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The Hangar had to raise the price of coffee by 30 cents per cup. (File photo)
photo: Luis Robayo
Cafe owners say shortages in the restaurant industry are worse than ever due to layoffs and rising living costs.
Kris Bartley, owner of Sweet Release Cafe in Wellington, said this week had been her worst sales day in the 10 years she has been running the cafe.
“People just don’t have money. People who have money are saving in case they lose their jobs, which is totally fair.”
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She said her customers were usually working professionals and students but they had been hit hard by public sector cuts, and some had expressed concerns about safety on Manners Street, where the cafe is located.
Fewer people are coming to the shops than ever before, and it’s even harder than during the pandemic.
“During the pandemic, if they weren’t at home, at least they were working from home, they had a job, they were ordering takeout or ordering food online. That’s not happening now – I don’t blame anyone, but that’s the reality at the moment.”
Richard Corney, founder of Flight Coffee and The Hangar cafes, said most hotel owners agreed that things were tougher now than during the pandemic.
He said that despite a strong start to the year, The Hangar was 5% behind budget in April, 22% behind in May and 10% behind in June. July was even worse, down 25%.
“We expect to see headwinds this year, but nothing as severe as a 20% to 25% drop in revenue,” he said.
“The current volatile and unpredictable hospitality market makes it almost impossible to run a cafe profitably. Coupled with oversupply, it is the first time in 20 years that we have seen so many cafes close and sell. New Zealand hotel market shrinks“”.
Sweet Release has been hit hard by public sector layoffs.
photo: RNZ / Quinn Taueto
He said The Hangar had to raise the price of a cup of coffee by 30 cents.
During the time the cafe was open, its prices increased by about half the rate of increase in the company’s main costs.
“If our coffee prices were rising at the same rate, we should be charging more than $8 a cup, and that’s not even taking into account the cost of goods, it just represents the increased cost of operating the cafe – $8 a cup is simply not affordable for consumers, but there has to be a balance, a reconciliation, because the cafe and hospitality industry cannot continue to absorb these costs unless they are reasonably passed on. It is unreasonable to think otherwise.”
The hotel industry’s woes
A recent survey by business coaching firm Business Changing shows that this dilemma is widely felt – more than 74% of the 239 companies surveyed said the current economic situation is more severe than during the COVID-19 pandemic.
More than 60% said this was the toughest economic period they had ever experienced, including the global financial crisis.
Statistics New Zealand’s electronic card data shows Hotel industry spending falls July saw an increase of 1.4% compared to June.
Kiwibank economist Sabrina Delgado said she was hopeful the sector would recover.
“During the lockdown, we did close the border, but we took extremely broad fiscal and monetary policies to support and stimulate the economy. In a closed economy, consumers actually got money to spend.
“However, consumers now have thinner wallets than in previous years, partly because of high inflation and partly because of aggressive monetary policy. Disposable incomes have been squeezed. And with that, discretionary spending has taken its toll. As a result, the hospitality industry has been hit so hard because it is an industry that is vulnerable to discretionary spending.”
Sabrina Delgado, an economist at the Bank of New Zealand, said a rate cut by the Reserve Bank of New Zealand should quickly boost the economy.
photo: Royal Bank of New Zealand
However, she said the situation should improve next year.
“The Reserve Bank has They began their long-awaited reduction cycleWhile we have only had one rate cut so far, we expect more to come. The August rate cut was the first of 12 steps.
“As interest rates fall and inflation normalises, consumers will have more disposable income, which we believe will help boost discretionary spending – both in hospitality and retail.
“The improvement in the housing market will also help boost consumer confidence and drive consumption. Of course, tourism will be another driver. Since borders reopened, the tourism industry has performed well – operating at about 80% of pre-pandemic levels.
“Unfortunately, the 20% we are still not achieving is coming from Chinese tourists as China continues to face weak demand amid the real estate crisis. How this will play out is uncertain. But ultimately the above factors should bring some relief to the hotel industry soon.”
BNZ chief economist Mike Jones said the situation was “extremely difficult”.
“After adjusting retail spending for inflation and population growth, sales per capita have shrunk for 10 consecutive quarters and are 13.7% below their peak three years ago. This is a bigger peak-to-trough decline than during the global financial crisis. And, on top of falling sales, retailers are facing sharply higher costs. The pressure on profits is enormous.
“There are signs that some of the headwinds facing the household sector are easing. Lower interest rates and recent changes to tax thresholds are likely to help. But these positive factors need to be weighed against a deteriorating labour market and slower population growth.
“So while we are likely to see some improvement in spending levels over the coming year, progress will be slow and closer to stability initially.”
ANZ Bank’s latest business confidence survey showed a sharp rise in business confidence.
The overall confidence index rose to 50.6 in August from 27.1, the highest in a decade. Businesses’ expectations for their own activity rose to 37.1 from 16.3, the highest since 2017.
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