As the restrictions start to ease, businesses in the hospitality sector need to consider their next steps – towards opening or reimagining their businesses.

The hospitality sector has been hard hit by social distancing restrictions imposed by coronavirus (COVID-19). On 23 March, many businesses were all but shut down overnight, meaning leaders in this sector are facing a series of challenges never seen before. This unprecedented move has proved one thing – Australians are adaptable. COVID-19 has enacted 10 years of behavioural change in just six weeks, and when the economy reopens, habits formed will be changed forever.

The hospitality industry is a mosaic of business operations and structures and each one will be affected differently. Revenue for restaurants and bars is predicted to be down 40-50 percent when they reopen into a landscape of continued social distancing. It predicted that businesses in the CBD could be hardest hit with not only offices operating with reduced workforces and split teams but a collective tightening of belts from individuals and organisations will mean discretionary spending will be down across the board. And it’s believed that this revenue will not be fully redistributed to suburban venues.

Accommodation businesses may find it challenging to get to even a 30 percent occupancy rate in the immediate term. And while domestic demand will increase as the states reopen their borders, this revenue is not expected to replace the inbound tourism market.

Corporate travel will also be down – not only have workers become accustomed to doing business via phone and video during the shutdown, there will also be a health and safety concern for leaders asking staff to travel via aeroplanes. Large conference and event centres will potentially need to be mothballed, and businesses that have previously relied on gaming revenue will feel an even greater impact on their bottom line.

To reopen, or not?

The Federal Government announced the three-step plan on 8 May around how Australia will come out of the shutdown. The plan will be applied in different stages state by state, with NSW and Victoria’s hospitality sectors potentially feeling the greatest impact.

While stage one guidelines are finalised, stages two and three are written in pencil and will remain flexible to the impacts that stage one may cause. While we could be looking at a late July, early August, reopening of pubs and clubs in NSW and Victoria, this could be even later still if there is an outbreak associated with a particular pub or club across the country.

Businesses need to start considering what they need to do to reopen. And consideration will need to be given to the additional capital expenditure needed to reconfigure to reopen – including sanitation stations, temperature checking and patron number limitations. When these considerations are coupled with constrained revenue due to trading restrictions and changes in consumer behaviour some venues may find it challenging to reopen. Businesses need to ask themselves if trade will be at a level to sustain profitability, let alone amortisation of debt?

Trading in the ‘new normal’

If your business is considering reopening, ensure you have the labour force in place, not just casual staff, but key staff and talent as well, and much consideration needs to be given to the health and safety of your staff and your customers.

There will be a renewed focus on health, as mandated by the government and general consumer sentiment, and businesses can use this as a competitive advantage. Stationing staff at entry ways to check temperatures, and having staff consciously paying attention to hygiene will allow consumers to feel safe – start to consider what training you can offer staff in these areas. Reconfiguring your business now so that your business is match fit when things start to open will be paramount to future success.

Venues will also need to consider how they will reconfigure their physical spaces to comply with government requirements.

  • Tables and chairs will need to be repositioned. 
  • Floor markings added to guide customers to stay 1.5 metres away from each other.
  • Door count procedures to ensure maximum headcount restrictions across each phase are maintained.
  • Construction to erect plastic barriers 
  • Distancing gaming machines.

From an operational point of view, companies should also start contacting their supply chains to ensure they are ready to ramp up again. Will your business be able to source the same quality of produce as before? Did you previously outsource your security and cleaning teams? Businesses will need to mobilise these third party suppliers, ensure that they are sustainable, or have a contingency plan in place.

When bars and clubs first reopen there will be a huge amount of pent up consumer demand, but there will be a focus on enforcing the new social distancing laws. Venues that don’t respect these restrictions could face an industry-wide backlash if further shut downs are enacted. There is a real sense that if everyone gets this right, it will make reopening easier for everyone.

Permission to experiment

Businesses that reimagined and strategised their way through the economic down turn that the Global Financial Crisis inflicted often found themselves in better shape on the other side, and the same rule applies now. Companies that are using this time to reimagine their offering and giving themselves permission to reinvent could do well in the long run.

Restaurants and bars have pivoted to offer take away, pre-packaged food to cook at home and fresh produce direct to their customers – and while considering to continue to offer these services once the economy starts to reopening will assist in replacing some of the lost revenue, it won’t replace it all. Businesses need to consider what the consumer sentiment might be on the other side and consider how they could best place their business to offer what they will want.

Moving out of this lock down, we will all have greater sense of community and this could translate as a trend towards Australians supporting Australians. Businesses that take the time to reinforce what they stand for, and communicate that effectively to their customers, will be on the front foot. Hospitality is a hearts and minds industry so use authentic and transparent communications to bring consumers on the journey with you as you look to reopen. Give consumers a direct line to your business’ behind the scenes operations, show them how their support directly helps you support your staff and Australian suppliers and farmers. This type of approach will help businesses reconnect to their consumers.

Financially fit

Companies in the hospitality sector need to consider their financial situation closely. It’s important that you model these financials and how it might change key assumptions when scenario planning. Businesses will need to consider:

  • What are the funding requirements for the closure and reopening phases?
  • Are those requirements realistic? 
  • What is the resulting debt profile?
  • What will trading performance look like factoring in the new future environment? 
  • Will it still be viable invest in the capital spending needed to operate in the new conditions?
  • Does this performance service and amortise the resulting debt profile?
  • If not, what will we do? (Debt deferral/rescheduling, equity injection or swap, landlord deals)

While no one can predict exactly what it is going to look like when we reopen, we do know that consumers are going to be financially challenged as well. Conversations need to happen now with banks and landlords so that debt profiles are considered, and that this profile is serviceable.

Find ways to defer liabilities and capex. Pricing trends such as increased input costs due to fires and drought will continue to contract margins, and the price of putting up costs will be high as consumers become more frugal through either loss of income, or the realisation of how much money they are saving and therefore previously spent in venues. We predict that come October, the stimulus will start to wear off, and while previously November marked the beginning of the party season, many businesses will attempt to last throughout December and January.

But there will be an inflection point, a time on the decision tree where businesses will realise there needs to be a consolidation. We expect that there will be an industry-wide move towards consolidation and a flight to scale. 

The new normal will be a vastly different landscape, and one that none of us can predict, but businesses that plan, pivot and act now will be best positioned to get a head start.

Information accurate at the date and time published.


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