More pain coming for hospitality industry

For Immediate Release
July 20, 2009

More pain coming for hospitality industry

The hospitality industry, already beset by closures and receiverships, is expected to incur further pain and hardship over the next few months as rising unemployment and poor cash flow cripple more bars and restaurants.

Andrew Harris, Director Business Advisory Services for Chartered Accountants Grant Thornton, said there was still plenty of pain to come.

“The next few months are going to be extremely difficult. Unemployment is still on the rise, and many businesses that are only hanging on at present will not see it through, unless they take action now. For some it may already be too late," he said.

The New Zealand situation is backed by a recent Grant Thornton International Business Report on the hospitality sector which points to rapidly declining numbers of people dining out as unemployment numbers spiral, and plummeting hotel occupancy figures. United States hotels reported their 19th consecutive month of declining occupancy in May.

“New Zealand’s hospitality industry saw the first hint of trouble in September last year when corporate spending started to dry up quite rapidly.

“That tended to hit the high end bars and restaurants first, with other sectors starting to feel the pinch a few months later. Basically the New Zealand public was in denial of the economic situation until after Christmas, that is the reason for the lag.

“The top end bars and restaurants missed out on the traditional Christmas parties as well, although a late change of mind by some companies had everyone trying to book on the same day which became a problem in itself. The blue collar pubs have been affected by the slow down in the construction industry, but because draught beer is still affordable, they have not been hit too hard,” he said.

Marty Fuller, National Vice President of the Hospitality Association of New Zealand (HANZ), said it was inevitable that more closures would follow.

“In the last nine months HANZ has lost 100 premises through closures or receiverships and there is still some way to go. The smart operators will be OK, especially the ones that are clever with their menus, wine selections and drinks prices.

“It’s all about preserving margins. People are still eating and drinking, but being smart about it. Instead of two $35 mains and a bottle of wine, it might be a shared pizza with wine – and a saving of $50 to boot,” he said.

Andrew Harris said that the ‘moon money’ paid by some companies and individuals last year for bars and restaurants throughout the country made them extremely vulnerable once the downturn took hold.

“Many bars and restaurants look to the summer months to build a buffer for the winter. When that summer boost never eventuated compounded by the great weather, they were always going to struggle.

“However, it’s not necessarily all gloom and doom. Summer is not far away for those who can hold on, and with about one third of all mortgages being rolled over to lower rates this year, the extra liquidity will eventually find its way into discretionary spending.

“And for the well diversified business with low debt levels, there are some great buying opportunities for those companies wanting to expand,” he said.

Actions that restaurants/bars need to take:
• Loyalty programmes – get the regulars coming in.
• Happy Hours – everyone is looking for a bargain, but keep an eye on your margins
• Smarter menus – different fare at a lower price, again maintaining margins. For example, lunches with nothing over $15 or a set menu evening meal with three courses for $35.
• Review the drinks menu, what is not selling? Where are margins being squeezed? Take advantage of some great wine prices to offer more profitable selections.
• Work with your bank, keep them informed and provide them with timely and accurate information. Banks hate surprises.
• There has never been a better time to take your banker out to lunch.
• Renegotiate rent terms, especially where rent is linked to turnover and you are looking to maintain turnover at tighter margins.
• Don’t stop advertising & marketing. “ Stopping advertising to save money is like throwing a clock out the window to save time“. But take the time to ensure you are targeting your audience, a scatter gun approach will not get the desired outcome.
• As it is unlikely, or at the very least difficult, for you to get a lot of new customers at this time, it is imperative that you (& more particularly your staff) love the ones you already have.
• Look to improve the quality of your service, take the opportunity to employ high quality staff at good rates.

Further information:

Grant Thornton is one of New Zealand's leading independently owned and managed accounting and consulting firms, providing audit, tax, business advisory and specialist advisory services to privately held businesses and public interest entities. Member firms operate in over 100 countries worldwide. The local firms of Grant Thornton New Zealand are in Auckland, Christchurch and Wellington.

Grant Thornton Auckland is an independent member firm of Grant Thornton New Zealand. Grant Thornton New Zealand is a member firm within Grant Thornton International Ltd (Grant Thornton International). Grant Thornton International, Grant Thornton New Zealand and the member firms are not a worldwide partnership.

Visit our website at www.grantthornton.co.nz for useful business information and tools.

ENDS

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