Does hospitality still offer opportunities for workers and investors alike?

Pubs, bars and restaurants in Australia generate nearly $17bn in revenue, yet with over two years of intermittent lockdowns, increasing labour shortages, and industry consolidation, does hospitality still offer opportunities for workers and investors alike?

In the third of the Quantaco series of webinars, industry leaders continued the conversation to ensure the hospitality industry thrives when lockdown lifts. Scott Barber Quantaco's Chief Commercial Officer was joined by Paul Waterson, CEO of Australia Venue Co., Jason Marlow, MD of Marlow Hotel Group and Anthony Sullivan, Founder and CEO of Quantaco.

Hospitality is seen as a great investment opportunity

While lockdowns have halted some parts of the economy, it has for some created an opportunity with over $290bn invested in Australia through stimulus packages and the Australian share market hitting a record high last month. According to Anthony Sullivan, this translates into a "tsunami of cash waiting to be invested", and hospitality could well be the recipient.

Hospitality is a fragmented industry, with about 90% of the venues privately owned. It has traditionally been an asset not well understood by institutional investors; however, that is starting to change. Consumers have been rewarding good operators with loyal patronage, and the sector has and will continue to grow, "both private and corporate investors are now noticing it as they see opportunities to scale", Sullivan continues.

It's a data-driven evolution, not a revolution

"I'd caution against widescale change to the business model", suggests Paul Waterson who's group have 30 venues that have been continuously operating for up to 180 years from the same location "not many businesses can claim that", he continues. One area of significant change, however, is in the use of data to drive decisions. AVC has two million members on their database, so they know who buys what and when and can use this information to better serve their customers' needs. Paul warns of using technology as a proxy for labour reduction but instead “use it to free people to deliver a better, more hospitable in-venue experience”.

Turning a good pub into a good business

Jason Marlow believes having a good pub is measured by having revenue and patrons, but that doesn't always translate into a good business. His five-point plan has been a guiding principle to the success he has seen both owning and running venues:

1.       Excellent bookkeeping; industry benchmarking, and knowing your margins

2.      Engineer to scale; don't let unprofitable offers hinder more profitable ones

3.      Sustainable and maintainable; make decisions with longevity in mind

4.      Consistent revenue; good modelling, and good wage control will help maximise profit

5.      Diversified revenue – maximise every income stream from a broad range of sources

Labour and localisation are areas to consider

The labour crunch is real, with many having left the industry throughout lockdown, compounded by the lack of labour inflow from overseas. Paul Waterson believes "there will be massive labour shortages into 2022 that we need to be planning for now; otherwise you are going to miss one of the biggest boom times this sector will have seen"

The panel was unanimous that it is an exciting industry, and we needed to get the message out. Sullivan believes "it's a great opportunity to understand the nuts and bolts of running a business, you get great autonomy and really valuable, transferable skills".

Waterson was bullish on the return to CBD venues and discounted the theory that suburban pubs will reap the benefits of new behaviours such as working from home. "People have been working from home for nearly two years, they are desperate to meet their colleagues in person, and the natural place for that to happen is in the pub", he continues "expect for more midweek drinking and smaller Christmas parties as people look to connect with colleagues when they can".

Lease length provides optionality on strategies

The variety of lease lengths on offer requires a different approach; shorter leases are cheaper but need a more operational focus to yield returns. Longer leases allow for asset improvements to be made and, in many ways, share the same fundamentals of a freehold operation. Jason Marlow believes there are opportunities in both, but he encourages anyone looking to enter the market to "buy a cheaper, shorter lease, back their skills and go for it".

AVC are comfortable with long leases as it allows them to apply their 'reverse mullet' strategy as jokingly described by Waterson. "Party up front, all business at the back" – in simple terms, it allows for a consistent approach to back of house operations but to allow front of house to reflect the needs of the local environment they are operating from.

New entrants and niches are most likely

These are challenges times for hospitality, but there is a strong belief the worst is behind us, and the pent up demand for hospitality services will see great opportunity. "We are likely to see lots of people coming into this space in the next five years, likely senior venue managers moving into ownership", believes Waterson. Jason Marlow believes carving a niche makes the most sense for those looking to enter the market "find something and do it well so you can upscale the offer and charge a premium", but he did offer a word of warning " you do need to be there every day keeping an eye on it".

In summary, while we may be experiencing short term challenges there is no doubt that future  is very positive for everyone involved in the industry.

A recording of the webinar is available here