More pain coming for bars and restaurants, say advisors

Saturday night at Auckland's Viaduct Harbour. Photo/Dean Purcell

One of the toughest business sectors in New Zealand - hospitality, won't be getting easier any time soon, says global accountancy firm Grant Thornton.

It says further pain and hardship is due over the next few months as rising unemployment and poor cash flow cripple more bars and restaurants.

Andrew Harris, the firm's director of business advisory services for 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.

International research by Grant Thornton on the hospitality sector says that the number of people dining out is fall rapidly, along with "plummeting hotel occupancy". Hotels in the US reported their 19th consecutive month of falling 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" said Harris.

"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.

The Business Herald today reported on some of Auckland's top bars coming up with newer, creative ways to attract recession-jaded punters.

Last Thursday, the promise of $10,000 worth of free Moet at central Auckland bar Sale St's "Black & Bling" party enticed 1200 people to RSVP for the event.

Owner Luke Dallow has even launched a weekend designer market at Sale St. Around 25 stallholders selling fashion, jewellery and artwork set up in the 1000sq m bar on Saturdays.

"We wanted to improve the brunch trade," he said.

It was all about giving people a reason to come in to your place.

"The pool of money for going out has shrunk, and you've still got just as many bars and restaurants out there if not more."

Dallow said the promotions were working - turnover was up and he was attracting more affluent customers.

At one of Dallow's other establishment, Chapel Bar and Bistro in Ponsonby, everyone who bought a glass of champagne got the chance to win a $4500 diamond.

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.

Harris said that restaurants and bars needed to look at loyalty programmes, happy hours and 'smarter menus'.

It was unlikely or at least difficult, said Harris, to get a lot of new customers in this time, so it was important to "love the ones you already have."

-NZ HERALD STAFF