Publicans are singing the blues as the recession causes increasing numbers of them to call last orders.
Last week three prominent Auckland bars – Lenin and the Minus 5 vodka bar, both located on Princes Wharf, and O'Carroll's Irish pub in Vulcan Lane – were all tipped into receivership by their financier, South Canterbury Finance.
Receiver Brian Mayo-Smith, of BDO Auckland, said the bars were continuing to trade and new management had been put in place, but it was too early to say what their long-term prospects were.
They are the latest in a rash of high-profile hospitality venues which have struck financial difficulties or been forced to close over the past few months. The list includes the swish Opium cocktail bar on Auckland's Aotea Square and the upmarket Pinot function centre overlooking Auckland's Orakei Basin, both of which are in liquidation, and the collapse of Oasis Properties' pubs, which included such well-known venues as the Albion, the Carlton and Muddy Farmer in Auckland, the Brian Boru Hotel in Thames and the Spa Hotel in Taupo.
A handful of venues owned by Christchurch businessman Dave Henderson have also been placed in receivership.
Figures released last week by Statistics NZ show why so many venues are struggling. During the recession, the hospitality industry has been one of the hardest-hit retail sectors, with pubs and bars bearing the brunt of the downturn.
According to Statistics NZ's Retail Trade Survey, turnover at bars and clubs declined by 9.2% in the four months to September, compared with the same period last year.
Cafes and restaurants barely held their own during the same period, with sales up a minuscule 0.3% compared with last year, while liquor retailing (bottle stores) showed 0.5% growth.
The biggest winners in the eating out business were takeaway outlets, which increased sales by a whopping 9% in the four months to September compared with last year. Total non-automotive retail sales increased by 2.8% over the same period.
However the number of outlets closing may be just the tip of the iceberg for venues facing difficulties.
Hospitality Association chief executive Bruce Robertson said up to a quarter of the Association's 2500 members might have their businesses on the market.
"I'd suggest the majority of those aren't leaving because they've made a poultice of money and are off to the Gold Coast to retire," he said.
However, many were having difficulty finding buyers in the current market.
Robertson said the association had lost about 100 members over the last year who had been forced to close after they were unable to sell their businesses.
The pressure was being felt in all regions and by all types of outlets.
"The whole thing has been extremely patchy," Robertson said. "Most operators have tightened and refocused and have got a really close watch on what they are doing, and are looking to provide New Zealanders with an excuse to get out of their hibernation.
"Certainly, there's no doubt that what was a very wet winter hasn't helped either. Factors like weather do have an impact."
Insolvency specialist Gareth Hoole, of accounting firm Staples Rodway, thinks the worst may be yet to come.
"I think it's probably going to get worse. While everyone's saying the recession's over, I think there's still a lot of pain to be felt and where it will be felt is in people's discretionary spending. They just don't have that extra cash to spend," he said.
Many hospitality businesses were hoping for a good trade over Christmas and if that didn't eventuate, the outlook was grim.
"It's just getting a bit hard for many restaurant and bar owners to keep going," he said.
Many traditional pubs were also being hit by a downturn in spending on pokie machines, which generated a considerable amount of revenue for some outlets, Hoole said.
Another problem for bar owners was that they had to keep spending money on their premises to remain popular.
"Places go in and out of vogue. Someone opens a new place and everyone goes there, and then another new one opens and all the clients leave and go to that one. So there's a lot of churn," Hoole said.
"In order to keep a place popular, they have to keep refreshing it, which costs a lot of money for the fit-out and things like that.
"Typically what we [receivers] find is that bars spend a hell of a lot of money on fit-out to make it
an attractive venue and then it's difficult to service the debt, with frustrating results. That's where they get into difficulty."
Hoole did not think there were too many venues for the amount of available business. "They've succeeded in the past, but a lot have just spread their dollars a little thin."
Meanwhile, problems in the hospitality sector have highlighted the riskier lending practices of South Canterbury Finance. Although SCF likes to promote itself as being mainly involved in so-called heartland industries such as farming, recent collapses have exposed the company as a significant player in the bar and pub business, which is regarded as high-risk even in good times.
As well as being the major secured lender for the Lenin, Minus 5 and O'Carroll's bars which went into receivership last week, SCF was the major financier of the Cargo restaurant and bar chain which was tipped into receivership in July. The company operated 12 outlets around the country, including the Boiler Room and Minus 5 in Queenstown and Merivale Ale House in Christchurch. The receivers' report shows the company had debts of $10.1m, with $7.8m owed to SCF.
- © Fairfax NZ News
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