More than 2,900 hospitality businesses stopped trading in New Zealand over the past 12 months, an increase of 38 percent, while 422 hospitality companies were tipped into formal liquidation, up 42 percent on the year before. The figures come from credit bureau Centrix, which released its August Credit Indicator report on Monday.
The 422 liquidations represent 1.3 percent of the whole sector, up from 297 a year earlier. Centrix puts hospitality’s liquidation rate at 3.3 times that of the average New Zealand business, the worst reading of any industry it tracks.
Within hospitality, the damage is not spread evenly. Restaurant liquidations rose 43 percent over the year and cafe liquidations rose 27 percent, but the sharpest move was in takeaway food service, where liquidations were up 143 percent. Accommodation, catering services and pubs, taverns and bars all recorded fewer liquidations than a year earlier.
Centrix chief operating officer Monika Lacey told RNZ that slower household spending was dragging on the sector. “If things get tough, you don’t necessarily go out for dinner every week, you might go once a month so it’s a hard part of the economic cycle, when people start hunkering down. The confidence isn’t there.”
Restaurant Association general manager Nicola Waldren said that while 1.3 percent might look like a small share of the sector, every liquidation affects the owner, the staff and the wider community. She also cautioned against reading the numbers as a snapshot of today. “Liquidation figures are a lagging indicator. They reflect the cumulative effect of several difficult years rather than providing a complete picture of how every hospitality business is performing today. Many businesses have spent the years since Covid trying to rebuild their balance sheets and pay down debt accumulated during that period, while also managing rising food, wage, energy and compliance costs and constrained customer spending.”
Waldren said July hospitality sales were up 7.8 percent on the same month last year, the strongest monthly growth for some time. “However, one strong month does not yet amount to a sustained recovery, particularly for businesses still carrying debt accumulated through Covid and the difficult years that followed.”
Across the whole economy, 3,092 companies were liquidated in the past 12 months, up 14 percent. There were 302 company insolvencies in July compared with 276 in July last year, and 267 of those were liquidations. Construction accounted for 28 percent of July’s insolvencies, ahead of property, leasing and hiring on 13 percent and hospitality on 11 percent. Construction still produces the largest raw number of failures, at 764 businesses over the year, but that figure is now broadly unchanged from a year ago. Retail trade liquidations rose 50 percent to 239, transport fell 4 percent and manufacturing was flat.
The quieter number in this month’s report is company closures, which covers every business that shuts its doors rather than only those that go through a formal insolvency process. Centrix says closures rose 26 percent year on year on a rolling 12 month basis. In last month’s report, covering the year to June, the same measure was up 16 percent. New company registrations are still growing, but more slowly, at 7 percent against 9 percent a month earlier. More firms are being started than are shutting, yet the gap between the two has narrowed in the space of a single monthly update.
There is an odd tension in the hospitality figures. Demand for business credit in the sector was up 9 percent over the year, the second strongest of any industry behind agriculture on 14 percent, which suggests operators are still investing and still opening. At the same time hospitality carries an average business credit score of 727, level with transport and the lowest in the table. Business credit demand across all sectors was down 0.8 percent and business credit defaults fell 12 percent, so the pressure is concentrated rather than general.
Keaton Pronk, an insolvency practitioner at McDonald Vague, told RNZ that winter is often the slowest stretch for the sector. “Couple this with tough economic times where people start to cut their spending hospitality is a sector that will feel the immediate effects.” He said tax debt was a common trigger. “We continue to see IRD pushing hard with recoveries against businesses that have fallen behind on tax debt. A business that may have tax debt and had an arrangement in place may suddenly find itself in default when it becomes strapped for cash and unable to meet its obligations.”
On the household side the picture is better than a year ago but slipped over winter. Consumer arrears rose to 10.74 percent with 424,000 people behind on repayments, although that is 13.4 percent lower than the same time last year, and the number of people 90 or more days overdue fell to 82,000. Mortgage arrears edged up to 1.22 percent, covering about 19,900 home loans, still 12 percent below year ago levels. Around 14,000 accounts are formally in financial hardship, up 450 on June. Renters make up roughly 69,000 of those 90 or more days behind.
Lacey said credit conditions were still improving overall. “There’s definitely going to be a bit of a wobble through the winter months. It’s been freezing lately… I just got my power bill, that was a bit of a shock so that’s going to flow through into everyday households.” She added, “Overall, I think Kiwis are doing better than they were a year ago.”
What happens next depends partly on borrowing costs. All five big bank economists expect the Reserve Bank to lift the official cash rate to 2.75 percent when it reviews the rate on 2 September, and several banks have already raised home loan rates. “If it continues to trend that way, things will start getting a bit tougher again because you don’t have as much cash in your pocket,” Lacey said.
Unemployment rose to 5.6 percent in the June quarter, and Westpac chief economist Kelly Eckhold said conditions would start looking up for hospitality when that number began falling. For now the sector is caught between two sets of readings pointing different ways. Firms told the ANZ survey last week that confidence and actual trading had both improved, while the liquidation data records decisions made months earlier by businesses that ran out of room. Auckland chain Burger Burger went into liquidation in July after a five week search for a buyer failed, one of the better known names in a year that has produced a great many less visible ones.
Have you closed a hospitality business this year, or are you still trading through it? Tell us what the past 12 months have actually looked like in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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