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What will 2018 bring for business?

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As 2018 rolls into gear, we’ve taken some time to reflect on the successes and challenges for the hospitality industry over the past year to help with our planning for the next 12 months and to address areas of focus.

Certainly, the hospitality industry has a very important role to play in New Zealand’s economy, not only in the social fabric of kiwis, but also as a huge part of the tourism offering, which generates a direct contribution to GDP of $14.7 billion (5.9 percent of GDP).

The first half of this year saw buoyant sales performance for the hospitality industry, with growth of 8.2 per cent for the year ended March 2017 and forecasts to exceed $10 billion in annual sales in 2018.  Combined, hospitality and tourism expenditure was $36.0 billion in 2017, an increase of 1.9 percent from the previous year.

Strong tourism growth was achieved in 2017 for both international arrivals and spend in New Zealand, driven by strong growth in Asian markets, especially China, and in established markets such as the US and the UK. Overseas visitor arrivals to New Zealand increased 8.9 percent. International tourism expenditure was $14.5 billion (contributing 20.7 percent to New Zealand’s total exports of goods and services), while domestic tourism expenditure increased 4.0 percent ($820 million) to $21.4 billion.

While hospitality and tourism is in healthy shape, the industry is not without challenge however, as a recent survey of our members indicates. More than 230,00 people are directly employed in tourism (8.4 percent of the total number of people employed in New Zealand). More than 120,000 of those are employed in the hospitality sector. It is therefore a huge challenge to encourage and retain workers to the industry and as such a labour intensive industry the lack of skilled employees is ranked as the number one challenge for hospitality business owners. Closely following this is managing wage costs, while the third top challenge is building and maintaining sales volume. These challenges are consistently positioned at the top in this annual survey and are also forecast by members to rank first, second and third in 2018.

The Restaurant Association also measures business confidence and over the next twelve months 27.47 percent of the industry is feeling optimistic about 2018, 42.86 percent are neutral and 29.67 percent have decreased business confidence for the year. Many of our members express concern about proposed legislation changes, in particular the prospect that the new Government will clamp down on employers’ ability to access overseas labour.

In addition, plans to lift the minimum wage by around 6 percent per annum over coming years are a major concern to a number of businesses.  This would leave New Zealand with the highest minimum wage relative to average income in the OECD. The main impact will be to improve New Zealand’s lowest-paid workers, at the expense of business profits. While other industries may be able to alleviate labour cost increases by further automating their service, the personal connections made as part of the hospitality service offering come with a heavy reliability on labour. Many members are concerned that they will simply not be able to afford the roll on effect of the increase.

Last year the Ministry of Business Innovation and Employment (MBIE) estimated that a 5 percent lift in the minimum wage would reduce employment by around 3,500 jobs, which would add around 0.1 percentage point to the unemployment rate. The unemployment effect of minimum wages is a contentious issue in economics, but the consensus is that there is some impact. It is small when the minimum wage is low, but gets larger the higher the minimum wage is relative to market determined wages.

We’re also looking at other significant changes in the policy environment over the coming years. This includes the coming introduction of a suite of policies that will dampen the housing market and which will likely have flow-on downside impacts for consumption spending. However, in recent commentary from Westpac, it was outlined that the economy had shown resilience through late 2017 leading us to firmer ground as we start the New Year.  Among the more notable developments has been the downturn in net migration, which we expect to continue for some time and which will weigh on economic growth. At the same time, construction activity has flattened off in the face of difficulties sourcing finance, challenges accessing skilled labour, and rising costs.

One thing is clear, 2018 will introduce a number of changes and challenges to hospitality businesses. The Restaurant Association will be strongly advocating on the industry’s behalf for strategies that address the needs of our flourishing industry and promote economic and business growth.

~ Marisa Bidois

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