New Zealand's shrinking café scene

Tougher economic times and staff shortages appear to be shrinking the number of cafés and restaurants operating in New Zealand.

Stats NZ data shows that last year was the first time in more than 20 years that the number of cafés and restaurants shrank compared to the year before.

Last year, Stats NZ's enterprise data shows, there were 8958 café and restaurant businesses recorded, compared to 8964 the year before. Every other year in the data the number of enterprises recorded held stable or increased year-on-year.

There are still twice as many as in 2000.

Data from economist Shamubeel Eaqub showed that the number of food and beverage and hospitality businesses in New Zealand had grown more than 30 percent since 2000, on a per capita basis.

"It has also grown as a share of the economy. It's fine when things are going well, but it becomes a fight for stretched consumer dollars in a recession. Butter spread too thin…

"The reality is we have a record number of hospitality businesses in New Zealand today - too many. We've seen too much growth in hospitality businesses in the last five years relative to population. Interest rates were free, money was sloshing around in the economy.

"People couldn't travel - there was savings in the economy for a change. That period was unusual so there's a real snap back taking place on top of the recession."

Centrix data shows there were 47 liquidations of cafes alone in the last 12 months, up 24 percent year-on-year. Cafés were three times more likely to fail than typical New Zealand businesses.

Trade Me said there were 83 café businesses for sale in July.

'Double whammy'

Eaqub said liquidations would be at the extreme end - most businesses would just close when they were no longer viable.

"This is when we would expect to see it. The worst time of a recession is the winter... it's a double whammy, there's the seasonal low and the recessionary low happening at the same time."

He said hospitality businesses were usually at the "bleeding edge" of downturns. Stats NZ said there was $17 million less spent in hospitality businesses in July compared to June, a drop of 1.4 percent.

Eaqub said the inflation rate for cafés and restaurants was still relatively high and if people were struggling with the cost of living, it would make sense they would cut down their spending. Restaurant meals and ready-to-eat food had an annual inflation rate of 3.7 percent in July, compared to 1.7 percent for groceries and a fall of 1.1 percent for meat, poultry and fish.

Businesses reported people coming in but spending less, which was a problem for those that had fixed costs to cover.

Marisa Bidois, chief executive of the Restaurant Association, said she had heard from business brokers that it was a busy time for cafe and restaurant sales.

"There are at times difficult decisions business owners grapple with on the financial realities of running a hospitality business. However, on the other hand, this is a normal part of the hospitality industry's ebb and flow. People are always entering and leaving the market, which keeps it dynamic and full of opportunities."

She said the small fall in the number of outlets in recent times reflected the environment the industry was facing.

"While we have typically seen a three percent annual increase in the number of outlets in a normal year, the current situation has been impacted by several factors.

"First, the lingering effects of the pandemic are still being felt. Many businesses are focused on paying down debts incurred during this period, and accessing new loans has become more difficult due to higher interest rates."

This financial pressure has understandably led some operators to be cautious about expanding or opening new venues.

"Additionally, the staffing shortage that has plagued the industry over the past couple of years cannot be overlooked. We know from our members that many had plans to open second or third locations but decided to put those plans on hold due to uncertainty about whether they would be able to find the necessary staff to run these new outlets. This hesitation has contributed to a decrease in the number of new openings in the industry."

But she said the industry was resilient and growth in the number of outlets should resume once economic and staffing challenges passed.

Infometrics chief forecaster Gareth Kiernan agreed the hospitality sector had been hampered by lockdowns and social distancing requirements, so it was not clear that it had been too buoyant in recent years.

Things had probably got worse since that data was last updated, he said.

"It's also interesting that the latest year's numbers are worse than the GFC.

"The immediate impact of the GFC on the economy was much more heavily felt by businesses as financial markets tightened up and restricted business activity; as opposed to the current downturn which has been much more led by households, as interest rates and other living costs have risen and really hit discretionary spending.

"A mitigating factor for the economic downturn in 2008-2011, from a household perspective, was the rapid shift to much lower mortgage rates, which effectively freed up more money for other purposes.

"Although people will have been more cautious with their spending given the deteriorating labour market and economic uncertainty, there will have been some cushioning effect on household demand from the lift in money for discretionary spending."