A “Tale of Two Cities”, the vivid metaphor of Dickens novel juxtaposes the red wine flowing in the streets before, to the red blood that will flow tomorrow. Could this be an apt analogy on the challenges confronting the hospitality industry in Australia today?

As the immense challenges affecting the hospitality industry play out during the disruptions caused by the Covid 19 pandemic, it is worth analysing the factors that are impacting this vibrant and economically important industry and how business brokers continue to play an increasingly important role in realising opportunities for sellers and buyers.

This business sector, even before Covid 19, was being severely disrupted by technology ( ie UBER), increasing costs particularly in wages, occupancy, utilities and cost of goods, a shortage of highly skilled hospitality professionals and with a price ceiling imposed by massive competition. Covid 19 has exacerbated further these challenges by disrupting and changing the very way we live.

• Working from home has had a devastating impact on city centre hospitality outlets whose sales have seen dramatic falls. Commensurately, outlets in the suburbs have experienced significant growth in sales. This change may partially permanent.
• Wage cost will continue of rise and will force business owners to re evaluate their business models. This will come about through greater use of technology at the point of order and through menu engineering and labour-saving technology in the kitchen. 30% or less wages can be realised, it requires a different mindset. I have seen a restaurant that has reduced its trading days from 7 days to 5 days reengineered its menu offering. Achieving, no reduction in sales, wage cost reduced  by $250k per annum and a doubling of profits! Offering takeaway services to expand the reach of their products and services is now almost essential for many restaurants.
•  Occupancy costs. In many cities across Australia many hospitality businesses have been paying rents on the upper end of the rent cycle with rents in excess of 10% of turnover. This is a very important benchmark, with compounding annal increases this cost can compromise the viability of a business without increases in sales to compensate for an increase in this fixed cost. Many businesses have received deferred or reduced rents to assist through lockdowns or reduced trading as a consequence of Covid 19.
• Utility costs and have seen significant increases, with even the humblest cut of meat reaching prime cut costs
• The shortage of qualified (or unqualified) staff has reached a crisis point. There is approximately a 30% vacancy rate for all hospitality staff across Australia. The industry has historically relied on backpackers and foreign students to fill many hospitality positions and that source has currently been extinguished.
• High levels of competition. It has been estimated that between 5% and 10% of all hospitality business across Australia will not reopen. This reduction in competition should ultimately benefit trading businesses.
• Australia has historically spent more than $50billion per annum on overseas travel. A portion of the money is now being spent internally within the hospitality sector. I know of restaurants whose sales and profits have increased significantly.

Using a skilled and knowledgeable business broker with an intimate knowledge of the industry, who can provide sound advisory services, who have a broad understanding of the industry, who have the confidence and knowledge to be able to provide a valuation based on an intimate knowledge of the market and is capable of factoring in the variances caused by Covid 19, is key to achieving a successful sale in the current market. I believe that it is advisable to look for a Business Broker who is a Registered Business Valuer (RBV) when choosing a Business Broker.

Sellers who have responded positively to the challenges posed by Covid 19, will undoubtedly be in much stronger position to sell their businesses.

The hospitality industry is in the lifeblood of Australia. It is an industry that satisfies the creative flair and instincts in many people, it has dynamism, it offers fun and an excellent platform for securing an income for a whole family. Consequently, we are seeing many active buyers in the marketplace.

The questions posed was, “is your hospitality business sellable?”, well the answer can be a resounding “Yes”.

Are you in the process of launching a new product, do you require components to be manufactured? It has become the norm for anyone in Australia requiring to have a product manufactured, to automatically source overseas. In Australia, the general consensus is that our manufacturing industries are not able to compete with overseas prices. That is definitely not the case for a number of products manufactured in several different industries. Even if the price of an Australian product is slightly higher, think of the benefits of manufacturing in your own backyard. These benefits include but are not limited to the following:

• The opportunity to oversee and control the complete manufacturing process.
• Ensure that the quality is maintained at every stage, from tooling, to manufacturing, to assembly, to packing. It may be too late when the product has already been shipped from overseas and delivered to your warehouse.
• Reduce the huge impact of having faulty products delivered from the overseas manufacturers and the associated rework or scrap costs. The unavoidable delivery delays, the possible cancellation of orders and the loss of sales.
• Shorter delivery times, no long shipping delays, no hold up at the docks.
• Avoid the possibility of a non-delivery of your products from an overseas manufacturer due to Covid-19 like situations.
• The drastically reduced inventory and reduced warehousing will result in less of your capital being tied up.
• Being able to proudly advertise that your product is Made in Australia, especially in these uncertain Covid-19 times.

Next time you are considering manufacturing a new product, take a moment to think about the benefits of manufacturing in Australia. Think about it seriously, weigh the pros and cons and allow Australian manufacturers the opportunity to quote before you rush overseas.

The U.S. stock market is experiencing a significant downturn, primarily driven by a substantial sell-off in the technology sector. This decline was largely attributed to the emergence of DeepSeek, a Chinese AI startup that unveiled a powerful generative AI model developed at a fraction of the cost incurred by U.S. tech giants. The news led to a sharp decrease in the valuations of major tech companies, with Nvidia's market capitalization plummeting by approximately $600 billion—the largest single-day loss in U.S. market history.

The ripple effects of this U.S. market downturn were felt in Australia, though the impact was relatively muted. The ASX 200 index closed down slightly by 9.80 points, or 0.12%, at 8,399.10 points. Analysts suggest that Australia's limited exposure to the tech and AI sectors contributed to this resilience. However, the energy sector, particularly uranium shares, faced significant declines. Conversely, sectors such as consumer cyclicals, communications, healthcare, and financials saw gains, with notable performances from companies like Wesfarmers and Aristocrat Leisure. Major banks, including Westpac, ANZ, and NAB, also outperformed the market, each recording gains exceeding 1%.

The Australian dollar experienced a decline of 0.6%, settling at 62.51 US cents. This depreciation is partly due to the U.S. dollar's strength amid global market uncertainties. A weaker Australian dollar can lead to increased import costs, potentially exerting inflationary pressures on the domestic economy. The Reserve Bank of Australia may need to consider these factors when deliberating on interest rate decisions in the near future.

In summary, while the U.S. market downturn has had some impact on Australian financial markets, the effects have been relatively contained. Australia's diversified economy and limited exposure to the tech sector have provided a buffer against the more severe repercussions experienced in the U.S.

Maria Delbridge

Business Manager Edge Concepts (Qld) Pty Ltd

Here’s a breakdown of what stood out during the process:

1. Expertise and Industry Knowledge:

Our first meeting with Arnold was to look at purchasing a different business. Our discussions that followed this initial meeting guided us to another business which was under offer. We decided to place an offer on this business regardless in case the sale fell through, during this process Arnold provided regular updates. He understood the key factors we needed to evaluate when searching for different businesses, and provided valuable insights into the financials, operations and discussed potential risks with us when raised of other potential businesses we explored. When the deal fell through, we were able to proceed, and Arnold was instrumental in maintaining momentum throughout.  He supported the purchase process from the offer stage, through our lengthy due diligence and a few hurdles that emerged during the legal process. Arnold’s natural capability to manage both the buyer and seller with ease and transparency is fundamental to his success as a broker.

2. Excellent Communication:
Every step of the process was clearly communicated, Arnold kept me informed on progress, timelines, and the next steps, and he was always available.

3. Personalised Service:

What I appreciated most was his personalised approach, Arnold took the time to understand our specific needs and preferences and only presented businesses that were a good match. Arnold is able to ingeniously manoeuvre different personality types adapting his role accordingly to ensure the best outcomes are achieved.

4. Smooth Transaction Process:

Arnold was instrumental in ensuring a fair and smooth transaction. Arnold expertly acted as a mediator between both parties, enabling swift resolutions when issues were raised, this was achieved smoothly and amicably.

5. Post-Sale Support:

Even after the sale was completed, Arnold checked in to ensure the transition was going smoothly. This level of follow-up and care is a clear indication of Arnold’s ethos of going above and beyond for both buyers and sellers alike.

I cannot recommend Arnold highly enough to anyone looking to buy or sell a business. Arnold made what could have been a stressful and complicated process as straightforward as possible.

In a market where price often trumps quality, the analogy of a low-cost car tyre serves as a poignant reminder of the pitfalls of choosing services based solely on fees. While a $10 tyre may attract numerous buyers, its short lifespan reveals a critical lesson applicable to various industries, including business brokering.

It is disheartening to witness some business brokers slashing their fees to attract listings, fully aware that such reductions compromise the quality of service they can provide. These brokers prioritise quantity over quality, believing that an extensive portfolio of listings will enhance their appeal to potential sellers. However, this approach often leads to disillusionment for those who engage them.

Just as buyers of cheap tyres eventually face the consequences of their decision, so too do sellers who opt for low-cost brokers. Many find themselves in a frustrating predicament, discovering that their business remains unsold due to inadequate marketing strategies and lacklustre engagement. The reality is that effective business brokering requires experience, dedication, and a robust understanding of market dynamics—qualities that cannot be matched by a mere reduction in fees.

As a professional in this field, I often encounter sellers who, after experiencing the shortcomings of a budget broker, turn to me for assistance. There’s a certain satisfaction in helping these individuals realise the value of investing in quality representation. A competent business broker not only understands the intricacies of the market but also employs tailored strategies to ensure that your business receives the attention it deserves.

In conclusion, while the allure of low fees may be tempting, it is crucial for sellers to recognise that quality service often yields far greater returns. Engaging a high-quality business broker can make all the difference in successfully navigating the complexities of selling a business. Prioritising expertise over cost will ultimately lead to a more favourable outcome, ensuring that your business is presented in the best light possible to potential buyers.