One in 13 Australian hospitality businesses face failure in the next 12 months as discretionary spending dries up.
Australian credit reporting firm CreditorWatch has found that 7.45 per cent of food and drink businesses are forecast to fail in the next 12 months.
Business defaults have soared to a record level, as the sector’s pandemic-era pain appears to have marked.
CreditorWatch chief executive Patrick Coghlan said conditions would unfortunately get worse for businesses in the hospitality sector before they got better.
One in 13 Australian hotel businesses face failure in the next 12 months
“The outlook for hospitality businesses is not likely to improve until we see an increase in consumer spending,” Mr Coghlan said.
‘And that won’t happen until the impacts of one or two rate cuts reach households. “We don’t expect that to be felt until at least the second half of next year.”
In its latest findings, CreditorWatch found that low cash reserves at small businesses supported the bleak outlook.
But large hotel companies, such as hotel groups, had the lowest failure rate of large companies in any sector: well ahead of companies with a turnover of more than $50 million in transport, retail, wholesale trade and agriculture.
CreditorWatch’s April Business Risk Index report shows that business-to-business trading is very tight.
Defaults are at a record high (up 69.4 percent year over year) as businesses struggle to pay bills.
CreditorWatch’s assessment found that if a business misses a payment, it has a 20 percent chance of failing within a year.
The outlook is for business operating conditions to remain difficult, at least until mid-2025, when lower interest rates should “finally” provide some relief to Australian households.
Any potential interest rate cuts are not expected to free up spending for many until mid-2025.
The upcoming $300 energy rebate for each home “will be enough to persuade consumers to open their wallets greatly.”
The safest CBDs for insolvency risk, with more than 5,000 businesses, are Norwood/Payneham/St Peters in South Australia, Unley and its immediate neighbor Adelaide City. Townsville and Toowoomba in Queensland complete the top five.
Four of the five CBDs most at risk of insolvency are in New South Wales, including Bringelly/Green Valley, Merrylands/Guildford, Canterbury and Auburn.
Ormeau/Oxford in Queensland came fourth.
Those “safer” CBDs have a higher proportion of businesses and older residents.
CreditorWatch chief economist Anneke Thompson said “very weak” consumer spending was noticeably hurting customer-facing businesses, particularly those classified as smaller businesses.
“While Australia is far from being in a technical recession, and the Treasury still forecasts positive, if weak, GDP growth in the three-year outlook, business conditions will feel recessionary for most businesses that rely on spending particularly those located in the ‘mortgage belt’ areas of our capital cities,” said Ms Thompson.
Restaurants in areas with older businesses and older residents are expected to fare better financially in the short and medium term.
