Navigating the cost of business crisis

I don’t need to tell you how things stand financially for this sector. You will know because everyone is feeling the pinch in some way.

Everything is expensive; rent, ingredients, equipment, wages. We can’t get enough staff. Customers are spending less. Debt and redundancies loom over businesses around the country. We are smack in the middle of a recession, and a cost of business crisis.

There was a time, a year ago, when many operators thought we just needed to get through Covid, and get back to normal. When people talked about Covid setting a new normal, I don’t think they meant a recession.

But that’s what we’ve got.

A recession is bad news, but it usually occurs after good times. This one has occurred after three years of flat to negative trading.

Our livelihoods were curtailed by Covid rules on gathering limits, mandates and lockdowns. We all became public health enforcers to keep the country safe.

Hospo is innovative and opportunistic. We found ways of trading and keeping customers happy; selling online and from the doorway. We endured incredibly difficult times and came out the other side hoping for a bumper summer of trading.

It didn’t happen.

Every hospitality owner is hurting in some fashion; and for most of us it’s low staff numbers and rising supply costs.

It was said during Covid, shamefully by some politicians, that businesses that closed were marginal ones. The implication was that if you couldn’t handle not being able to have customers, you deserved to go out of business. Even if that was true then, it surely could not be true now.

Recently, five high profile, popular and well-managed Wellington bars closed their doors. A range of other savvy businesses, especially those owning multiple venues, are contemplating closure.

One industry observer said to me that now it’s the smart operators who will close - before it’s too late. Owners tell us that the next three months are when they will make up their minds. They’re obviously getting prepared, as questions about how to run redundancies now make up the vast majority of all enquiries Hospitality NZ receives.

That doesn’t mean redundancies are going to happen. Closures cause hardship and life disruption for staff and owners alike. Owners are wisely preparing for the worst.

The main problem raised by hospitality owners is how hard they find it to get staff. Compliance with immigration rules, such as needing to advertise jobs in New Zealand first, is making it exceptionally hard to attract people to the sector. The Government has three months to ease the immigration settings before it’s too late.

Like hospitality, accommodation is hamstrung by a diminished workforce and high costs. There is strong demand, but it won’t hang around forever. With not enough people to clean rooms or welcome visitors, and prices for utilities rising, owners are having to watch much-needed income pass them by.

We’re also hearing that IRD is chasing businesses for tax after the period of leniency which was vital to the survival of hospitality through Covid. IRD will achieve nothing if it demands tax now. The last three years of wage relief and loans would have been for nought. The situation matters not just for our sector, but for the economy and society.

Tourists coming to the country for the Women’s Football World Cup will find short opening hours and low vacancies. When revellers do find an open bar, they’ll be greeted by lengthy queues created by short-staffed businesses.

In the face of these mounting business and tax pressures, there are two things we’re telling hospitality owners to do.

Firstly, restrict opening hours. Cutting hours and services means you can adopt the lowest cost profile at which you can still service customers. Adopting home delivery services and online ordering are also good ways to minimise overheads and staff costs.

But restricted hours should only be a temporary measure. To reverse the rising cost of business, Government needs to implement real change.

So, we’re also encouraging all hospitality owners to get in touch with their local MP, to tell them how high the cost of business is and that immigration settings must be changed.

For the punters, you must put on a friendly and happy face. But for decision-makers, and each other, we must be realistic. The situation is too dire, the cost of inaction too high.

Hospitality venues are where New Zealanders go for happiness and sociability. But the lights are starting to turn off for a long cold winter, unless the sector gains access to the staff it so desperately needs.

We are fighting for improvements in staff and costs. If this really matters to you, go tell your MP.