Kris Bartley, the owner of Sweet Release cafe in Wellington, said she had the worst day of sales in her 10 years in business this week.
“People just don’t have money. People who do are saving their money in case they lose their jobs, which is totally fair.”
Her customers were usually working professionals and students, but public sector job cuts had hit hard, and some customers had also expressed concerns about safety in Manners St where the cafe was situated, she said.
Fewer people than ever were coming into the store and it was harder than during Covid.
“During Covid, if they weren’t in town at least they were working from home, they had a job, they were doing takeaway or ordering online. That’s not happening now – I don’t blame anyone but it’s the reality of how things are at the moment.”
Richard Corney, founder of Flight Coffee and The Hangar cafe, said most hospitality business owners would agree things were tougher now than during the Covid years.
He said while the year had started well for The Hangar, April was 5% behind budget, while May was 22% and June 10% back. July was worse still, at 25% down.
“We expected headwinds this year, but nothing as drastic as a reduction of revenue by 20 to 25%,” he said.
“The volatility and unpredictability of the hospitality market at this time makes it near impossible to run a cafe with any certainty of a profitable outcome. This, coupled with oversupply, is why we are seeing the closure and sale of so many cafes and for the first time in 20 years, a contraction of the hospitality market in New Zealand.”
Public sector job cuts have hit cafes in Wellington, such as Sweet Release, hard. Photo / RNZ / Quin Tauetau
He said The Hangar had to increase its coffee prices by 30c a cup.
Over the time the cafe had been in business, its prices had increased by about half the rate of the business’s major costs.
“If our cup price increased at the same rate, we should be charging more than $8 per cup, and this isn’t even in consideration of the cost of goods, simply representative of the increased operating cost of the cafe. $8 per cup isn’t something sustainable for consumers to endure outright but there must be a balance, a reconciliation of sorts, as cafes and hospitality cannot continue to absorb these sorts of costs without reasonably passing them on. It’s irrational to think otherwise.”
Struggles across the hospitality sector
A recent survey from business coaching firm Business Changing showed the struggle was being felt widely – of 239 businesses surveyed, more than 74% said the current economy was tougher for the business than the Covid years.
More than 60% said it was the hardest economy they had ever had to operate in, including the Global Financial Crisis.
“During lockdown, yes, we had a closed border, but we had incredibly expansive fiscal and monetary policy supporting and stimulating the economy. Consumers were practically given money to spend out in a closed economy.
“Compared to recent years and now, however, consumers’ wallets have shrunk both from high inflation but most importantly, aggressive monetary policy. Disposable income has been squashed. And with it, discretionary spending has paid the price. Hence such a big hit to the hospitality industry, as a sector vulnerable to discretionary spend.”
However, things should improve next year, she said.
“The Reserve Bank has commenced its long-awaited cutting cycle. And while we’ve only had one cut so far, we are expecting many more. The August move was the first step in a 12-step move.
“As interest rates come down, helped by normalising inflation, consumers should see an increase of disposable income, which we think will help boost discretionary spending – in both the hospo and retail space.
“An improved housing market will also help to boost consumer confidence and get spending underway. Tourism, of course, will be another driver. It’s performed well since the border has reopened – operating at about 80% of pre-Covid levels.
“Unfortunately, that 20% we’re still missing is coming from our Chinese tourists as China continues to face weak demand amid their property crisis. How that plays out is a little more uncertain. But ultimately the factors above should see some relief come to the hospitality sector soon.”
BNZ chief economist Mike Jones said things were “extraordinarily tough”.
“Adjusting retail spending for inflation and population growth shows per capita sales volumes contracting for 10 consecutive quarters, to be down 13.7% from the peak three years ago. That’s a larger peak-to-trough decline than the GFC. And, in addition to falling sales, retailers have also been facing into big cost increases. The pressure on profitability is intense.
“There are signs that some of the headwinds facing the household sector are easing. Falling interest rates and the recent tax threshold adjustments may help. But these positives need to be weighed up against a deteriorating labour market and deflating population growth.
“So, while we may see some improvement in spending levels over the coming year, it’s going to be slow going, and more akin to stabilisation at first.”
ANZ’s latest business confidence survey showed a sharp increase.
General confidence rose from 27.1 to 50.6 in August, the highest reading in a decade. Firms’ expectations for their own activity rose from 16.3 to 37.1, the highest since 2017.
