I’m a bit concerned about some of the trends I see happening in Sydney lately. The last few months have been unusual for me in that I have travelled up and down the east coast on various projects over a short period of time. It’s not that I don’t travel much normally — I’m on the move constantly — but I don’t normally get to spend as much time interstate as I have recently.
As a by-product of this travel I have had a better than normal opportunity to closely examine a variety of hospitality and foodservice businesses in both Sydney and my native Melbourne at the same time. We do live in quite interesting times.
Sydney is lucky at present, it is booming, the skyline is dotted with cranes, there is building going on everywhere, most hospitality businesses report good cashflow, everyone seems to be optimistic and menu prices in the top restaurants are reaching the point where I demand the meaning of life with the bill (In one of their new, ultra-trendy eateries I got charged $22 for a small entree of tripe. Jeeeeeeeezus! I’m still limping. You figure out the margin on that dish).
It’s mostly to do with a potent mixture of greed and the Olympic Games. Both the NSW Government and private enterprise are pumping money into Sydney like there’s no tomorrow. They’ve created an artificial economy that’s big, vibrant and very, very temporary. On one hand it’s a joy to behold if you’re a Victorian used to the steady-as-she-goes pace, but on the other hand I don’t want to be around in Sydney when the boom comes down, unless of course I’m a cashed-up property developer looking for dirt cheap bargains.
It’s ironic when I think about it, really. I’m living in the wrong place for the next eighteen months. Down in Melbourne we had the opening of the grossly oversized Crown Casino furiously sucking money and staff away from the hospitality industry and generally providing the full gamut of management challenges, while up in Sydney they seem to have the opposite situation. The NSW State Government is opening the coffers and throwing eye-watering amounts of money at Sydney, getting it tarted-up for international scrutiny. It’s sort of similar to how we buy a bunch of flowers and rush around tidying the house before guests arrive, but on a slightly grander scale.
My nose and my research both tell me that the powers that be are substantially overcapitalising the Games and that NSW will probably be very strapped for cash after the whole thing finishes. At present, most of the money being poured into the construction industry and the Olympic infrastructure is flowing out into the wider community and presenting the illusion of a very healthy economy. It might be good politics, but it could be a potential disaster for small and medium sized businesses when the situation returns to normal — and most of the hospitality industry are small or medium sized.
A general decrease in disposable income, like the one you will probably get in Sydney after the Games is likely to severely affect the cashflow of those hospitality businesses positioned at the top, and generally affect the cashflow of those at lower levels for quite some time. If human nature is true to form, by the time cashflow declines a frightening proportion of the business owners in Sydney will have become used to the flow of money and would have geared their lives on the false assumption that it will continue. It’s possible, but highly unlikely.
I’m also striking a quite irrational optimism about the financial benefits expected from the Olympic crowds themselves. I wonder if any of the owners of top-end businesses in Sydney have bothered to look at the statistics from previous Olympics? I have. I think a lot of people have missed the fact that visitors to the Games are largely a sports crowd. Pretty good information is available from both the Atlanta and Los Angeles Olympics in the US that suggests that it’s the mid and lower sections of the hospitality market that are likely to do well out of the type of visitors that will come for the Games, not the top end.
I’m also wondering how hospitality operators are going to staff their businesses during the Games. I figure any warm body capable of carrying a plate or lighting a barbecue is going to be in big demand during the main four weeks of the event, and will be able to auction themselves to the highest bidder. Skilled hospitality staff are already very thin on the ground, so the situation will only get worse. I can only imagine the frustration of having the potential for a boom month, only to find all your skilled staff are suddenly ‘sick’, because someone else is offering them $25 or $30 per hour.
Of course I don’t want to put a damper on proceedings, even though I’ll probably get accused of it, just ‘cause I come from Victoria. I just want those of you who operate hospitality businesses in Sydney to be really careful. Don’t get too carried away by the media hype and all the huffing and puffing — take a good look at the opportunities logically, not emotionally. It’s really easy to get so close that you lose track of the big picture and get sucked-in by the group behaviour around you. I’ll see you up there. I’ll be the one dusting the cliff in preparation for the procession of financial lemmings.