphere left. The, you know, the chain effect is there. It's the store next door that may have lived off, I don't know, selling ice creams to the people who just finished dinner. Yep, they're not going to have their customers, either. Yep.

Martin: So it's it's the footfall thing, isn't it? So, you know, rather than having people perhaps drop into two or three stores, you know, in the strip as it were, they now basically do it online. And that means that effectively a number of different players essentially get get hit the same way. And is that one of the reasons because one of the things I've noticed in, as I've, you know, gone through various places around the place is we've got more and more vacant shops. We've actually had more and more businesses just closed down. You know, this is this part of the reason?

Eddie Pampalian: I believe so. Yes, yes, right? We do see a lot of these stores closing down because they just can't afford to keep going. Yeah, we've had a lot of sales of businesses where the owner is getting out. Purely because of financial reasons, they can't keep running, and they haven't even been able to sustain the business long enough for the sale to eventuate. Right. There are almost unfortunately, it's almost like a credit card now where what they're doing is this. I mean, they've still got to leave these store owners. And I think half the problem is a lot of them are owned by, you know, your mum and dad operators. Yeah, they might be great at doing what they do. They're not great at running the numbers and understanding, right?