Opinion: Owning tourism businesses isn’t really a cash cow

Most of the concern came from the tourism hot spot of Queenstown. Photo: Getty Images
Queenstown. Photo: Getty Images
We all read with interest Darren Lovell’s piece about Queenstown’s stampeding elephant and how local businesses are hurting.

Now let’s address some of the misconceived comments about tourism and business in a Covid-19 world.

Tourism businesses in Queenstown, Te Anau, Lake Tekapo and other tourist hot spots are not ‘greedy’, have not been ‘milking it’, are not taking advantage of ‘wealthy tourists’, and have certainly not been ‘ripping off’ local Kiwis.

Tourism is a very competitive industry, few tourists are wealthy, and these seemingly-high prices are not about businesses taking everything from tourists and giving nothing back to locals.

Few businesses in these regions are making ‘loads’ of money – sure some have done OK, but these towns are not factories churning out tourism millionaires.

The truth of it is this: real estate is what largely drives consumer prices.

So does the strength of the minimum wage, however, the minimum wage is universal throughout the country, property prices are not.

Talk to anyone who has lived in Queenstown long enough, and you will hear stories of dozens of businesses that have failed within months of opening.

Like it is anywhere else, starting a business in Queenstown is hard work, which requires sacrifice and a well thought-out plan.

If the resort really were a cash cow for businesses, it would not be so hard to succeed, and anyone with a little money and an idea would be looking for a piece of the action.

Perhaps there is a small handful of big businesses who have done very well, but it is quickly forgotten that these companies also reinvest heavily into facilities which in turn benefits the community, creates jobs, attracts visitors, and funnels money into the local economy.

The ski fields are a great example.

Due to Covid-19, the government turned off the tourism tap, and while few in the tourism industry disagreed with the need to close borders back in March, there has been little understanding of the plight of tourism operators and too much ill-informed vitriol of how this is somehow payback for years of unscrupulous operation at the expense of tourists and the shut out of Kiwis.

This could not be further from the truth.

It is well known that real estate is expensive in key tourism centres.

Investors pay huge amounts of money to purchase commercial property, and, just like the residential market, commercial landlords are rightly looking for a return.

This pushes commercial rents upward, sometimes to dizzying heights in a place like Queenstown.

A large majority of tourism businesses are family-owned small and medium enterprises.

Most have landlords, whether this be a shopfront, a motel, a restaurant, or a lease to use public or private land.

The few who may own their building will likely be saddled with large mortgage repayments.

A commercial tenant in Queenstown, like any business owner, needs to consider sales rates that are competitive to others in the same tourism sector, calculate all the operational costs, of which the two largest are often rent and wages, and then hope to do enough trade to cover these costs.

The challenge in Queenstown is that commercial rents are disproportionately higher than other tourism regions.

In fact, Queenstown operates on lower profit margins than many other centres as there is both a summer and winter season.

The resort’s businesses do not need to make all their profits in summer to offset the losses of winter as many do in other locations.

By this reasoning, Queenstown offers great value.

It’s been rightly said, numerous times, that tourism will never be the same post-Covid and businesses should relocate, or perhaps close and do something different.

This is very simplistic; most commercial leases are multi-year terms where the operator signs a personal guarantee to ensure rent is paid if the business can’t pay it.

This puts personal equity at risk until such time as a new tenant is found, leaving the leaseholder vulnerable to bankruptcy and putting families at risk of losing their home, car, savings, and all too often, each other.

There has been a lot of comment around the falsehood that suddenly without international tourists, prices in Queenstown are more affordable and that this is further evidence that resort’s businesses have been gouging.

Extremely few tourism businesses nationwide are currently operating at profitable levels.

These lower-than-normal prices are driven by a need to gain cashflow to pay the next bill.

The past 10 months has been a constant battle of ‘robbing Peter to pay Paul’.

It must also be said there are many understanding and compassionate commercial landlords who have been supportive of their tenants.

But even with this support there are simply not the consumer numbers to keep tourism and hospitality businesses in the black.

Tourism businesses around the country are in turmoil.

Few qualified for the $400 million government STAPP funding – accommodation providers were prevented from applying at all.

Many are losing more money in a month or two than the government offered by way of the small business loan scheme.

Why would a business take on more debt with the government-secured bank loans when they don’t even know for how long they need to operate with losses?

No business model contemplates an overnight collapse in its market and insurance does not cover it.

Businesses are dying and families are hurting.

It is time to start viewing this with compassion.

Such people have worked hard to build their dream businesses in highly competitive markets, and now many are set to lose everything through no fault of their own.

Queenstown may be seen as the playground of the wealthy, but it’s certainly not home to a plethora of millionaire small tourism and hospitality business owners.

It is home to hard-working families managing their businesses which operate with high costs due to often exorbitant rents in an effort to make modest profits to cover their private rent or afford their mortgage, the same as anyone working anywhere else.

A place like Queenstown is expensive because it is seen as a desirable location to both live and holiday, but these expensive prices start and end with real estate, not because tourism operators are greedy.

Brett Duncan owns two Queenstown hostels, is a member of the NZ Backpacker Youth and Adventure Tourism Association and chairs its hostels division

ed@scene.co.nz

Comments

Mr Duncan writes from the point of view of a business owner and as you would expect represents business interests, not consumer or employee interests. Consequently I take each of his points with a grain of salt.
Yes, very few new businesses survive past two years. This has very little to do with location and everything to do with bad planning and ignorance of legal, business, and management planning.
Citing minimum wage requirements as a factor in business difficulties or as an excuse to increase costs to customers is a nonsense. Changes in minimum wage are flagged wellhead of time and care easily factored into overheads. If you can't do it yourself, get a decent accountant.
We are a free market economy, driven by supply and demand. Strong demand increases prices and pre covid 19 Queenstown reflected this. Post Covid 19 demand has fallen away yet prices have not fallen. That's a simple fact and anyone who does a little research on the internet can see it for themselves. Bringing real estate prices into it is a nonsense. Duncan says it himself.
The issue is bad management and greed. lower your prices Queenstown and NZers will flock in and spend money.

I recall many years ago in Rotorua watching the Orb roll down a hill for like 10 seconds, at $40+ a pop. It sat idle for ages. More people were watching than riding it. Now, if they dropped the cost to $20, it would run non-stop all day and they would make more money.
Also, people who squeal that they are losing hundreds or thousands of dollars a week is a nonsense. In reality, they are just 'missing out' on said amount of money.

Well if it's so simple, why not start your own tourism business and cream it!

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