A growing taste for eating out and the tourism boom are fuelling a surge in the hospitality industry but a rise in the minimum wage will be a challenge, according to a report by ANZ.
ANZ transactional data showed monthly consumer spending across the restaurant, cafe, bar and nightclub sector grew by 15 per cent in the past two years.
Commercial and agri general manager Penny Ford said the report showed the tourism market, coupled with a strong domestic dining-out scene, had helped contribute to growth in the sector.
"Businesses are really responding to the demand for a different dining experience, whether that is through a sustainably grown paddock-to-plate story, catering to the increasing number of people moving out of major cities into the regions, or growth in centres like Christchurch and Auckland."
In the year to March, visitor arrivals were up 8 per cent to 3.82 million, with the net gain in migrants at 68,000, down 3,900 from the March 2017 year.
ANZ said there were favourable tailwinds for New Zealand tourism, however, the unusual length of the economic cycle since the Global Financial Crisis needed to be considered.
"An economic correction over the next couple of years would impact the continuation of this trend and businesses which are exposed to tourism should be considering current profitability, cost structures and capitalisation to position against this risk," the report said.
The strong tourist market had contributed to growth, however the standout performer had been the dometic market.
International spending peaked at about 24 per cent of total credit card expenditure in the summer months, dropping to about 9 per cent in winter, while domestic spending averaged about 75-85 per cent of the total for the sector.
As revenue in the industry had grown, so too had competition.
The number of food and beverage providers nationally increased by 7.4 per cent in 2016/17.
"This will have a dilutive impact on the revenue growth on a per-provider basis," the report said.
The number of providers was up 11.6 per cent in Christchurch, likely due to progress of the earthquake rebuild, followed by Auckland (up 10 per cent), Waikato (8.6 per cent), Otago (4.6 per cent) and Wellington (3.3 per cent).
"All this points to the hospitality sector being in good shape, but despite this strong backdrop we know businesses are facing some challenges," Ford said.
Benchmarking of 43 businesses showed revenue growth was only marginally higher.
Companies would need to be proactive around managing costs, with the Government indicating the minimum wage would increase to $20 per hour by April 2021 up from $15.75 in March this year, Ford said.
"While forecasting wage growth is difficult, and a 27 per cent increase would apply only to employees on the minimum rate, any increase would have an impact on the bottom line," she said.
"Finding a point of difference, structuring service offerings and looking at different ways to manage supply chains are ways businesses can deal with this cost increase.
"If businesses are relying on one input being cheap – like wages – the reality is that business will be vulnerable."
The current average hourly wage rate for the accomodation and food service sector for men and women was $20.30 and $18.60 respectively.
"While both are above the current minumum wage we expect that the upcoming legislated increases will also flow through to workers paid above the minumum-wage threshold," the report said.
To maintan profitabilty companies would need to lift revenue, cut costs and imporve efficiency.
This could be done by increasing prices. However, given the competitive nature of the industry, passing through price increases without any impact on sales volumes would be challenging.
"Therefore it is likely that the wage increase will be neutralised by a combination of tactics that optimise the way businesses source, prepare, serve, charge and utilise their space."
Actions companies could take included using more seasonal produce, offering more services, tendering supply contracts, changing plate or glass sizes, automation of ordering systems and flexible menu prices.