Why hospo industry needs help: Cafe owner's 'high six-figure' Covid losses

Tuesday, 7 September 2021

Bread and Butter bakery cafe owner Isabel Pasch has had to close one cafe, and sell another at a knock-down price as a result of the Covid lockdowns that have been imposed on Auckland.

Isabel Pasch, owner of the Bread and Butter cafe and bakery, has taken a big financial hit from the Covid lockdowns which now threatening to close many of the country’s cafes and restaurants.

“Over the last year, I would say that the combination of lost turnover and lost business value for me would be in the high six figures,” Padch says.

Before the first nationwide lockdown in March, April and May last year, Pasch owned three cafes and a bakery.

Now, she has a bakery and one cafe, having sold one cafe for much less than it used to be worth, and having closed a second, when it was no longer financially viable.

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“From having a thriving business, we are just holding our own, and holding on to threads, and hoping those threads hold until all this blows over,” she says.

Owners of cafes, restaurants and bars say they have shouldered more than their fair share of financial losses than others in the “team of five million”.

The “short, sharp lockdown” spoken of by Prime Minister Jacinda Ardern has turned into a gruelling nightmare for some, and there are predictions that many cafes, bars and restaurants, weakened by previous lockdowns may see their owners forced to shut their doors, or sell to stem mounting losses.

Marisa Bidois, chief executive of the Restaurant Association, said there had been a change in mood in the past week among her Auckland members faced an ongoing alert level 4 as the rest of the country moved first to alert level 3, and then on to alert level 2 on Wednesday morning.

Ahn and Pat Chaimontree, owners of the Banh Mi Caphe in Hamilton with their children. Pat Chaimontree says he has to be positive, but it's been a tough 18 months, and he's back to not sleeping well.

“It turned last week. I think people thought this would be a short, sharp lockdown, but the realisation has sunk in,” Bidois said.

A survey of the association’s members revealed 60 per cent said their mental health was suffering as their financial positions deteriorated.

The mounting mental health crisis in the hospitality industry is no surprise to Hamilton restaurant business owner Pat Chaimontree, owner of the Vietnamese Banh Mi Caphe, who feels for his Auckland peers.

When Chaimontree opens his restaurant to level 2 on Wednesday morning, the chances are it will be after a broken night's sleep.

Property, hospitality and transport businesses are among those missing payments on loans, Centrix from data shows.

“I’ve got back into a pattern of not sleeping again,” Chaimontree says.

Still, it could be worse, he says: “We’re lucky we are in Hamilton, not Auckland.”

After being clobbered by the first national lockdown, Chaimontree hunkered down to live on next to nothing to save every penny possible in case they were locked down again.

Others did the same, he says, where they were not struggling under debts incurred to stay afloat.

“We realised we needed to build up our savings. We put away $50,000. That $50,000 has gone down to $15,000,” he says.

Restaurant Association of New Zealand chief executive Marisa Bidois has written again to Finance Minister Grant Robertson pleading for financial support for cafes, bars and restaurants.

While the wage subsidy covers one overhead, restaurants, cafes and bars have other large overheads to pay, including their rents. Chaimontree has been fortunate there.

Unprompted, his landlord called him up to waive his rental payments during level 4.

His bank also called, but only to check he was on track to make a payment to it.

Hospitality business appear to have been remarkably resilient after suffering repeated periods of lockdown, and getting no targeted financial support from the Government.

Deputy Prime Minister Grant Robertson has said he knows hospitality businesses are suffering.

But data from credit reporting bureau Centrix shows the speed at which businesses are closing is increasing, and hospitality businesses are over-represented among those that are missing payments on their debts.

Viv Beck, chief executive of Auckland’s Heart of the City business association, said vacancies in the city's CBD had risen, and she added her voice to calls for the Government to provide targeted support for hospitality businesses.

Bidois says the business failure rate among members of the Restaurant Association has risen to 4 or 5 per cent a year, up from around 3 per cent usually.

Julie White, chief executive of the Hospitality Association, predicts the closure rate will increase further, unless the Government listens to the pleas for targeted support.

In a letter to Finance Minister Grant Robertson on September 3, Bidois called for an “operations lockout subsidy” for businesses locked out of trading.

“There is no doubt that business owners, including our members, are appreciative of the support provided through the wage subsidy provided, however the Government’s Covid-19 response has been largely employee centric,” Bidois wrote.

“Now more than ever, business owners are in need of targeted support in order to mitigate rising fixed costs. This is felt exponentially across our industry because at alert level 4 our businesses suffer a 95 per cent drop in revenue; at alert level 3 this is between 60-40 per cent, and a level 2 where trading is often heavily restricted by spacing rules, single server and other requirements of trading at this level.

Fush owner Anton Matthews expects many cafes and restaurants to close, or change hands, as a result of the financial blows they have suffered.

“While our members are committed to doing their part for our nation, there is a need to acknowledge and compensate those businesses that are bearing the majority of the cost associated with the current response to Covid-19.”

The experiences of cafe and restaurant owners outside Auckland will help indicate how much support is needed.

The move in Hamilton to level 3 resulted in an immediate flow of orders for takeaway food deliveries for Banh Mi Caphe with households far more schooled in online commerce than they were a year-and-a-half ago, says Chaimontree.

But said the Government should have had the foresight to create a certification scheme that would have let cafes and restaurants that could show they met certain standards be certified to take orders online or by phone, and deliver meals duringn level 4.

Data from credit reporting agency Centrix shows company closures are spiking. Defaults on loans by companies are up 11 per cent compared to before Covid-19 arrived in the country, and hospitality businesses are over-represented in companies that have missed payments.

When the prime minister announced on Monday that all but Auckland would move to level 2, people started calling to book places at Chaimontree's restaurant.

He plans to colonise some space outside his restaurant for a short time to increase his capacity. He feels its reasonable because his is an 80-seat restaurant, but he won’t be allowed so many inside.

Requirements for indoor venues at the new level 2 include mask wearing, scanning in, and social distancing, and a maximum of 50 patrons, seated, to eat and drink.

This halves the indoor capacity for hospitality businesses from last year’s level 2 rules.

Local businesses breathed a huge sigh of relief on the first Friday of level 1 on Karangahape Road after the 2020 national lockdown.

Anton Matthews, owner of the Fush restaurant in Christchurch, says: “Tomorrow we are allowed 50 people inside the restaurant, which is better than nothing, but we seat 120.”

The 50 includes staff, so he will be at around a third capacity.

But hospitality margins are thin, and they need to operate at a much higher capacity to run a profit.

Matthews is from a new generation of e-commerce savvy restaurateurs, and worked hard to build a base of customers who order online and then pop by to collect. He hopes that will help offset some of his lost capacity for seated diners.

After the first lockdown, like Chaimontree, he worked hard to build emergency savings in case another lockdown happened.

He’s talked with other owners who hadn’t been able to save cash buffers before the national lockdown began on August 17.

Matthews suspects businesses are changing hands in desperation sales.

“I suspect some people are buying cheap businesses, thinking they will be able to turn them around,” he says.

Such sales won’t show up as people having lost their businesses, but that is what will have happened.

When Auckland finally moves to level 3, it will only provide a financial lifeline to some Auckland restaurants, cafes and bars.

Smaller cafes, like Christy Tennent’s Open on Auckland’s Karangahape Road, have lower overheads than large high-end restaurants, or even businesses like bars and cantinas, whose business models require them to be packed out at the weekends in order to turn a profit.

“I find it hard to feel too sorry for myself,” Tennent says. “I feel fare more deeply for all my friends who have bars and restaurants. Their recovery times are far longer than mine.”

For some Auckland restaurants, it’s not even worth opening under level 3, when it comes.

Bidois says a survey in the first week of the national lockdown showed 31 per cent of the association's members were not planning on opening under level 3.

Pasch thinks many small hospitality businesses could not survive another lockdown, and many won’t make it through this one.

“A lot of people will close,” she said.