NEWS

Hospitality Industry Review – THE LEVELLER NOBODY SAW COMING

ARTICLE FROM THE ZERVOS LAWYERS NEWSLETTER.

The Hospitality Industry as we know it will change forever as a consequence of the COVID-19 epidemic.

The reality, however, is that the epidemic is really a catalyst to what the Hospitality Industry was already going to endure.

Well before this coronavirus epidemic, the Hospitality scene was facing a major adjustment given the significant issues Hospitality groups were facing regarding wage classification, higher rents, higher utility costs and generally speaking higher food and beverage costs.

At Zervos Lawyers we have witnessed over the last two years the diminution in the value of Hospitality businesses because of the fact that the cost of running same were extremely high and as a consequence were no longer viable alternative business propositions, especially for new  ‘startups’.

In Victoria we are also faced with a substantial proliferation of Hospitality venues  which has created a major oversupply of venues.

The structure of some of these Hospitality Groups became corporatised and bureaucratic. Chief executive officers, Operation Managers, Human Resource Managers, were appointed, call centres introduced and employing marketing and social media personnel. One could argue that it had been an overkill.  To add to the additional costs in running these establishments, we have also seen that a lot of Hospitality venues feed off allied industries such as bloggers, influencers, brand managers, food and wine festivals and the use of Instagram. In many ways this is an oversaturation and with the proliferation of television shows and even you tube channels the landscape of the industry has gone through a major change, which could be said to be financially draining

Now with the dependence upon orders being made through APPS is interesting as it has taken away the seduction of a venue. The whole idea of going to a Restaurant or Hotel  was  not just for the food, but for the ambience, the décor and the like.  This has all disappeared.  Restaurants and Hotels used to be venues for social gathering. Will we see a return given that the mindset of individuals is slowly changing.  Only time will tell.

Technology has also played an important role in the re-structuring of the Hospitality Industry.  The introduction of online platform delivery, the effect of TV reality programs such as Masterchef, and the changing nature of payment for goods have all had an impact.

The COVID-19 epidemic unfortunately has brought the Hospitality Industry to its knees given the fact that following Government advice, Restaurants, Cafes, Hotels, Pubs and other crowded places are now no longer open. Some operators have adapted, with Restaurants providing home delivered packaged meals, but these temporary measures can only keep some afloat for a short time.

The analogy can be made to retail where it is said that we are “over-retailed”. I disagree with this view. The problem that we have in Australia when it comes to the retail market is that there are too many retail shops or department stores.  The same applies to the Hospitality industry and there have been a number of people involved in the industry without the necessary experience and as a consequence their businesses have not been successful.

Regrettably it is my view that a substantial number of existing Hospitality venues will not re-open after the COVID-19 epidemic has been resolved.

More importantly, the Government has indicated that Hospitality venues will be the last to be totally dealt with when it comes to removing the restrictions.  The interim period will have a major impact on the financial survival of these venues given that if the social distancing rules are to remain, it will mean that the patronage numbers will be reduced substantially, but the cost of running the establishments will still remain high. It will truly be a time for businesses to “make it or break it”.

It is also curious to see that during this current period the lack of voice from the certain sections of the union movement regarding Hospitality employees. Elements of the union movement were quick to criticise and attack Restaurants with respect to  wage issues, however in doing so, failed to appreciate the fact that this industry employs a significant number of people especially those who are seeking temporary work.  Their paramount concern should be to preserve the status of employees.

There needs to be a major wage restructuring in the Hospitality Industry. There also needs to be a much more simpler method of determining wage rates.  I adopt the view that simplicity will in actual fact create efficiencies and the time is right for all parties involved in the Industry to work together to working out the most cost effective manner in which to preserve the interest of employees and employers.

In many ways the union movement cannot be seen to be working against preserving employment, however, given what has transpired in recent years this will mean that there has to be a review to  wage classifications and more importantly how penalty rates should be applied.

The time is now to also be realistic regarding weekends.  Traditionally the concept of the weekend was for religious obligations and as decades have passed by, this excuse is no longer appropriate.   The weekend, as we know it, is a modern invention that is everchanging.

It is not uncommon for many people to treat Monday and Tuesday as their weekends. We need to look at this seriously and appreciate the fact that our consumer patterns have changed in the manner in which we live.    The weekend trade subsidises the weaker periods during the early parts of the trading week.

The reality is that we need to work out how we can maximise the impact of a new wage structure. There is no doubt that the Hospitality venues will face uncertainty.  There are those that have created alternative ways in which to maintain their businesses, however, this will be temporary.   Talking to clients in the Industry it is interesting to hear how many have cut their labour costs significantly and have introduced new ways in which they can deliver product to the consumer.  How long this will last will be telling, given that it depends on how we as consumers have changed our mindset given what we have all been experiencing in recent months.

I am hopeful that common sense will prevail across the board and that Government, the union movement and employers are understanding in trying to re-structure an industry that is a significant employer of labour throughout Australia, however, as stated this will depend on common sense prevailing. Nearly a million people in Australia are employed in the Hospitality Industry and if there is going to be an alignment, as I believe there will be, then there will be a higher level of unemployment. We need to avoid this and determine what can be done to inject an impetus into the Hospitality Industry.

There are in my view a number of ways in which we can re-ignite the Hospitality industry and these can be summarised as follows:

  • simplify the wage classification;
  • maintain penalty rates for those employees that work more than 5 days per week, irrespective of what days they are working;
  • maintain penalty rates for public holidays;
  • remove the fringe benefits tax restrictions on Restaurants and Cafes, thus re-introducing tax deductible status for entertainment expenses that will encourage people to re-visit Hospitality venues;
  • ensure that Landlords understand that Hospitality venues will need some time to return to normal trading performance and therefore need to be compassionate towards their tenants as social distancing rules that will remain in place for some time will have the effect of being more costly and therefore these businesses will not be profitable;
  • work effectively to determine how we can reduce energy costs; and
  • remove unnecessary red tape that is involved in regulating the Hospitality industry.

A united approach by all elements of the Hospitality industry will bring about a renewed economic outlook, otherwise we will be faced with substantially higher prices and less employees.

A united voice is required by all.

Author:  Nicolas P Zervos is the Principal of Zervos Lawyers and has extensive experience in Hospitality, Gaming and Liquor Licensing Law.  Nicolas is a former Assistant Commissioner of the Liquor Licensing Commission and has actively been involved in advising high profile Restaurants and Hotel venues in Victoria as well as also being involved in the Hospitality industry directly.