This article is by Perceptive
Despite a vaccine rollout and new travel bubbles opening, our hospitality businesses are still struggling from the long-term impact of Covid-19. While there are multiple factors at play, one of the most significant causes is the changing consumer habits brought about from the pandemic.
“People are going out to hospitality venues less and are treating those outings as an occasion rather than a daily, weekly or monthly ritual,” says Oliver Allen, General Manager at Perceptive.
This shift in habits has hit the New Zealand hospitality industry particularly hard. All four hospitality categories examined in the study (Quick Service Restaurants (QSR), Takeaways, Pubs/Taverns/Bars, and Cafes/Restaurants)experienced double digit revenue reclines in January 2021 compared to January 2020.
But to understand the scale of the changes and the struggles hospitality businesses are facing, we need to tell the story from the beginning.
About the study
To put together the timeline and highlight how consumer behaviour has changed, Perceptive used Paymark’s transactional dataset—the largest of its kind in New Zealand—to analyse credit and debit card data from 2019, 2020 and 2021 in four key hospitality categories: QSR, Takeaways, Pubs/Taverns/Bars, and Cafes/Restaurants.
The study analysed credit and debit revenue across hospitality categories in 6- to 10-week periods to establish a valid year-on-year comparison. These periods exclude any Covid lockdowns and seasonal holidays to provide a clearer picture of how Covid-19 changed New Zealanders’ behaviours outside of lockdowns. Perceptive identified New Zealand-only cards (i.e. not tourist cards) and compared the number of transactions and average bill size in 2020 to 2019 and the start of 2021 to early 2020.
To further understand Kiwi sentiment towards the hospitality industry throughout 2020 and the start of 2021, Perceptive ran a national survey of close to 1000 New Zealanders and weighted the results to align with census data.
January 2020: Pre-Covid, the hospitality industry was performing well
New Zealanders were going out to eat and drink more often than in January 2019, with a 28% increase in transactions across all categories, resulting in strong revenue growth.
- The number of transactions was up between 25% to 32% across the four categories of the study.
- Revenue growth was also up between 23% and 34% across the four categories.
“Pre-Covid, the hospitality industry was absolutely pumping,” says Allen. “When we reran the data to include tourists and compared it to our initial data that excluded them, we found the growth higher in the non-tourist set. This indicates that Kiwis were primarily the ones driving the industry’s growth.”
June 2020: Hospitality bounced back strong after the first lockdown
Kiwis surged back to our much-loved pubs, taverns and bars and QSR establishments resulting in an increase in number of transactions across all regions and categories. We also spent more per visit at QSR and Takeaways after many weeks of home-cooked meals.
- All four categories experienced year-on-year revenue growth ranging from 15% (Takeaways) to 23% (Pubs/Taverns/Bars).
- QSR saw a 10% increase in average spend per visit and 6% more transactions, showing Kiwis were going to these establishments more and also spending more than usual when there.
- Pubs/Taverns/Bars saw a 24% increase in transactions but our average spend remained unchanged compared to June 2019.
“While we didn’t change how much was spent at each pub, tavern and bar visit, the number of times we visited skyrocketed, overall spending more year on year for this period,” Allen says.
Many Kiwis paid down debt during the first lockdown. This combined with not being able to go out for several weeks meant many Kiwis had extra cash on hand.
“People were making up for those lost weeks. We see it across all of hospitality (and outside it too),” says Allen. “Kiwis were likely taking the opportunity to catch up with friends and family whom they’d been forced to put off seeing during alert levels two, three and four.”
However, despite the surge of hospitality visits, the majority of Kiwis (73%) were still worried about going back into lockdown and catching the virus.
September 2020: Behavioural change sets in post second lockdown
As we came out of the second lockdown, the impact of changing consumer behaviour on the hospitality industry started to become apparent. While New Zealanders still flocked back to their favourite establishments, they did so slower. People did not rush to return to normal like they had after the first lockdown.
- Revenue growth ranged from 11% to 13% increases compared to 2019, with Pubs/Taverns/Bars leading the way.
- 23% of New Zealanders didn’t rush to make plans with friends and family and 19% claimed they went out less than they did after the first lockdown.
However, the second lockdown saw the start of notable change within Auckland with people in the region shifting towards takeaways and QSR as they tried to stay away from crowded venues. This resulted in Auckland Pubs/Taverns/Bars seeing a 16% revenue decline, while Auckland Cafes/Restaurants also saw a 10% revenue decline compared to the same time in 2019.
Worry also remained high with most Kiwis (61%) still worried about Covid-related risks after the second lockdown (compared to 73% after the first lockdown).
“After the first lockdown, people flocked back to their usual hospitality venues,” says Allen. “However, when the second lockdown in August came, reality sank in: lockdowns could and can happen at any time. Covid-19 wasn’t a one-time event; it was reinforced as an ongoing threat. The uncertainty that cases could appear and send us into lockdown started to drive home, causing more sustained behavioural change, such as staying home more and spending with caution.”
January 2021: New habits stick, summer holidays slump*
Comparing January 2020 to January 2021 shows an even more pronounced behavioural shifts. All categories within hospitality saw declines in the number of transactions.
At the same time, spend per visit increased, demonstrating the behavioural shift of Kiwis going out less but making it more of an occasion of it when they do.This shift was seen across the country and resulted in declines in revenue across all hospitality categories.
- Revenue declines ranged between -11% to -15% with Pubs/Taverns/Bars being hit the hardest.
- Number of transactions dropped between -16% and -21% (going out less).
- Average spend per transaction rose between 3% and 8% (treating it as an occasion).
Given this is only comparing Kiwi spending from 2020 and 2021, and that summer is a prime international visitor time of year, the impact to hospitality in summer 2021 was significant.
A key theme emerging was many Kiwis were still avoiding public settings.
- 21% claimed they spent less eating out in January with 19% of this group citing crowds and the risk of catching Covid-19 as key reasons why.
When we delve into what drove the behavioural shifts over summer, we start to see the haves and have nots that have be born out of Covid-19. While 16% of Kiwis treated themselves and spent more on their holidays this year, 29% cut back. These findings were echoed in the hospitality transaction data.
*Data from this period is limited to 6 weeks, excluding the first week of January when many businesses are shut and ending on 12 February before the two lockdowns/alert level rises in mid-February.
Now: Covid lifestyle changes have sunk in
Over a third of Kiwis claimed their lifestyle values have changed since the Covid-19 lockdowns. These have shifted to focus on family, health, friends and time.
Nearly half of Kiwis agree that they now go out for dinner less frequently than they did before Covid. While 43% are trying to save money due to uncertainty, 35% do so because they enjoy staying at home more after getting used to it in lockdowns.
We’ve also seen a shift towards self-care with three-quarters of New Zealanders investing in themselves in the last year, be it subscribing to a TV service, a self-care routine, or education. For just over a third who invested in self-care, this involved spending conscious time with family and friends.
“The lingering uncertainty of Covid-19 is driving embedded behavioural changes,” says Oliver Allen, General Manager at Perceptive. “Not knowing what the future holds means people are more cautious, preferring to save for a rainy day and avoid unnecessary risk while also reaffirming the values they find the most fulfilling. People’s habits have been reformed in subtle but important ways and this is playing out more strongly in the hospitality sector.”
Read the report in full here.
Hope ahead for struggling hospitality businesses
According to the Restaurant Association, while many businesses are starting to recover revenue-wise, those in tourist hotspots are still struggling.
“The biggest single issue facing the industry now is staffing,” says Marisa Bidois, CEO of the Restaurant Association. “With borders closed, we’ve lost access to our temporary migrant workforce. Under normal circumstances, approximately 30% of our industry is made up of those on temporary work visas and in some cases, that figure is closer to 60%.”
Currently, the industry has around 15% of the workforce of temporary visas. This means existing staff are working very long hours and businesses are being forced to close their doors.
“The compounding losses of last year means that many businesses owners have had to make some very tough financial decisions,” Bidois says. “Depending on how much cash flow they had to start off with, many are in a very precarious position. Diners are returning but the staffing crisis means many can’t offer their full service, which is impacting revenues.”
Add in low margins, the rising cost of materials, compounding debts and city centre workers continuing to work from home and it’s a sobering picture. This is why the Restaurant Association delivered a petition to Government asking them to adopt the Dine Out To Help Out scheme in New Zealand (based on the UK’s Eat Out To Help Out scheme) to encourage diners back to businesses again and to stimulate the economy. The initiative would also help alleviate some of the financial uncertainty and desire to save that is currently weighing on many Kiwis minds when deciding whether to eat out or not.
There’s no denying the last year has seen a distinct shift in values and behaviour. Uncertainty is driving frugalness and many of us have returned to time-honoured values of family and friendship to see us through. Perhaps there is an opportunity for hospitality to remind Kiwis of the role the industry plays in bringing people together. After all, the fondest memories are made when gathered around the table.