My observations in the current and evolving hospitality industry crisis

The impact of COVID has been detrimental to all industries, but in particular to the hospitality industry where they have had to shut down completely, and in many cases, lay off huge numbers of staff.

The business impact of doing this is monumental, but not to be outweighed by the emotional strain on those responsible for creating jobs for a big segment of the 2.6 million casual workers in our country.

As an owner of a law firm with a much more humble staff of one hundred, I have the deepest empathy for my friends in the hospitality industry who have had to make extremely difficult decisions in relation to their people.

This is one of many observations I have made during this time. Here’s what else I’ve noticed:

Transactions

A raft of transactions that were in various stages of negotiation simply came to a halt once the full impact of COVID was realised. This included many contracts that were in negotiation and have simply fallen over.

In relation to contracts that were on foot and subsisting, for the most part they fell over with various commercial fall out for either party.

In some cases (albeit few), the transactions proceeded. In relation to the vast majority that stayed on foot, the parties sensibly agreed to push all of the dates in relation to the contract out for an appropriate period of time generally north of six months and most commonly around 12 months.

What this means is that the parties simply extended all dates out for conditions precedent to be satisfied and therefore for the settlement to occur.

From a vendor’s perspective, this was obviously a good move for the most part given that many venues will have a lower value post COVID based on the numbers that have occurred over the period. However, it is hoped that most venues ramp right up again and that the pent up demand by the pub customer for their goods and services will be heightened.

Trading profits

Obviously we are in a honeymoon period at the moment with respect to deferred liabilities although it is of concern when one considers the impact of that time when the deferred liabilities crystalise.

I think the end of this year is going to present a very challenging time for people who have utilised the much needed government assistance and it is imperative people manage their risk in relation to this now rather than waiting until JobKeeper is a distant memory.

Retail trade

Whilst it is true that for the most part the revenue from retail trade has increased for venues that have a retail component to their business, this increase doesn’t come close to filling the gap of revenue lost through the inability to trade the main premises.

We have seen many venues work hard to diversity their product and service offerings and certainly some have done this extremely well. However I think we all look forward to a time when people can move freely in and out of pubs and hospitality venues and return these venues to at least the EBITDA that they were achieving prior to COVID. 

These are just a few of my observations and no doubt there will be many more as things continue to evolve.

I look forward to seeing all hospitality industry operators go on to derive the success they deserve from these long and hard hours they put in during this time. I look forward to when the value of assets normalise and banks return to a feeling of comfort in providing credit for both acquisition of, and the trading of, hospitality assets.

More than anything, I look forward to seeing venues thriving again, firing on all cylinders and making plans for the future.

About Curt Schatz

Curt advises pub, club, nightclub, casino, restaurant, resort, accommodation venue owners and operators on the strategic and technical aspects of their business operations and freehold ownerships. This includes advice to property developers and owners (e.g. major retail chains) about assets, including licensed premises. Read more about Curt Schatz here. 

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