Tasmanian Hospitality Industry Strategic Plan

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2 Tasmanian Hospitality Industry This project has been conducted by creating Preferred Futures DISCLAIMER All figures and data presented in this document are based on data sourced from the Australian Bureau of Statistics (ABS), and other government agencies. This document is provided in good faith with every effort made to provide accurate data and apply comprehensive knowledge. However, creating Preferred Futures does not guarantee the accuracy of data nor the conclusions drawn from this information. A decision to pursue any suggestions mentioned in the report is wholly the responsibility of the party concerned. Creating Preferred Futures advises any party to conduct detailed feasibility studies and seek professional advice before proceeding with any action and accept no responsibility for the consequences of pursuing any of the findings or actions discussed in the document. creating Preferred Futures P a g e 2

3 creating Preferred Futures was commissioned by the Department of Economic Development, Tourism and the Arts (DEDTA) and the Tasmanian Hospitality Association (THA) to establish the profile, condition and performance of the Hospitality Industry in Tasmania, and from this to develop a strategy to help improve industry performance and its contribution to the state. This report provides a comprehensive overview of the conditions and performance of the industry. It comprises the state of the industry, key findings and an action plan. The overview is informed by a mix of data analysis and depth interviews. It is the evidence on which the key findings are made and provides a profile and benchmarks upon which progress will be measured. This part then creates the connection between the overview, findings and conclusions and the actions proposed to make a difference to the industry, its contribution to Tasmania and its performance as an industry within which to work and invest. A summary of the findings and the action list to support the strategy are provided at the beginning of this document. creating Preferred Futures P a g e 3

4 IMPORTANCE OF THE INDUSTRY AT A GLANCE 20,000 PEOPLE EMPLOYED BY THE INDUSTRY Source: ABS, Labour Force, Detailed, Quarterly, Catalogue No % OF THE TASMANIAN WORKFORCE Source: ABS, Labour Force, Detailed, Quarterly, Catalogue No RD LARGEST EMPLOYING INDUSTRY Source: ABS, Labour Force, Detailed, Quarterly, Catalogue No ,955 BUSINESSES OPERATING IN TASMANIA Source: ABS 8165, Counts of Australian Businesses $445 MILLION IN WAGES Source: ABS Australian National Accounts: National Income, Expenditure & Product $1.437 BILLION IN SALES & SERVICE INCOME Source: ABS Australian National Accounts: State Accounts $177 MILLION IN PROFIT Source: ABS Australian National Accounts: National Income, Expenditure & Product $576 MILLION CONTRIBUTION TO GROSS STATE PRODUCT Source: Australian National Accounts: State Accounts creating Preferred Futures P a g e 4

5 The hospitality industry strategy, does not offer a silver bullet, it provides a considered mix of approaches to improving performance, productivity and profit in a challenging business environment. The hospitality industry tends to operate under the radar with its importance and contribution largely unrecognised. The industry s challenges in achieving profitability and in continuing its contribution to Tasmania means the industry must build on its strengths and also approach things differently. The focus of this strategy is the development of a strong partnership between the government and the industry and importantly to provide guidance and support to hospitality businesses to innovate to improve their fit to the market, to increase productivity and to improve their profitability. The hospitality industry provides a key role in showcasing Tasmanian produce and food; this strategy provides a pathway to more closely linking the high quality product with the plate in Tasmania s food places. Providing an excellent hospitality service offer and experience is identified as central to providing a smile on the patron s face and in elevating the recognition of hospitality as a valid and valued career choice there is a strong focus on promoting the importance and contribution of hospitality and from this the opportunities and repositioning of the industry as a great career choice. Partnerships between owners and employees as a means of improving performance, productivity and reward are identified as an important part of the strategic mix if the industry is to retain and grow its performance, and as an industry within which to work and invest. Approaches to increasing revenue and controlling costs by individual and joint action through training, working together and approaching things differently is a further, practically focused pathway, designed to offer improving the profitability of hospitality enterprises. The review of impacting legislation to identify opportunities to meet the needs of government and industry is also designed to develop a solid foundation for the industry and its contribution to the Tasmanian economy. creating Preferred Futures P a g e 5

6 CONTENTS 1.0 Introduction Strategic Framework and Conclusions Perceptions of the Tasmanian Hospitality Industry Summary State and Contribution of the Industry Matching the Market Market Demand and Patronage Business Profile Proportion of the Tasmanian Economy Flow through the Economy Employment Skilled, Engaged and Productive Workforce Wages, Surpluses and Productivity Business Performance Regulatory, Legislative Environment Key FINDINGS Appendix ANZSIC Code Glossary creating Preferred Futures P a g e 6

7 1.0 INTRODUCTION The hospitality industry comprises the accommodation and food services sectors of the ANZSIC classification codes. Adopting the standard definitions of hospitality and tourism and their interrelationships the separate and joint contributions have been broadly defined and approached as follows: Hospitality: Comprising hotels, clubs, cafes, restaurants and food services and all accommodation sectors, hospitality has been considered as the reception and service of patrons within this food/beverage, associated entertainment and accommodation context. Service is further considered as providing service that is respectful, friendly and focused on patrons receiving an experience that is reflective of their perceptions of high quality ; as one person indicated during the interviews hospitality is about putting a smile on people s faces i.e. - the supply side of the hospitality experience. It is important to recognise that over 70 % of hospitality service is consumed by locals, and the industry is an important economic and social contributor to Tasmania s liveability as well as a key element of the visitor experience and source of tourism based export income. Tourism: Visitors are the external patrons, those from outside the region or state. From this perspective tourism is considered the provision of specific attractors, their bundling and marketing to those external markets; together with ensuring access is available. Within the frame of this strategy, tourism is focused on generating external demand. Joint: Clearly the two facets combine to make and deliver a compelling offer to visitors. While local consumption underpins the greater portion of the hospitality industry, the profitability of specific sectors of the hospitality industry is dependent upon high levels of visitation, without which Tasmanians would not enjoy the range and levels of service they have on offer locally. A successful tourism industry is highly dependent on the promise of consistently high quality, memorable hospitality experiences. Hospitality, tourism, local and visitor markets combine in making Tasmania both highly liveable and a key attractor to visitors. This strategy is designed to provide a clear, evidence based strategy and supporting programs for implementation by the industry, government and other key stakeholders. It also provides a framework for hospitality businesses, owners and managers to address their market performance, productivity and profitability within this industry context. Without improved profitability the industry will find it difficult to be able to continue its position as a key employer industry and contributor to the attractiveness and liveability of Tasmania. This plan does not intend to go into detail on the issue of Gaming other than to acknowledge that Electronic Gaming Machines (EGM) are a highly regulated legal form of gambling in Australia. The strategy however recognises the importance of Responsible Conduct of Gaming (RCG) and that the current training workshops in RCG need to continue. It is also important to note that the 2009 creating Preferred Futures P a g e 7

8 Productivity Commission report on gambling estimated that between 0.37% and 0.7% of Australian adult population suffers from problem gambling. For those venues in Tasmania that choose to have EGMs they form just another part of the overall entertainment package that is offered by the venue, along with the likes of live music, Fox Footy, Tote, Tas Keno and 8-Ball. For the purposes of this plan, it is proposed that the current state of regulation be maintained into the future to allow those venues with EGMs to continue to operate as they do while providing a safe and secure place for those choosing to partake. It is worth noting that Gaming over the years has played a significant role for many venues in the state and around the country to maintain and improve their premises and offerings to customers and without this source of income to those operators, the standard and entertainment options at many venues would be drastically reduced. It is the industry s responsibility to continue to monitor and partake in harm minimisation practices that allow for the safe play of machines by those choosing to do so. For a further analysis of Gaming and the Hotel Industry please refer to the PricewaterhouseCoopers April 2009 Report titled Australian Hotels More than just a drink and a flutter. creating Preferred Futures P a g e 8

9 VISION STATEMENT The vision upon which this strategy is focused is in two complementary parts: 1. Tasmania has a widely recognised reputation for exceptional hospitality 2. Tasmanian hospitality is a profitable industry in which to invest and work. The Tasmanian hospitality industry strategy is designed to progress towards these interdependent elements of the vision. creating Preferred Futures P a g e 9

10 KEY FINDINGS The hospitality industry is important to the Tasmanian economy but largely unrecognised. A comprehensive approach to repositioning the industry based on its value, potential and strategic contribution must occur if the industry is to achieve its recognition and potential. RESPONSE: MARKETING The Tasmanian hospitality industry has transformed in recent times, it offers a product/service mix more closely aligned to the broad local and visitor market and specific segments within them. The Tasmanian hospitality industry has the potential to become a major element in the realisation of the proposed food production expansion plans. This would provide complementary benefits to tourism and primary production. Industry profitability and business viability is declining. Innovation in product, product mix and service is important. Patron experiences and conversion is essential. Achieving this sales conversion requires a complementary offer in design, promotion and engaging service. Such innovation is the critical demand side response to improving performance, productivity and profitability. RESPONSE: PROFESSIONAL, PRODUCTIVE AND PROFITABLE An industry wide approach to controlling fixed and variable costs is considered necessary, as well as initiatives to improve profitability overall, if businesses are to achieve returns that reflect the risk inherent in a hospitality business. In the face of plateauing customer numbers and price resistance, the ability of front of house staff to add value to the hospitality experience and on-sell is critical. Without a major refocus of formal and in-house training on professional hospitality service there is significant risk that Tasmania will not meet patron promise or owner expectations. This training must be positioned to focus on excellence. The THA must actively promote the industry, its value and challenges and work with government to ensure that industry performance, productivity and profitability drives jobs, reinvestment and new investment. Promotion of the benefits and opportunities associated with the industry is important to repositioning the industry as a positive and valid career choice. RESPONSE: JOINT FUTURES (PARTNERSHIPS) Within the services sector there is a direct and strong relationship between human resource/organisation (workplace) development initiatives and improvement in productivity. Creating a link between workplace development, productivity and wage outcomes provides mutual benefit to both owners and employees. The cost of compliance is limiting the service hours of the industry and negatively influencing investors decisions to expand. The multi-level and dispersed sources of taxes and charges must be moderated by representation of the benefit/cost impact of these charges and the risk to hospitality industry viability. RESPONSE: SUPPORTIVE REGULATORY AND POLICY ENVIRONMENT creating Preferred Futures P a g e 10

11 THE STRATEGY The following Strategy Map identifies: the current State of the Industry the characteristics of the desired state the Strategic Objectives. Importantly, each of the elements can be measured to define progress and to identify the relationships between the strategic pathways interventions and the result achieved. The long-term vision is defined as a balance between market positioning and business/career performance; again positioning in the investment and labour markets: Tasmania providing consistently exceptional hospitality and having its reputation recognised the Tasmanian hospitality industry is demonstrated as a profitable industry in which to work and invest. The desired state (strategic objectives) have been defined as: people increasingly accessing enjoyable hospitality more people, more often, enjoying the experience they value, getting better value provision of a safe, secure hospitality environment and experience for both patrons and staff highly skilled, productive workforce viewing hospitality as a career careers with reward and meaning as the pre-cursor business returns match the risk profitability, ROI and personal expectations. Importantly, all elements can be measured and cause/effect relationships can be identified. This supports design, monitoring, evaluation and change as results and events unfold. This hospitality industry strategy details the mix of initiatives and actions to operationalise the strategic pathways to further improve the performance, productivity and profitability of the industry and cement its role as one of Tasmania s major employers and economic contributor.. creating Preferred Futures P a g e 11

12 Strategic Pathways The following initiatives and actions have been developed on the basis for consulting with the industry on the strategic plan. The next step will involve setting priorities for these actions, taking into account the outcomes from the consultation phase. creating Preferred Futures P a g e 12

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22 Terms The hospitality industry, as defined by the Australian and New Zealand Standard Industrial Classification (ANZSIC), Division H, Accommodation and Food and Service, comprises a wide range of sectors, including: accommodation cafes and restaurants caravan park and camping grounds caterers and food service clubs pubs, taverns and bars. The definitions applied in this and Industry Profile are ANZSIC 2006, which saw minor changes in the classification compared to previous years. However, in the case of the accommodation, cafes and restaurants, now known as Accommodation and Food Services under ANZSIC 2006, the changes in classification have been relatively small, generally ensuring continuity between the two separate periods of differing classifications. Gross Value Add (GVA) GVA is the value of output at basic prices minus the value of intermediate consumption at purchasers' prices. The term is used to describe gross product by industry. For most industries an output indicator approach is used to create the volume measures of GVA by industry for each of the states. Gross State Product (GSP) GSP is defined equivalently to gross domestic product (GDP) but refers to production within a state or territory rather than to the nation as a whole. The total market value of outputs produced in Australia (Tasmania) within a given period after deducting the cost of intermediary goods and services used up in the process of production but before deducting allowances for the consumption of fixed capital. creating Preferred Futures P a g e 22

23 2.0 STRATEGIC FRAMEWORK AND CONCLUSIONS The following industry profile provides a picture of the conditions faced by the industry to use as a body of evidence in helping to consider and develop the hospitality industry in a systematic and strategic manner. The short to medium-term outlook for the Tasmanian economy is for continuity of low real growth. This scenario provides real challenges for the industry and its business owners, in particular in achieving: the necessary levels of patronage optimal revenue per transaction control over associated costs profit. The strategy arising from analysis of the current condition and low growth scenario generally is designed to assist the industry and individual enterprises to improve performance, productivity and profitability by implementing the associated actions; to then monitor and evaluate the results and as necessary, reinforce or adapt the strategy. Figure 1 identifies the strategic framework used to describe the current State of the Industry within the context of the characteristics of the desired state. Importantly, each of the elements can be measured to define progress and to identify the relationships between intervention on the strategic pathways and the result achieved. The longer term vision is defined as a balance between market positioning and business/career performance; again positioning in the investment and labour markets: Tasmania providing consistently exceptional hospitality and having its reputation recognised; the Tasmanian hospitality industry is demonstrated as a profitable industry in which to work and invest. The following State of the Industry analysis is focused on understanding the conditions that exist within the industry and from this developing a range of conclusions that are used to design the strategy necessary to improve performance, productivity and profitability as a means of achieving the industry s vision of its preferred future. creating Preferred Futures P a g e 23

24 Figure 1. Strategy Map for the Tasmanian Hospitality Industry creating Preferred Futures P a g e 24

25 The key industry outcomes are the highly tangible and interdependent objectives necessary to progress towards the industry s dual focus vision. In addition to technical objectives, they are a representation of the values of the hospitality industry and influences on the dimensions of a hospitality culture. The current state is the starting point for the analysis of the industry and the conclusions that drive strategies for change. creating Preferred Futures P a g e 25

26 3.0 PERCEPTIONS OF THE TASMANIAN HOSPITALITY INDUSTRY How an industry is perceived and thus valued, by the community, policy makers and stakeholders, is influenced by the narrative that is framed by key messages and the ability to demonstrate contribution and importance. The following provides a picture and narrative of the contribution of the hospitality industry to Tasmania. Summary State and Contribution of the Industry This summary is based on a combination of desk top research and analysis and in-depth interviews with a cross section of hospitality business owners and operators. These interviews extended for a period between one and two hours and explored a broad range of factors affecting the industry. The purpose of the summary is to provide a picture of the current position of the industry, how it has altered over a long period and importantly how it fits into and contributes to both the Tasmanian economy and the community. There are many ways in which to measure the performance of an industry sector, for example by revenue, value add, proportion of aggregate employment generated. It is argued that all are valid and should be used together to provide a context in which industry and complementary businesses and public policy strategy can be crafted to achieve specific objectives. This summary paints a picture of the contribution and importance of the industry and informs the strategic conclusions drawn from the information and analysis. The following section is based on information drawn from many sources. It draws on reports and statistics from industry and professional associations, government, research organisations and the Tasmanian Hospitality Association. A series of structured interviews were held with representatives of hospitality businesses over a two month period, their cooperation is recognised and appreciated. creating Preferred Futures P a g e 26

27 Matching the Market The face of hospitality has altered markedly in Tasmania over the past decade. This is evident from the owners and managers who are acutely aware of changes to the purchasing and consumption patterns of the public the broader market demand. The growing culture of eating out as a general behaviour has seen increased local consumption together with changes in the offers presented by cafes, hotels, clubs and restaurants. Hotels are now offering morning tea and coffee in lounges that had traditionally focused on the sale of alcohol. There is increasing expectation on greater variety and quality of food on offer. The changes in values and behaviour have opened new opportunities. Individual owners use a combination of peer group, travel and their own business intelligence to adapt their offer to the market. The importance of matching the market also goes to the issue of emerging sectors such as the increase in Chinese visitors. Some businesses are now offering a limited range of Chinese food to complement their experience with Australian experiences during their visit. Other businesses are providing limited printed materials to also assist. Respondents indicated that their experience was that the key to responding to different cultural needs was related to the recognition and respect for different cultures and in spending the time to respond to needs in the face of challenges. While there is an identified need for additional support material to assist in providing a high quality experience, the concept of an overall, professional service response was considered important. The link between the use of local produce and the Tasmanian Story was also considered by many to be somewhat missing in the service offer. The hospitality industry is potentially a key marketing partner in expanding the agriculture and fishery industries and yet the supply chains and policy frameworks neither recognise nor support this opportunity. While many businesses offer local produce it was noted that the story that surrounded the producer, the unique nature of the source and the product in many instances went untold, resulting in a loss of experience and revenue. Arguably while matching the market in a product sense is widely occurring, matching the social context is missing; this capacity to tell the story is a key element of the necessary hospitality skills set. The largest proportion of industry revenue is sourced from Tasmanians. This is an indicator of the importance of the hospitality industry in the liveability and wellbeing of communities. The industry provides people with recreational and hospitality choices options, a means of socialising and reducing isolation. Many venues support a wide network of informal and formal community activities and local schools and charities. Respondents indicated a continuous stream of requests for donations and/or in-kind support; a demonstration of the direct contribution the hospitality industry has traditionally and continues to make to community. creating Preferred Futures P a g e 27

28 Strategic Conclusion Tasmanian hospitality has transformed in recent times, it offers a product/service mix much more aligned to the broad local and visitor market and specific segments within them; it also has much more to offer. The capacity to offer and contribute more is constrained by major financial and skills challenges (addressed later in the strategy) and a lack of recognition of the importance of the sector to local communities and the state overall. The Tasmanian hospitality industry has the potential to become a significant contributor in the realisation of expansion plans within food production and supply. It can do this by introducing these foods and their preparation and experience into menus, and through associated events and promotion of key venues to target markets. Tasmanian food experience promotion will provide complementary benefits to tourism and primary production. creating Preferred Futures P a g e 28

29 Market Demand and Patronage While Tasmanians account for the large majority of the hospitality industry s revenue overall, tourist and business visitation and expenditure is also central to the profitability of the industry. The hospitality industry is largely dependent upon discretionary expenditure. While there is nominal growth, the hospitality industry is likely to face flat aggregate demand conditions over the next couple of years, with limited opportunity to increase prices in the face of rising costs. New attractions and events were identified by respondents as central to the success of the hospitality industry. The opening of MONA has provided a new and exciting motivation for people to travel to Tasmania. While some argue it has generated a short stay mentality, businesses have adapted and adjusted their offers. Some respondents indicated the emergence of a MONA ; Launceston food experiences (such as Festivale) and the Cradle Mountain attractions, have resulted in emergence of a 3 to 5 day visit to complement a shorter Hobart centred version. The time taken for this offer to develop demonstrates the lag between the opening of an attraction and complementary hospitality business investment. It is argued that these Tasmanian businesses have raised the bar; providing Tasmanians with access to new forms of hospitality experience and encouraging others to similarly adapt. The symbiotic relationship between attractions and hospitality operations is well recognised. In Tasmania s context, this then becomes an important marketing tool around which to showcase Tasmanian produce and wines. These comments focus on creating demand: through volume and quality once the patron is inside the premises. The role of visitors to Tasmania and their expenditure was identified by respondents as central to profitability in the industry, while Tasmanians underpin the hospitality industry, more generally. One respondent noted: the AFL football is very important to us throughout the winter Events, in addition to attractions are important, in particular to regional areas. Yield was the key challenge for each of the respondents, the balance between the number of patrons and conversion to a sustainable revenue and then yield. If the number of patrons is likely to remain relatively constant in the next couple of years, then the focus must be on improving conversion and the value of the hospitality experience to that patron. One respondent noted: I m down on numbers but up in profit The above quote demonstrates the value in being on top of everything all of the time. creating Preferred Futures P a g e 29

30 Strategic Conclusions While demand in terms of patron numbers is likely to remain steady and in some areas the local spend may decline, the opportunity to improve revenue still exists. Innovation in product, product mix and service as well as is associated marketing and patron connections and conversion is essential. Achieving this sales conversion requires complementary offer design, promotion and engaging service. Such innovation is the critical demand side response to improving performance, productivity and profitability. The interdependence between attractions, service experience and access is central to the hospitality sector to creating critical mass and visitation. There are significant gaps in the hospitality experience in delivering the promise and providing the stories to encourage revisitation and in further purchase of Tasmanian products. creating Preferred Futures P a g e 30

31 Business Profile Based on ABS definitions there are almost hospitality businesses within Tasmania (2008/09). While there is a strong regional distribution, businesses are most highly concentrated within Greater Hobart, reflecting the population distribution. Approximately 50% of businesses employ less than five people, the remaining 50% are responsible for the majority of employment. The 2008/09 business entry/exit profile identifies an almost 16% turnover of hospitality businesses, the majority within the small business sector, anecdotally many of which are purchased or commenced by new entrants. Figure 2. Number of Businesses in Region by Number of Employees (Accommodation and Food Services) creating Preferred Futures P a g e 31

32 Table 1 indicates the micro nature of many hospitality businesses, almost a quarter of which are non-employing. If these owners were considered as employees, almost half of the businesses would employ less than 5 people. However, the vast majority of employment is provided by the 17% of firms employing more than 20 people (both part and full-time). Table 1. Accommodation and Food Services Businesses Statistical Division by Employment Size Ranges, Operating at end of financial year Non employing Total Greater Hobart Southern Northern Mersey- Lyell Tas - Unknown TOTAL Source: Counts of Australian Businesses, including Entries and Exits, June June 2009 Interestingly, business entrants and exits are almost balanced across the industry, and these are almost exclusively small businesses. It should be noted that the Southern, Northern and Mersey- Lyell regions lost more businesses than entered, growth only occurred within Greater Hobart. Table 2. Accommodation and Food Services Business Entries by Statistical Division and Employment Size Ranges, Business Entries Non Total employing Greater Hobart Southern Northern Mersey - Lyell Tas - Unknown TOTAL Source: Counts of Australian Businesses, including Entries and Exits, June June 2009 creating Preferred Futures P a g e 32

33 Table 3. Accommodation and Food Services Business Exits by Statistical Division and Employment Size Ranges, Business Exits Non employing Total Greater Hobart Southern Northern Mersey - Lyell Tas - Unknown TOTAL Source: Counts of Australian Businesses, including Entries and Exits, June June 2009 Proportion of the Tasmanian Economy The role and position of industries and their contributing sectors within a location wax and wane over time in the face of changing values, economic circumstances and the way in which these combine to impact on demand and the capacity for businesses to viably operate in the changing environment. Figure 3 below, highlights the hospitality industry proportion of value add to the Tasmanian economy measured as a percentage, demonstrated as the width of the red line. creating Preferred Futures P a g e 33

34 Figure 3. Industry Gross Value Add (Chain Volume Measures) Tasmania Source: ABS Australian National Accounts: State Accounts, Table 7. Expenditure, Income and Industry Components of Gross State Product, Tasmania, Chain volume measures and current prices In percentage terms, the Hospitality Industry has provided a consistent share of value add to the economy over the past 20 years, while the mining and manufacturing industries have tended to decline and service industries have grown in their share of value add contribution. In terms of Gross State Product, a measure of output, the industry paralleled state growth during the 1990 s; from 2002 to 2007 it generated a greater growth than the state s industries as a whole however reflected a crash, with a recovery occurring from late 2008 and a return to historic trend growth from This recovery has not necessarily been distributed across the whole state. creating Preferred Futures P a g e 34

35 Figure 4. Gross State Product Index (Tasmania) Total All Industries and Accommodation and Food Services Source ABS; Australian National Accounts: National Income, Expenditure and Product The source of revenue to the sector overall is largely generated from the Tasmanian community. It is estimated that in excess of 75% of the hospitality spend is generated locally, with the balance generated by visitors to the state. Some sectors, those that focus on visitation, clearly source their revenue in different proportions to this and many would not be viable without visitor patronage. While the Tasmanian patron is very important in underpinning the hospitality sector, visitors are equally critical in ensuring the industry is profitable and the industry reflects a vibrant, attractive mix of enterprises. As a largely discretionary spend, it is critical that policy makers recognise the industry s revenue stream is dependent upon: other sectors generating the income to facilitate this spend on hospitality the hospitality engagement culture that drives spending habits within the local and the visitor market conversion of customer interaction to optimal revenue. Hospitality spend is important to the Tasmanian community, it is one of those industries that redistributes a high proportion of its costs back to the Tasmanian community in the form of jobs and supplies. This is demonstrated in table 4. The structure of the table makes it evident that while the hospitality sector ranks of the 19 industry sectors in terms of value add, it ranks very high in terms of jobs (3-6) and midfield in terms of income and wages. creating Preferred Futures P a g e 35

36 The trend growth in output demonstrated in the above graphs is not forecast to continue over the next three years. In real terms it is likely that revenue will be flat, creating significant challenges to the industry, in particular enterprises needing to meet high fixed costs associated with financing and potentially faced with non discretionary increases in fees and charges. creating Preferred Futures P a g e 36

37 Table 4. Accommodation and Food Services Industry Ranking The apparent disparity between employment and wages arises from the relatively lower average income of hospitality workers (the part-time nature of employment) and between income and its value add ranking arises from the high proportion of input costs. In terms of the mix of roles that industries play within a diverse economy, hospitality plays a significant role in terms of converting income into a high proportion of jobs, in using local supplies and in payment of excises, taxes and charges. creating Preferred Futures P a g e 37

38 Table 5. Accommodation and Food Services Industry Gross Value Add (Chain Volume Measures) Tasmania Ranking creating Preferred Futures P a g e 38

39 Flow through the Economy The following table profiles the way in which the income from hospitality is distributed through the economy by way of input purchases. Expenditure is in $m. Table 6. Distribution of Hospitality income through the Tasmanian Economy Transactions $M Accommodation & Food Services Agriculture, Forestry and Fishing $36.25 Mining $0.85 Manufacturing $ Electricity, Gas, Water and Waste Services $20.87 Construction $19.28 Wholesale Trade $51.02 Retail Trade $21.32 Accommodation and Food Services $3.10 Transport, Postal and Warehousing $33.93 Information Media and Telecommunications $48.44 Financial and Insurance Services $20.68 Rental, Hiring and Real Estate Services $31.84 Professional, Scientific and Technical Services $31.83 Administrative and Support Services $91.61 Public Administration and Safety $2.30 Education and Training $1.39 Health Care and Social Assistance $0.18 Arts and Recreation Services $2.15 Other Services $5.99 Local Expenditure $ Wages and Salaries $ Gross Operating Surplus $ Net Taxes - Products and Services $32.32 Net Taxes - Production $17.70 Domestic Imports $ Overseas Imports $ Output (Total) $1, Source: Remplan creating Preferred Futures P a g e 39

40 Employment The Tasmanian hospitality industry is a key employer within the state, responsible for the employment of some Tasmanians, representing approximately 6% of full-time workforce and 14% of part-time (including casual) workforce. In terms of full-time equivalent employees this approximates 10% of the Tasmanian workforce. Figure 5. Proportion Employed by Employment type (FT/PT) Accommodation and Food Services (Tasmania) by Total Industries (Tasmania) Source: ABS, Labour Force, Detailed, Quarterly, Catalogue No The employment profile is characterised by very pronounced peaks and troughs, however, the period from early 2009 has demonstrated some stabilisation, followed most recently by growth, in particular in full-time employment. Since late 2010, there is evidence of the resourcing of additional hours by full-time rather than part-time staff across the industry, whereas the average hours for part-time employees has stabilised. creating Preferred Futures P a g e 40

41 Figure 6. Time Series - Number Employed (FT/PT) and Average Hours (FT/PT) Strategic Conclusions Source: ABS, Labour Force, Detailed, Quarterly, Catalogue No Note: Please see the ABS Standard Error Note at the end of this document The hospitality industry makes an important contribution to the Tasmanian economy and the liveability and wellbeing of our communities. There is a lack of recognition of the hospitality industry and its contribution and strategic importance in positioning Tasmania in the national psyche and the basis on which people are motivated to visit Tasmania. Hospitality is a critical element of the economic mix in terms of it providing the service experience for visitors and in redistributing the visitor and local consumption spend throughout the community via jobs and purchases of inputs. However, this distribution is not equally reflected throughout the state. Regional dispersal is diminishing. Although the hospitality industry is a large employer, it is only perceived as a career by a small proportion of the potential workforce limiting the capacity of the industry. Respondents considered that the role and importance of the hospitality industry is largely unrecognised and that negative incidences or specific political stances tend to paint a particular picture that is not reflective of the industry as a whole. creating Preferred Futures P a g e 41

42 A comprehensive approach to repositioning the industry based on its value, potential and strategic contribution as a driver of employment must occur if the industry is to achieve its recognition and full potential. The THA must actively promote the industry, its value and challenges to government to ensure industry performance, productivity and profitability as a means of supporting reinvestment and new investment. Promotion of the benefits and opportunities associated with the industry is important to repositioning the industry as a positive and valid career choice. creating Preferred Futures P a g e 42

43 Skilled, Engaged and Productive Workforce As indicated, the industry employs in excess of people, generally employing between 10% and 11% of the Tasmanian workforce. Approximately are full-time employees with the balance part-time (including casual). Local employment Hospitality is an important local industry in most Tasmanian communities. The majority of hospitality businesses indicate a preference for locals to fill operational roles, with some targeting very specific demographics: I recruit via word of mouth and tend to employ single mums with some maturity and capacity to communicate with people All of our staff, apart from the managers, live within 5km These comments indicate the need for staff who will commit to the job, have basic skills and for whom work is accessible. Skills and Development Overwhelmingly, respondents identified major challenges in recruiting appropriate staff to front of house roles. Higher profile establishments in the major centres, indicated satisfaction with chef and apprentice skills and approaches. Importantly, this particular field of employment is viewed as a career and is particularly focused on learning and progression; however, while critical, food is only one part of the overall experience, whether it is a restaurant or hotel. Regional and rural operators, on the other hand indicated challenges in attracting and retaining chefs. There was a high level of concern by respondents over the ability to attract and retain people for the non food roles; this includes staff providing customer service and other support roles. Respondents argued that while many service roles are perceived as lower skilled plate carrying, these roles are more complex and are critical to the delivery of a high quality service and in optimising revenue for the business. Within the city environment, overwhelmingly, the people involved in these roles are using employment in hospitality as a means of income to support other primary goals such as education. The need to define and promote the service roles in a manner that clarifies the career perspective is considered a critical challenge for the industry and from a supply side perspective the highest priority. A negative perception of the industry, a lack of recognition of its potential (and indeed current) role in Tasmania s future and as described by younger operators lack of the excitement and buzz associated with Melbourne and Sydney hospitality combine to undersell the industry as a career choice. creating Preferred Futures P a g e 43

44 The skill sets of new entrants, whether young people or new owners, was identified as potentially a major risk to the industry s capacity and reputation. It was identified that a significant number of younger people lacked necessary social skills, notions of etiquette and the ability to fit within a work team. It was also recognised that businesses need to train new entrants and that basic capabilities are not always evident. Strategic Conclusions Apart from the role of chef, hospitality and specifically service is not perceived as a career choice within an industry that is built on the notion of service. While Tasmanian hospitality is generally recognised as friendly, respondents indicated that the notion of service that builds on friendliness needs to include: professional responses in relation to the menu the source and merits of the produce and wines general knowledge in relation to the region the ability to add value to the already recognised produce, locational and venue qualities is viewed as a rare rather than common experience. Without a major refocus of formal and in-house training on professional hospitality service there is significant risk that Tasmania will not meet the expectations of significant, potentially high yield visitor segments. The approach must focus on excellence, not in the sense that it is only suitable for high end operations, rather, that it provides professional customer service in the context of the market/business mix and aligns with industry and business strategy. Respondents express major concerns in relation to the view that achievement of minimum standards is the focus of training, considering it provides a workforce that is not job ready. Ease of entry into much of the hospitality industry, and consequently owners with a lack capital, of business and industry understanding and skill has also led to a significant number of business failures and high business turnover. This generates a significant personal, business and community cost that to some degree could be offset by the provision of training and support services to new business entrants. Alongside workplace development, skills and training is a critical element of ensuring hospitality enterprises provide a high quality and capable service. A Tasmanian Hospitality Industry Skills Plan is being developed and will complement this. The Skills Plan is expected to be completed in the very near future. creating Preferred Futures P a g e 44

45 Wages, Surpluses and Productivity From an individual s perspective both business owners and employees are seeking reward from investment and effort, some of which is financial and some related to social dimensions of work. While not the whole story, returns and productivity are critical dimensions of a financially viable business delivery system. Figure 7 contrasts the rate of growth of employee compensation and gross operating surplus available to owners from which to meet expenses and to contribute to profit. It is apparent that the return to employees is rising at a faster rate than the return to owners. Figure 7. Total Compensation of Employees and Gross Operating Surplus of Accommodation and Food Services (Tasmania) Source: ABS Australian National Accounts: State Accounts, Table 7. Expenditure, Income and Industry Components of Gross State Product, Tasmania, Chain volume measures and current prices The preliminary conclusion from this is that either labour productivity is not increasing as fast as wages and/or the cost of other supplies is offsetting the productivity growth. Relative productivity is an important characteristic of any industry, sector or business, it underpins successful competition and business viability. Labour productivity is usually measured by some measure of output per labour hour worked. Given limitations to data (in particular accuracy of hours worked each period) we have derived a trend measure as an indicator of the rate of productivity compared to the rate of employee compensation growth. creating Preferred Futures P a g e 45

46 As a service industry the performance of hospitality is highly dependent on labour productivity; the relationship between output and the hours worked and flowing from this the relationship between revenue and cost. Figure 8, compares trend growth between labour productivity and real wages. The comparison indicates that since 1997 trend growth in employee compensation has exceeded that of productivity growth. There are, however, two distinct patterns, between 1997 and 2003 there was a relatively strong relationship between the two elements, with productivity outstripping wages. This relationship has reversed since Figure 8. Labour Productivity Index (GVA/Hrs Worked and Wages and Salaries) Source: ABS Australian National Accounts: State Accounts, Table 7. Expenditure, Income and Industry Components of Gross State Product, Tasmania, Chain volume measures and current prices and Creating Preferred Futures 2012 During the period 1993 to 2005, the collective bargaining period, both productivity and wages improved within the services sector as a consequence of the direct connection made between HR/organisation (workplace) development and industrial relations, linking reward to business improvement. The approach remains central to the performance, productivity and profitability of the service sector. The sector cannot improve productivity simply by investing in a bigger machine. Strategic Conclusions The hospitality industry cannot sustain a long-term erosion in profitability arising from increased, unavoidable cost increases; without a significant change to the manner in which the decisions to increase fees and charges are moderated and without systemic innovation to increase patron value and business productivity. Labour productivity within the hospitality industry is declining. This is a major strategic concern given the reducing viability of the industry as a whole measured by a decrease in gross operating surplus as a consequence of labour, other inputs and charges within a price sensitive market. Improving viability requires both revenue and cost initiatives to be interdependently applied. creating Preferred Futures P a g e 46

47 Within the services sector there is a direct and strong relationship between human resource/organisation (workplace) development initiatives and productivity. The characteristics of this resource/organisation development initiatives and the link between workplace participation, productivity and wages must be converted effectively in the current industrial environment within the hospitality industry. This can also contribute to the development of hospitality as a career. creating Preferred Futures P a g e 47