Hospitality can’t make a profit in red traffic light setting, industry group says

The hospitality sector will not make a profit under the red traffic light setting, Hospitality NZ says.

More than three months after the Delta outbreak forced them to close their doors, Auckland’s hospitality businesses can welcome back customers from Friday.

The old alert level system has been replaced by the new traffic light system, with Auckland and a handful of other North Island regions moving into the red light setting, while the rest of the country is in orange.

Hospitality NZ chief executive Julie White said businesses would only break even under the red level, at best.

READ MORE:
* Covid-19: What we can and can’t do at ‘red’ in the traffic light system
* Covid-19: How bars and restaurants will work under the traffic light system
* Auckland hospitality businesses can reopen their doors from December 3

The financial pressure would be exacerbated by an end to wage subsidy and resurgence payments, and a “miserly” one-off transition payment, she said.

The transition payment amounted to one payment of $7500 for the average hospitality business, she said.

“The red traffic light rules severely limit how many customers can be served, making it unprofitable for many businesses to open, operate or even offer seating.”

Hospitality NZ chief executive Julie White says 137,000 hospitality workers, half of them under 30 years old, will be back at work from Friday.

Supplied

Hospitality NZ chief executive Julie White says 137,000 hospitality workers, half of them under 30 years old, will be back at work from Friday.

In the red setting businesses that used vaccine passes may open with up to 100 people and based on 1 metre distancing (whichever is the lesser) per defined space.

White said the next few months were still filled with uncertainty.

“Traffic light settings make hospitality and socialising hard, and the continued pressure of Covid transmission makes the settings unpredictable. We want an end to this prolonged, tortuous, transition.”

A Hospitality NZ commissioned report by Infometrics shows the industry usually contributes $6.8 billion to annual GDP and another $14.6b via purchases from suppliers and staff spending.

About 60 per cent of the sector was in Auckland, she said.

Little Jimmy restaurant manager David Nunn says some larger venues will struggle to make a profit.

Supplied

Little Jimmy restaurant manager David Nunn says some larger venues will struggle to make a profit.

David Nunn, restaurant manager at Epsom bar and eatery Little Jimmy said it had been open for takeaway food under level 3, but it would be good to get customers back in from Friday.

Having the kitchen already operating would make it easier to ramp things up when it opened its doors, he said.

He said it had its systems sorted to scan vaccine passes and had had to let go of only one staff member, who did not want to be vaccinated.

A government mandate requires all hospitality staff to have had at least one dose of the vaccine by Friday.

Little Jimmy had an operating capacity of 120 without restrictions, he said.

He said when the lockdown began the business had to close at short notice.

Bottled alcohol keeps for a long time but opened kegs can lose their freshness.

In response to this craft beer brewer Liberty Brewing, which supplies Little Jimmy, is running an iniative replacing customers’ opened Liberty kegs with fresh, untapped kegs free of charge.

“They’ve been extremely supportive,” Nunn said.

By removing a few tables it was able to easily meet the red light requirements, he said.

“We’re very fortunate with our size,” Nunn said.

“Our particular business will crank, we’ll have no issues whatsoever.”

He said bars and restaurants with greater capacity would struggle to make a profit.

“It’s just going to kill them.”

Liberty Brewing owner Christina Wood said it wanted to support small businesses like itself and make the transition back to opening as easy as possible.

”We know the past few months have been extremely tough for hospitality and as there’s nothing we hate more than beer going to waste, we want to help ease the pain,” Wood said.

Liberty had been working around the clock in preparation for the hospitality restart, she said.

“The uptake we’ve had on our free keg replacement demonstrates how much support bars need to get through this tough period.”​​

STUFF

Prime Minister Jacinda Ardern has revealed that Auckland and some low-vaccinated regions will enter the new Covid-19 Protection Framework at the red setting, with the rest of the country doing so at the orange setting.

University of Otago department of tourism senior lecturer Craig Lee said any limits on seating capacity for hospitality businesses would impact profitability.

Generally a restaurant’s business model, which was largely based on pre-Covid conditions, was to fill up as many seats as it could and turn tables as many times as feasible, he said.

“So, there is no way that physical distancing and number limitations because of Covid-19 will not impinge on how this business model generates profits.”

In the previous alert level format hospitality businesses could not operate at all at level four, and could not welcome customers on site at level three.

“Unless you had the ability to offer contactless delivery, pick up, or drive through, you basically have zero income to break even let alone turn a profit.”

In the traffic light system, if a hospitality business required My Vaccine Passes they could operate at all levels.

“So, in this sense the situation is a bit better for hospo because you can still be open across the traffic lights and hopefully keep yourself afloat.

“I don’t think it is realistic in terms of where we are at with Covid-19 to be able to flip settings and go back to pre-Covid profitability.”

The limits the Government had set for the traffic light system was a start at least, giving businesses some certainty in the short term about what they could do, and plan their business strategies around that, he said.

Capacity limits should be reviewed regularly with input from industry, health professionals, and government so the rules were feasible for business and also safe, he said.

Covid-19 had shown the weaknesses of the current restaurant business model, he said.

“It’s not really anyone’s fault since no one could predict how Covid-19 would change our lives and the operating landscape.”

Businesses needed to adapt to the new normal, he said.

If businesses were not already doing it they needed to consider takeaways and deliveries as an additional revenue stream to combat the loss of revenue from limited physical capacity, he said.

Leave a Reply

Your email address will not be published.