Publicans will need to be smarter, leaner and more market-savvy than ever during the next 18 months to meet the economic challenges created by COVID-19 forecasts CBRE. In a newly released state-by-state report Thirsty For Business analysts found that although business is improving slowly and lockdown laws relaxing, the coming year and a half will be a litmus test for the industry nationwide requiring astute management to navigate.
CBRE Hotels Director Paul Fraser said the industry as a whole is expected to bounce back - dependent on COVID-19 cases remaining contained – but tough times lay ahead especially for pubs that did not “have the balance sheet or the cash flow to remain sustainable over the short to medium term”. Banks had been supportive so far yet it remains to be seen how this support pans out into next year, and further stimulus would need to go beyond March 2021 for many smaller operations to survive.
For publicans, CBRE’s message is to prepare for operating during a period of ‘new COVID-19 normal’ – a time marked by low trading and demand as the economy waits for domestic and international visitation to return to pre-pandemic levels by 2022 and 2024 respectively.
“Pubs must therefore be leaner, smarter and more importantly create a unique place for human connection in order to succeed in this environment,” Mr Fraser said. “Recent times have been some of the most challenging for the pub industry nationally. We believe that this will continue into 2021 putting added pressure on operators in all states.”
Key business initiatives recommended by CBRE for success during the 18 months ahead are:
1 Rationalised cost models – such as optimising inventory management and staff restructuring
2 New service standards – introducing measures like contact tracing, reduced menus, new floor layouts to comply with distancing rules
3 Price integrity – ie less Happy Hour discounted periods and maintaining pricing to maximise profits
By midday of March 23 this year, pubs along with all non-essential services were shut down across the country with less than 24-hours notice. JobKeeper subsidies buoyed conditions but could not stem a flood of hospitality industry job losses. This period of time also gave operators the opportunity to fully review their business models and Mr Fraser said the majority quickly adapted by paring down their operations. This allowed trade to bounce back to acceptable levels particularly in states where restrictions were either less onerous or lifted earlier.
Such a scenario has played out in the key regional Queensland tourism markets of Airlie Beach, Gold Coast and Sunshine Coast. Thanks to the ban on interstate travel, a captive base of domestic travellers continues to flock to the popular hot spots and give venues a much-needed financial boost.
Conversely, pubs in metro Brisbane are experiencing softer trading conditions due to low occupancy levels in surrounding CBD offices – about 35 per cent to 45 per cent of pre-COVID levels.
Gaming however has underpinned hospitality recovery in both Queensland and NSW pubs the CBRE report found, Mr Fraser noting that the sector was continuing to perform strongly under challenging conditions.
In NSW, CBRE sees NSW trending in the right direction as restrictions ease further. Non-gaming venues and traditional food and beverage outlets across Sydney and regional areas will need to mirror the Queensland example and rely on attracting domestic tourists (defined as those who live 50km or more from the destination and who generally spend 20 per cent of their holiday budget on food and beverage) to shore up their bottom lines, Mr Fraser said.
At the start when all NSW ceased trading in March, , bottle shops and take-away restaurants continued to trade independently with strong results, Then, after lockdown lifted on June 1 patrons responded enthusiastically, flocking back to bars. Gaming rooms were so popular many operators saw turnover reach pre-COVID levels. NSW pubs are now allowed to trade with up to 50 guests per space under the one person per four square metre ruling.
Victoria back in the black
Victorian publicans rejoiced today (Wednesday October 28) as bars and hotels (as well as restaurants, cafes and all retail) were permitted to open (with restrictions) for the first time since early August.
Spending levels which dropped to around 20 per cent below the national average when the strict Stage 4 lockdown was enforced are now expected to spike sharply. Consumers will be eager to exercise their freedom as they did in the four weeks between Victoria’s first and second lockdowns when anecdotal evidence found that trade returned to “encouraging levels”, the CBRE report found.
Victoria’s regional venues have been more fortunate, being allowed to seat restricted numbers of guests across indoor and outdoor areas since September 16. Even so, CBRE maintains that extending JobKeeper will be paramount for hospitality venues to remain operational and for publicans to have the ability to reopen venues and drum up much-needed trade.
The litmus test facing the industry for the best part of the next two years is multi-pronged according to CBRE, starting with decreased spending power once stimulus packages come to an end plus rising unemployment and wage stagnation. Other challenges facing publicans are the winding down of JobKeeper, the December expiration of the six month amnesty period on trading for insolvent business, and rent deferrals coming due. This will see tenants required to pay back the deferred 50 per cent in rent per month in addition to their existing rent for the remaining term of their lease.
Challenges galore there are, but pub businesses can take solace in one factor according to CBRE: the federal government’s FY 2020-21 Budget initiative to lower their tax burden. This involves providing full capital asset deductions and loss carry-back provisions which will not only reduce tax burdens but also improve profitability for the chapter ahead. The plan is that, in the medium-term, the balance sheet should look more favourable and give publicans a reason to breath just that little bit easier.