Finding opportunity in a contracting economy

Congratulations, everybody, it looks like we have avoided a recession!

Wait, are those inflation numbers getting hot again?

Or maybe we are already in a recession, but we don’t even know it yet…

Depending on which corner of the internet you get your news from, and which side of the bed everybody woke up on that morning, the prognosis of the Victorian and Australian economies can vary wildly. What is it they say about opinions and everybody having one…

Anyway, this isn’t an economics blog and I’m not here to read tea leaves, I would much rather talk about something a bit more concrete. 

How does a hospitality business navigate the rough seas of a contracting economy and remain afloat long enough to continue growing when the waves even out and the breeze gets calmer?

This is a painted question because no matter now you slice it, the retail hospitality sector is in a bit of a nuclear winter. We’re stuck between the rising prices of goods and labour, and customers who have less disposable income. As your operating costs increase, you can pass these increases onto the customer and see less revenue in the till as they look for cheaper options in the market. Or you can absorb the cost increases and let them erode your profit margin, leading you to spin the wheels just a fast for less mileage. 

Sound familiar?

It’s a crap choice to make, but maybe there is a third way to look at the situation.

Having racked up a couple of decades in this industry, I can confidently say that not every fight is worth fighting and sometimes you need to know when to pull up stumps and cut your losses. But there are also plenty of times when some creative solutions can keep things ticking along until the market comes out of the deep freeze. 

While we’re on the topic, I’d like to offer some thoughts from the point of view of a consultant whose job it is to support businesses with finding solutions to a variety of problems. 

Sometimes you can look at a situation and know very quickly that there is nothing in your toolbox that will turn it around. Not to say that there is not way out at all, but more so that there is nothing the specific consultant can offer the client. 

Now, I’m going to virtue signal a little here. When you have a client willing to put their trust, money and future in your hands, you have a responsibility to tell them if you are out of your depth. Or if you think that it might be time to look at their options and fold the business. Consultants who take client money knowing there is nothing they can do to help them are no different from a vulture picking away at the carcasses of businesses who could otherwise be salvaged, or at least given a dignified exit. 

Going back to the previous point, there is a lot of value in taking stock of how your business is positioned in a changing economic environment and seeing if there are options that have not yet been considered. 

If your customer base is eroding, do you need to reposition yourself and change your offering?

There is more than one way of delivering value to your customers. Have you thought about consolidating your offering and focusing on quality of delivery?

Or introducing another dimension to the business. Maybe a retail offering alongside the dine-in and take away options?

Think of how the industry pivoted during COVID and you will see brilliant examples of creative approaches paying off. It might not turn into the next concept to make your business go parabolic, but it might get you through the downturn. And the upside is, every economic downturn has a history of creating fertile soil in its wake, leading to strong growth as we rebuild. 

The future belongs to the survivors.

As always, thank you for your time and have a good service.

AK