Low profit levels 'stifling growth' in hospitality sector

National business sales director for Bayleys Real Estate Jayson Hayde. Photo / Supplied

A lack of acceptable profitability within many businesses operating in New Zealand's foodservice and hospitality sector is holding back both new entrants to the market and the expansion plans of some existing operators, according to an industry figurehead.

National business sales director for Bayleys Real Estate Jayson Hayde said that while a small percentage of the hospitality and foodservice sector were "doing very nicely", the vast majority of operations were only eking out 'barely acceptable' returns on investment - and some were not even achieving break-even status.

Mr Hayde – who recently joined Bayleys' company sales division – said the profitability model for New Zealand's hospitality and foodservice sector was best represented as a pyramid.

"At the top of the triangle, there is a small percentage of foodservice and hospitality operators trading very very well. That includes some of those venues and outlets operating as part of corporate-structured groups with multiple locations, businesses which have been around for more than 15 year and have built up their reputations amongst repeat clientele, some franchised enterprises, and entities being tightly run under profit-driven paradigms whose owners may not necessarily have come through a hospitality background but from a financially-orientated environment," Mr Hayde said.

"Then in the middle of the triangle are a lot of businesses who, while 'ticking over nicely', are never going to make their owner-operators rich – especially when you factor in the long hours going into deriving that income.

"And then of course at the bottom of the pyramid is a substantial portion of the industry which is barely making any profit at all, and quite often, are actually trading at a loss."

Mr Hayde conceded that with the hospitality and foodservice sector being regarded as a 'low wage' business sector, staff recruitment and retention remained an issue for many operators.

"Numerous hospitality and foodservice business buyers we have been working with of late are reluctant to take on new ventures, simply because they are cautious about staffing up the new acquisition," he said.

"Many owner-operators, both existing and those looking to come into the market through acquisition, just can't afford to pay staff 23-plus dollars an hour under their business model. It's not that they don't want to, they simply can't do so and remain profitable. So, in many cases they walk away from the opportunity, or close down."

Bayleys' analysis of the hospitality and food and beverage sector is mirrored by the Restaurant Association of New Zealand's latest Remuneration Survey, which noted that while seven new hospitality business opened every day in New Zealand, six other hospitality businesses shut down every day.

Mr Hayde said one solution for the sector's staff/cost conundrum was for technology to play a greater role on front of house operations – with greater use of automation leading to higher degrees of workplace efficiency.

"Businesses need to embrace automation...… make it easier for customers to order and pay. That leads to greater efficiency on the floor, and at the 'till… which in turn leads to a more streamlined staffing roster and, by consequence, better operating figures," he said.

"Fuel stations are doing it – such as BPMe for example, where motorists can pay for their fuel via an app' on their mobile 'phone without any interaction with forecourt staff. Translate that into foodservice and hospitality – some cafes do it already where you can order and pay for coffee on an app', so why not extrapolate the scenario out into ordering food and licensed beverages on a 'click and collect basis?

"Similarly, along technology lines, loyalty cards need to offer more than a free coffee for every 10 you buy and get a stamp on your card. Take Fly Buys for example, which now has multiple retailing partners contributing to earning points. Fuel up at a Z service station… earn points. Buy groceries at New World… earn points. Pay your insurance premiums through State… earn points. And it's the same with Air New Zealand's 'Air Miles' programme and its multiple contributory partners.

"So why should my hospitality loyalty be limited to one location? Why can't I buy my morning coffee from 'Chain A', my sandwich or sushi from 'Chain B' and have a beer after work at 'Chain C', yet collect jointly-redeemable points from them all?"

Mr Hayde suggested that collective membership of industry organisations such as the Restaurant Association of New Zealand or the Hospitality Association of New Zealand could form the nexus of such a shared platform loyalty schemes.

Mr Hayde's market commentary come as Bayleys looks to expand its business sales divisions in the provincial capitals of Tauranga, Hamilton, Wellington, Christchurch Queenstown – leveraging off the back of the agency's existing real estate and property services disciplines.