Updated: Apr 19, 2020
"I'll send an S.O.S. to the world." The Police
COVID-19 has provided an opportunity for us to consider the cost of doing business in the hospitality industry. With no revenue to cloud our thinking, every single cost is being assessed and valued. The JobKeeper allowance will keep our industry on life support, but true recovery and regeneration requires reform and now is the time. The industry as a whole is broken with unsustainable COGS, rents, wages, taxes, lack of regulation and competition eroding margins. This creates pressure on cash flow and resonates to wholesalers and producers to create a false economy, where we all work for the government, employees and landlords. The industry needs proper reform and consolidation as cost structures and competition have diluted any opportunity to create margin. This is an economic crisis within a crisis. The following suggestions might save our industry and enable us to participate in rebuilding the economy, make a dollar, pay taxes, sustain business, create employment and restore mental health.
Collectively we contribute billions of dollars in the form of taxes, superannuation and rents. How many out there have a substantial savings account, superannuation pool or a weighty balance sheet? If you are anything like me, you work your ass off, drive a European car, enjoy other people’s bars and restaurants, pay bills and have a mortgage. Your business likely carries debt or large capital investment and if you were honest and conducted a true exercise, profit margins would be slim. The only exception to this is, if you own your premises or have sold businesses at the peak of the market. To those few, I salute you for reaping the reward.
COGS - Tighten credit policies to allow better cash flow for suppliers and producers. This will reduce the requirement for suppliers to price credit risk and exposure and reduce the cost of doing business. New business COD for 12 months Approved Business 7 days from invoice Established Business 14 days from invoice (breweries already doing this) Outside terms incur initial penalty fee commensurate with invoice to ‘buy’ 30 days. Beyond that it goes to a collection agency.
RENT - Create sustainable rent structures that benefit both landlord and tenant. Base rent or 5% of revenue (ex GST) whichever is greater. Quality hospitality property values sell at around 5% yield, so this creates a business ‘partnership’ approach to Landlord/Tenant relationships and allows each party to profit accordingly. It also incentivises landlords to seek quality operators for tenancy and create higher barriers to entry. WAGES Reform the Award to create sustainable wage structures and offer incentive to employers to create employment and train/develop staff. Make training tax deductible. Strive for excellence, build loyalty and consider the social, economic and mental health benefits in a most vulnerable industry. Get rid of penalty rates. Overtime to be paid at the base rate without penalty. You need to be a actuary to write an efficient roster these days! The ‘witch hunt’ in our industry has occurred due to a lack of award compliance and poor management of a draconian approach to wages. If that means a rethink of rates, so be it. Let the discussions commence now. Levels should be defined and not notional, How many level 2 employees are in your business? Are they all the same level of knowledge, skill and experience? It’s a joke. Make levels an earned thing. Incentivise and reward employees for ascending to a higher level. Pay accordingly. It’s hardly rocket science!
TAXES & SUPER - This system needs to be simplified to alleviate the requirement for expensive accountants/book keepers to administer Payroll/Super/Tax compliance. Land Tax (Stays) FBT (Hospitality Industry should be exempt) GST (Broadened to include fresh food and produce) WET (Delete) PAYG (Stays) Payroll (Delete) Company (Stays) Alcohol (Stays) Gaming (Stays) Cigarettes (Stays) Super (Stays but only payable to Australian citizens and permanent residents), Company Tax (Reduced) & if there is anything left over Income Tax (Stays)
REGULATION & COMPETITION - Our industry is under regulated. Any Tom, Dick or Harry can start a company, register a business name, sign a lease, get a liquor license and start trading. There are low barriers to entry which creates a market of unqualified & poor operators who are forced to compete on price (lowering market price expectations) and without the level of professionalism that most of us strive toward. Professionalism doesn’t come cheap. The COVID-19 crisis will not clear these people out of the industry, because they have low cost structures and, with rent relief, will likely survive. Forgive the expression, but we need to ‘weed out’ these operators to create a stronger industry, with greater profitability and the ability to create employment, pay taxes and play our part in rebuilding the economy. The best medium to regulate, is via liquor licensing. Fees should be substantially higher, criteria should be stricter and the proliferation of licenses should be wound back to consolidate the industry and favour experienced operators. License breaches should carry harsher penalties including the withdrawal of licenses.
HYGIENE, HEALTH & SAFTEY - Our business plans need to re-consider all practices. Mental health needs to form an integral part of strategy for the benefit of operators and employees, their friends and families. A mental health plan should be developed for all businesses in the same way a food health and safety plan is currently required. This communication was inspired by a text message I received from an exasperated and frustrated member of our industry who captured my feelings perfectly and motivated this piece. “The only reason we do what we do is because we love it All the suffering and sacrifice is because we work in the most dynamic, challenging and fascinating industry of all. I believe that. I love what I do, but am tired of having to accept what has happened to us all."
I hope it resonates with you.