Hospitality industry ‘bears the brunt of rising inflation’

Rising services inflation has hit the hospitality industry hard, but improving staffing levels offer a glimmer of hope for the sector.

The food and beverage industry has been heavily impacted by services-based inflation in recent months, with restaurants and cafes still dealing with significant cost increases, according to CreditorWatch.

CreditorWatch chief economist Anneke Thompson said these types of businesses are labour-intensive, and the goods they buy fluctuate daily based on supply and demand.

“Unfortunately, cafes and restaurants are unable to change the prices they charge customers with as much regularity as their suppliers can change prices on them, and as a result, margins are very thin, and insolvencies higher than all of the industries we monitor,” Ms Thompson said.

The food and beverage service industry is also heavily reliant on discretionary spending, which is currently in decline. Ms Thompson said this places the sector at the highest risk of default.

The latest Australian Securities and Investments Commission (ASIC) statistics indicate there have been 1,057 insolvencies within the accommodation and food services industry this financial year so far. This represents around a 55 per cent increase from the previous financial year.

CreditorWatch chief executive Patrick Coghlan said that while the latest Business Risk Index showed an uptick in trade receivables across different industries, other important indicators were concerning.

“The pick up in trading activity is great to see, but my excitement is tempered by our data on external administrations, in particular, which are rising across almost every industry,” said Mr Coghlan.

“While this is a return to pre-COVID levels in most instances, the rate of external administrations in industries such as healthcare and medical telecommunications is beginning to exceed that.”

Ms Thompson said the economic cycle has reached an unsustainable stage where business conditions are generally good but consumer demand is plummeting.

“Given all the incoming data, there is little doubt that default rates and external administrations are going to increase,” she said.

“The areas that are going to be particularly impacted are those that are most reliant on labour, as labour supply still appears to be in strong demand, despite high overseas migration.”

Staff shortages improving for hospitality

A NAB Business Insights report revealed that labour shortages improved slightly for small and medium businesses in the first quarter of 2023.

“With international borders now open, increased skilled migrant quotas and improved skilled migration program processes, there has been an easing of shortages in some industries,” the report stated.

It will take time before these changes have a material impact on some industries, with many firms continuing to experience severe recruitment difficulties.

One in three SMEs still considers labour shortages to be a significant issue for their business, a slight improvement from the previous quarter. Labour shortages significantly improved for the accommodation and hospitality industry, with only 17 per cent of businesses identifying it as a significant issue for their business.

“SMEs in accommodation and hospitality are now being least impacted after having been among the hardest hit at the same time last year,” the NAB report said.

This article was originally featured in HR Leader’s sister brand, Accounting Times.