Hospitality Challenges 2018/19

As input costs continue to rise, owners in the hospitality sector have been struggling to find a balance between increasing prices and risking the loss of customers as a result. The strong operators have already been adapting to this change and are able to balance the requirements. 

There are wider economic concerns impacting business which also need to be addressed. For businesses that are struggling now, the prognosis is not great, and without significant change there is unlikely a panacea to the improvement of the business. We have been watching marginal operators start to stumble as it is becoming more of a reality over the next year. 

Unrealistic landlords continue to be a strategic concern for operators, and we are noticing that those with a rigid approach to tenancy are finding higher levels of delinquent tenancies or are struggling to find tenants. Where landlords are not willing to meet the market or to retain tenants, we have seen that tenants are simply choosing to leave, often to the detriment of complementary businesses surrounding the location. 

In analysing businesses this year, there’s been a common thread of relying upon the finalisation of the election to give a shot in the arm and improve trading. In a short period of time we’re already seeing that the expected jump has been more of a sugar hit than significant upward improvement. Without overall economic improvement, we feel that marginal businesses will struggle to continue in the upcoming year. 

Surviving A Harsher Landscape

Throughout the year we have noticed the success of smaller venues, where the staffing costs have been controlled and occupancy costs have been well managed, either through split tenancy or renegotiation. In working with smaller operators, a rationalisation of the busy times and heavy data focusing on core opening hours has proved to be valuable, especially in mitigating staffing costs and managing quiet periods. Locations that have been poorly designed have required an improvement of the site layout to effectively manage staff better.

Active management seems to be the key, and where management are on the ground, there appears to be a better approach than where they are absent and operating remotely. It’s been no surprise that more active and present owners have been more willing and able to adapt, making for businesses that fair better through market changes or periods of decline. On the whole, we’ve also noticed more cooperation from staff and key stakeholders in operations with present owners. Results we’ve seen this year have shown that maintaining an active presence in the business is a vital part of managing key relationships and ensuring loyalty from staff, customers and suppliers.

Engagement with customers on social media is a continuing need for outlets and ignoring this is dangerous for any operator. We’ve observed this transition to social media becoming the primary advertising medium, and our more successful locations have invested significant resources. Promotions appear to have become expected by consumers, and the resultant engagement has lead to a better returns than other options. 

Outlets and operators that are willing to change are seeing improving returns, while reinvestment and regeneration is bringing better overall results. Evolving ways of thinking are bringing results for businesses as they are no longer simply reliant upon what has worked in the past. Our overall observation of the market is that there is a desire for something unique, and it’s this differentiation that will assist most businesses. 

Where to from here?

Being on the ground in 2018/19 has given us an insight into what is happening in the year ahead, and we expect that things will continue to be challenging. Taking active steps to ensure the continuation of the business now will mean that there is a better chance of survival for the tough times ahead. 

It’s not all doom and gloom, but things are getting harder and businesses are going to need to be smarter in order to survive. Businesses that are struggling now are unlikely to be able to pull things around without significant change. 

If you’re in need of guidance from a trusted advisor or you’re wondering if restructuring might be the solution you need, you can schedule a complimentary, obligation-free consultation on 1300 023 782 or email team@cdrta.com.au

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Kevin is a senior consultant at C&D Restructure and Taxation Advisory. Kevin has a long history in the hospitality and accommodation industry, owning and operating motels across Australia. More recently, Kevin has taken the step into restructuring and commercial consulting, bringing his 45 years of experience to the team at C&D.

Post Author: Kevin Carmody

Kevin is a senior consultant at C&D Restructure and Taxation Advisory. Kevin has a long history in the hospitality and accommodation industry, owning and operating motels across Australia. More recently, Kevin has taken the step into restructuring and commercial consulting, bringing his 45 years of experience to the team at C&D.

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