Australian and New Zealand hospitality operators find themselves in unprecedented times. The overnight closure of all in-person dining and entertainment venues as part of the public health response to COVID-19 has devastated the industry, putting thousands of businesses at risk and tens of thousands out of work. Today, our thoughts are with Victorian operators who are facing their second lockdown.
This is truly uncharted territory. Businesses that would otherwise rely on a steady stream of foot-traffic to keep bills paid are having to find new ways of serving customers that comply with social distancing restrictions. While programs, such as JobKeeper in Australia and the Wage Subsidy Scheme in New Zealand, have helped some businesses survive the initial shock and provided a vital lifeline for millions of jobs, both governments have stressed that these are temporary programs. Businesses need to start planning for a future beyond COVID-19 and without the additional government assistance afforded now.
As restrictions ease unevenly across, and even within the two countries, the hospitality industry is looking ahead to an uncertain future. The hotel sector was particularly hard hit, losing three months of cash flow and having limited recourse for social distancing-compliant trading as restaurants and cafes did. These multifaceted problems have many business-owners panicky, seeking guidance on how best they can survive and succeed during and post-COVID-19.
Understanding the problem space
That success – and the strategies that lead to it – will look different for every business. With that said, the all-encompassing nature of the COVID-19 crisis means there are some common pain points felt across the industry, most critically falling revenue.
The response to COVID-19 has had a multi-dimensional impact on the hospitality industry, severely limiting its ability to earn and support itself on several fronts. Mandated low maximum capacities – and in some worse-affected locations complete bans on in-person dining – make it financially unviable if not impossible for some businesses to reopen, further compounding cash flow problems.
Further compounding this issue has been the temporary stoppage of international travel. While hotels rely heavily on international travel to support their business model – with high-end accommodation facing a significant downturn – the effect is more general. Tourists not only spend money on accommodation but help to support restaurants, bars and clubs by going out to eat and drink. The loss of international travel is another blow to inner-city venues who benefited greatly from their proximity to the majority of Australia and New Zealand’s four and five-star hotels.
Staying competitive and profitable during the lockdown
With no timeframe for the end of the crisis, it is not enough to wait for a return for normality. Reduced avenues for trading mean that protecting your cash flow is the most vital step your business can take. This requires a degree of agility; rules for traders can change from week to week, potentially transforming how your business operates.
Understanding what you’re permitted to do as a trader – total maximum capacity of your property, minimum space per head requirements for both inside and outside seating, restrictions around food service – are essential to help you navigate this period. Equally, this requires a deep understanding of your key costs and variables. Businesses with flexible and clearly documented financial models are going to be best positioned to respond to these changing situations, maximising the value of each decision and giving you an optimal chance of success in a dynamic market.
As most of the costs associated with hospitality are fixed – rent, rates, taxes, insurance, etc – your key variable is staff. While hospitality is a very labour-intensive industry, there are alternative business models that can allow you to deliver a high-quality product with fewer staff. Simple choices like limiting your opening hours, only providing service to a single section of the restaurant or switching primarily to a take away model can not only help you control your expenses, they can also help you comply with more stringent public health requirements.
Regardless, the goal is always to deliver a product that resonates with your customers. COVID-19 has not substantially changed people’s appetites for food and beverages, if it was a good product before COVID-19 there’s no reason to think it would not be a good product after. It simply comes down to efficiencies – how can adaptable management and good financial modelling help your business stay lean and effective during a time of reduced income?
Making use of government support packages where appropriate can also go a long way to help support your business during this trying time. Both Australia and New Zealand have offered loan and wage subsidy programs to employers affected by the lockdown, with both countries in the process of scaling back these programs as the economy adjusts and recovers, but support is still available. With sunset dates set for government support plans, it is vital that businesses understand if they will be able to continue operating and in what form.
Building the future of your business
While minimising the immediate impact of COVID-19 is essential, businesses need to take the longer view of the current crisis.
Consider how you can use a period of lockdown to strengthen your business. For example, if finances allow, this could be an opportune time to update the decor of your business with an improved fitout. Re-investing into fitout has always been a key occurrence in hospitality to keep venues fresh and maintain a competitive advantage. Renovations can create chain reaction – as one venue invests, others follow to remain competitive – delivering great, family friendly spaces, and improving the customer experience.
As restrictions ratchet off, businesses can expect regular influxes of people returning to restaurants and bars. However, it is important to note that COVID-19 is likely to have a significant impact on consumer demands into the near-future, requiring your business to reprioritise.
State and federal governments across the Tasman have spent months drilling into citizens the central importance of hygiene – any customers you welcome will expect quality control to be taken very seriously. Historically, this concern was for clean kitchens and cleanliness of food. With new general understanding about how long viruses and bacteria can live on hard surfaces, customers will expect this same forensic approach applied to the entire venue. While health departments will reinforce this issue at the regulatory level, the demand will most likely be led by consumers in the marketplace.
Sectors of the hospitality industry that already rely heavily on take away service may find themselves facing additional competition post-lockdown. Hotels and restaurants that previously focused solely on sit-down dining have had to evolve their menus to be more suitable for take away service, and many may maintain a presence in this market post-lockdown due to the lower labour costs associated. How your business will respond to increased competition will help to define your success in a post-COVID-19 environment.
Finally, if your business was not faring well prior to COVID-19, this is a critical moment to reflect. The all-encompassing nature of the pandemic offers the perfect opportunity to revisit your business model and review your value proposition. Who are the key people you are looking to connect with as consumers? How can you better connect with them? What will they seek out going forwards?
These are difficult questions for any business owner to answer, especially in the shadow of COVID-19. If you’d like some assistance with compiling your COVID-19 business management plan and building the future of your business, speak with your local Bentleys advisor today.
We, at Bentleys, are doing everything we can to help businesses come out of this challenging time in good shape.
We will continue to update our COVID-19 resource hub with important developments, so please return soon.
Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.