A story in Saturday’s Financial Review ($) was relevant to my interests in more ways than one. The story included this quote from Professor Mark Wooden:
Melbourne Institute professorial research fellow Mark Wooden said mandatory penalty rates inhibited employment by artificially keeping costs high. “I just came back from Europe and you don’t think of Europe as being a cheap place for eating out but it is cheaper than Australia,” he said.
I decided to try and figure out if he was right: are European restaurants cheaper than Australia? If so, do they just seem cheap because of our elevated exchange rate?
To try to answer these questions, I first went to the World’s Top Fifty Restaurants list. There are two Australian restaurants in this list – Attica and Quay – so I thought I’d compare their prices to their peer restaurants in Europe. It’s hard to be sure that you’re comparing apples with apples, but I’ve tried to select what appear to be the most comparable items from the menu of each restaurant. I’ve chosen their largest dinnertime tasting menu, not including wine. Where the menu price includes tax, then I have included it here. [fn1] I’ve confined my analysis to the European restaurants that are in the top 30 in the world, plus Attica and Quay. I have not cherry picked these restaurants.
Here’s how the price of a tasting menu at the two Australian restaurants in the top 50 compares to the price at top European restaurants, with the European prices converted to Aussie dollars at today’s exchange rates:
Tasting menu prices in AUD at market exchange rates
Source: Restaurants’ websites and ViaMichelin.com. Exchange rates as at 21 October 2013 from Google Finance.
The Australian restaurants are at the cheaper end of the best restaurants in the world, even when you convert the European prices to Aussie dollars at today’s exchange rate.
But, of course, the Aussie dollar has shot through the roof over the past decade or so, with one AUD now buying you far more Euros or Pounds than would previously have been the case. To try and look through this (presumably temporary) currency appreciation, I thought I’d convert the menu prices back to AUD using PPP exchange rates. These purchasing power parity ratios, which I sourced from the IMF, indicate that you’d need around $AU1.53 to buy a bundle of goods in Australia equivalent to what you could buy with $US1 in America. In Spain, 49 Euro cents will get you the equivalent of what $AU1 will purchase in this country.
I calculate that the best restaurants in Europe would cost the following amounts if you converted their tasting menu price into Aussie dollars using PPP ratios:
Tasting menu prices in AUD converted at PPP ratios
Source: Restaurants’ websites and ViaMichelin.com. PPP conversion rates from the IMF World Economic Outlook, April 2013.
You can see that converting the prices at PPP has made the Australian restaurants appear cheaper by comparison. Attica is the fifth cheapest European or Australian top 30 restaurant at market exchange rates, but it’s the second cheapest using PPP. Quay moves from eighth to fifth cheapest.
To look at this from another angle, I calculated what proportion of an average full-time wage in each country it would take to dine at each of these restaurants. For example, what fraction of a French worker’s wage would be swallowed by a meal at L’Arpege? Here’s what I found:
Tasting menu prices as a fraction of the average full-time weekly domestic wage
Source: Restaurants’ websites and ViaMichelin.com. Wages from OECD Stat.
A tasting menu at Attica costs 13% of the average full-time weekly Australian wage; Quay is 16%. You can see that these are right down the bottom of the scale as far as these restaurants go.
I think it’s clear that a meal in the best restaurants in Australia is relatively cheap compared to a meal in the best restaurants in Europe. The Australian restaurants appear even cheaper when you compare the prices using PPP ratios or express them as a fraction of average wages.
I then thought that perhaps the picture might look different at the other end of the scale, so I had a look at Big Mac prices across Europe and in Australia. It turns out that if you convert European prices at market exchange rates, the price of a Big Mac in Australia is middle-of-the-pack compared to European Big Mac prices.
Big Mac prices in EU members and Australia in AUD, converted at market exchange rates
Source: The Economist, July 2013.
The average price of a Big Mac in the EU countries for which the Economist has data was $AU4.78, converted at market exchange rates, while the median price was $4.85. Australia’s $AU5 Big Macs are a little higher than this, but not much.
If you compare the Big Mac prices using PPP ratios or express them as a proportion of the average wage you find that Australia’s Big Macs are cheaper than any in the EU.
Big Mac prices in EU members and Australia, converted at PPP
Big Mac prices in EU members and Australia, as a proportion of the average full-time domestic wage
It appears to me that the price of a tasting meal in a fancy restaurant or a Big Mac at McDonald’s is reasonably priced in Australia relative to European countries. When you compare the prices using PPP ratios or express them as a fraction of the average wage of a worker in each country, Australia’s prices look quite cheap. It’s possible that Australia’s mid-priced restaurants are more expensive than European mid-priced restaurants, though I can’t imagine why.[fn2] It doesn’t appear to me that Australia is an expensive place to eat out, relative to Europe.
[fn1] Ideally the prices would either all include or all exclude tax. Note that both the Australian prices include GST, while only some of the European prices include VAT. This will tend to make the Australian restaurants appear slightly more expensive than they really are, thus making the comparison less favourable and strengthening my point.
[fn2] I couldn’t think of a way to compare representative mid-priced restaurants in the various countries without being accused of cherry-picking.