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Tasmanian Hospitality Industry Strategic Plan

creating Preferred Futures P a g e | 2

Tasmanian Hospitality Industry

Strategic Plan

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 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.



IMPORTANCE OF THE INDUSTRY AT A GLANCE

20,000 PEOPLE EMPLOYED BY THE INDUSTRY

Source: ABS, Labour Force, Detailed, Quarterly, Catalogue No. 6291

10.2% OF THE TASMANIAN WORKFORCE


3RD LARGEST EMPLOYING INDUSTRY


1,955 BUSINESSES OPERATING IN TASMANIA

Source: ABS 8165, Counts of Australian Businesses

$445 MILLION IN WAGES

Source: ABS 5206.0 Australian National Accounts: National Income, Expenditure & Product

$1.437 BILLION IN SALES & SERVICE INCOME

Source: ABS 5220.0 Australian National Accounts: State Accounts

$177 MILLION IN PROFIT

Source: ABS 5206.0 Australian National Accounts: National Income, Expenditure & Product

$576 MILLION CONTRIBUTION TO GROSS STATE PRODUCT

Source: 5220.0 Australian National Accounts: State Accounts



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.



CONTENTS

1.0 Introduction ................................................................................................................................ 7

2.0 Strategic Framework and Conclusions ...................................................................................... 23

3.0 Perceptions of the Tasmanian Hospitality Industry .................................................................. 26

Summary State and Contribution of the Industry ............................................................................ 26

Matching the Market ........................................................................................................................ 27

Market Demand and Patronage ....................................................................................................... 29

Business Profile ................................................................................................................................. 31

Proportion of the Tasmanian Economy ............................................................................................ 33

Flow through the Economy ............................................................................................................... 39

Employment ...................................................................................................................................... 40

Skilled, Engaged and Productive Workforce ..................................................................................... 43

Wages, Surpluses and Productivity ................................................................................................... 45

Business Performance ....................................................................................................................... 48

Regulatory, Legislative Environment ................................................................................................ 50

4.0 Key FINDINGS ............................................................................................................................ 52

5.0 Appendix ................................................................................................................................... 53

ANZSIC Code Glossary ....................................................................................................................... 53



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



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”.



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.



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. 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.

RESPONSE: MARKETING

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. 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”.

RESPONSE: PROFESSIONAL, PRODUCTIVE AND PROFITABLE

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. 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.

RESPONSE: JOINT FUTURES (PARTNERSHIPS)

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



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.

.



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.



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 Strategic Plan 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.



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.



Figure 1. Strategy Map for the Tasmanian Hospitality Industry



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.



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.



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.



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.



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”.



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.



Business Profile

Based on ABS definitions there are almost 2 000 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)



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, 2008-09

Operating at end of financial year 2008-09

Non employing

1-4 5-19 20-49 50-99 100-199 200+ Total

Greater Hobart

199 191 256 114 43 9 6 818

Southern 69 90 45 6 3 0 0 213

Northern 124 120 182 65 12 0 3 506

Mersey-Lyell

105 111 121 27 9 9 6 388

Tas - Unknown

6 3 6 9 3 0 3 30

TOTAL 503 515 610 221 70 18 18 1955 Source: 8165.0 - Counts of Australian Businesses, including Entries and Exits, June 2007 - 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, 2008-09

Business Entries 2008-09

Non employing

1-4 5-19 20-49 50-99 100-199 200+ Total

Greater Hobart

51 48 51 6 0 0 0 156

Southern 3 15 3 0 0 0 0 21

Northern 30 12 18 0 0 0 0 60

Mersey -Lyell

15 24 12 3 0 0 0 54

Tas - Unknown

6 0 3 3 0 0 0 12




Table 3. Accommodation and Food Services Business Exits by Statistical Division and Employment Size

Ranges, 2008-09

Business Exits 2008-09

Non employing

1-4 5-19 20-49 50-99 100-199 200+ Total

Greater Hobart

48 12 33 9 0 0 0 102

Southern 18 12 3 3 0 0 0 36

Northern 33 24 36 0 3 0 0 96

Mersey -Lyell

30 39 12 6 0 0 0 87

Tas - Unknown

6 6 3 0 0 0 0 15


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”.



Figure 3. Industry Gross Value Add (Chain Volume Measures) Tasmania

Source: ABS 5220.0 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.

2007 - 2008 however reflected a crash, with a recovery occurring from late 2008 and a return to

historic trend growth from 2010. This recovery has not necessarily been distributed across the

whole state.



Figure 4. Gross State Product Index (Tasmania) Total All Industries and Accommodation and Food Services

Source ABS; 5206.0 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 13-14 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.



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.



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.



Table 5. Accommodation and Food Services Industry Gross Value Add (Chain Volume Measures) Tasmania Ranking



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 $257.00

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 $680.01

Wages and Salaries $410.09

Gross Operating Surplus $200.88

Net Taxes - Products and Services $32.32

Net Taxes - Production $17.70

Domestic Imports $141.30

Overseas Imports $185.14

Output (Total) $1,667.43

Source: Remplan



Employment

The Tasmanian hospitality industry is a key employer within the state, responsible for the

employment of some 20 000 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)


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.



Figure 6. Time Series - Number Employed (FT/PT) and Average Hours (FT/PT)


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.



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.



Skilled, Engaged and Productive Workforce

As indicated, the industry employs in excess of 20 000 people, generally employing between 10%

and 11% of the Tasmanian workforce. Approximately 6 000 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.



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.


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 Strategic Plan. The Skills Plan is expected to be completed

in the very near future.



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 5220.0 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.



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 2003.

Figure 8. Labour Productivity Index (GVA/Hrs Worked and Wages and Salaries)


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”.


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.



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.



Business Performance

According to respondents, the profit levels within the hospitality industry are declining. Pre-tax

profit of 7-10% was the most common range identified. The costs of all inputs are identified as

increasing while competition in most locations and purchaser price resistance is ensuring that prices

are not increasing to match increased costs.

The expectation is that the next few years will continue to provide tough business conditions. The

concerns are:

costs, including labour, statutory charges and excise will continue to increase not because of

excess demand but because of legislated conditions and governments seeking to

compensate for reductions in other revenue sources

supply, transport and expenses costs will continue to rise

a combination of price resistance, increasing competition (e.g. more bottle shops, limited

licenses etc.), reduced discretionary expenditure and plateauing visitation combining to

result in flat revenue forecasts.

Respondents have indicated a need to micro-manage each element of the business to control costs

and to introduce lower cost substitutes in areas not affecting product/service quality

Figure 9. Gross Operating Surplus


of Gross State Product, Tasmania, Chain volume measures and current prices

Respondents indicated that the last decade has exhibited significant capital investment in the

hospitality industry. A large amount of refurbishment has occurred, particularly in hotels providing a

mix of gaming, food and beverage. Also, new accommodation premises have been built in major

destination hubs.



A number of other investments, particularly in regional and or challenging development locations

have not proceeded.

New capital investment in either refurbishment and/or new construction is facing the challenge of

declining business margins and banking institutions modifying their lending approach.

Strategic conclusion

An industry wide approach to controlling fixed and variable costs is considered necessary if

businesses are to achieve returns that reflect the risk inherent in a hospitality business. THA can

take a key role in facilitating strategies to help enterprises control costs and manage risks

In addition, in the face of limited customer numbers and price resistance, the ability of front of

house staff to add value to the hospitality experience and, as appropriate, up and on-sell is critical.

The reduction in margins and changes to portfolio management and risk within financial institutions

has diminished the capacity of the industry to invest in refurbishment and new facilities.



Regulatory, Legislative Environment

This section is not designed to profile the regulatory environment but to provide feedback from

respondents on the scope and level of impact that regulation has on operations and business

growth, including aspects of associated charges.

The hospitality industry is subject to the same responsibilities as all businesses across the state – the

responsibility to provide a safe workplace, comply with industrial law, transaction based consumer

protection, health regulations and access provisions. These “safeguard” requirements are based on

fairly universal national, state and local approaches. However, operator feedback indicates

significant challenges with:

inconsistency in the manner the associated regulations are applied, leading to the

requirements to invest in change to equipment, venue and process in areas that had

previously been deemed to be appropriate

the cost of compliance including reporting

the cost of employment resulting in at best “break-even results on public holidays” and

some operators closing when tourism numbers are at their peak.

Some operators indicate significant challenges in accessing local produce, for example fish, due to

inability to purchase directly, while others express frustration with seafood being primarily exported

and not available for offer to patrons. The policy of exporting the overwhelming majority of some of

the state’s iconic produce such as Abalone and Rock Lobster means that it is generally unavailable

for visitor consumption. The impact of this is three fold:

1. the visitor offer is incomplete and does not match the marketing promise

2. a key product in Tasmania’s produce armoury is unavailable for consumption and

promotion;

3. a potentially higher price market segment is not exploited by local producers.

The manner in which government develops policy and regulates within an industry sector is arguably

related to how government and interest groups perceive the industry. Respondent feed-back

indicates that the industry is viewed as the:

source of the “problem” in relation to e.g. problem drinking and gambling and as a

consequence, the penalty regime placed on not only business operators but staff create a

work environment that has an overlay of “fear”; particularly for younger, inexperienced staff

– this is considered at odds with the notion of a “hospitality culture”

a “cash cow” in terms of raising government and statutory authority revenue. Excises, fees

and charges are increasing at rates far beyond the industry’s and specific business sectors’

rates of growth in revenue. It is argued by respondents that these charges bear no relevance

to the industry’s capacity to pay.



The array of taxes and charges applied to the industry emerge from each level of government and

within government from different agencies. It is evident these decisions are made in isolation and

without reference to their impact on the industry; its capacity to pay, to continue to deliver on

Tasmania’s promise to the visitor market and to continue to be a viable, contributing sector of the

economy.

Regulatory limits and challenges to business growth include planning and approval process and pay-

roll tax. Comments from some respondents include:

“We have deferred a $5m investment because it just got too hard”

“We do everything by the book – movement into the payroll tax bracket means it is

unlikely we will buy or create an additional business”

There are other compliance issues facing the industry e.g. illegal operations across a number of

areas. One example is‘ holiday lets’ where holiday houses are rented on a short-term basis as visitor

accommodation, and which operate outside the relevant legislation. While this issue has not been

specifically considered in this report, the THA and government are working together to determine

ways to address it.

Strategic Conclusion

Based on the industry’s perspective, the approach of government in terms of legislation, compliance,

fees and charges needs to recognise the consequent impact on hospitality enterprises. Reduction in

business viability limits the hospitality industry in:

being the showcase for Tasmanian producers of fine foods

providing such food experiences in combination with attractions such as MONA , other

events and Tasmania’s natural heritage becoming a key element of Tasmania’s market

position and motivation to visit

terms of investment and jobs growth.

Respondents indicated the cost of compliance is limiting the service hours of the industry and

negatively influencing investors decisions to expand and refurbish.

The multi-level and dispersed sources of taxes and charges need to be reviewed in terms of the

benefit/cost impact of these charges and the risk to hospitality industry viability. The role of the

THA in providing evidence based industry input into ongoing and specific purpose regulatory and

policy development and review is critical to industry performance.

Non compliant providers of services are considered to create a risk to the public choosing such

options and provide a level of “competition” to responsible and compliant providers, particularly in

regional areas.



4.0 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. 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.

RESPONSE: MARKET POSITIONING AND COMMUNICATION

Industry profitability and business viability is declining. Innovation in product, product mix and service is important and 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. 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”.

RESPONSE: PROFESSIONAL, PRODUCTIVE AND PROFITABLE

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. 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.

RESPONSE: JOINT FUTURES (PARTNERSHIPS)

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 theses charges and the risk to hospitality industry viability.

RESPONSE: SUPPORTIVE REGULATORY AND POLICY ENVIRONMENT



5.0 APPENDIX

ANZSIC Code Glossary

Accommodation (4440)

The Accommodation industry class comprises businesses involved in the provision of short-term

accommodation for visitors and or meals and beverages for consumption both on and off-site.

The division excludes gambling venues, amusement and theme parks, sports clubs and other

recreational facilities and long-term caravan parks.

The Accommodation class consists of businesses involved in the following primary activities:

hotels

motels

resorts

camping grounds

caravan parks

holiday home operators and serviced apartments;

ski lodges

student residence and youth hostel operations.

Cafes and restaurants (4511)

The cafes and restaurants class consists of businesses primarily involved in the provision of both

food and beverage serving services to be consumed on the premises. Businesses excluded are those

that provide food to be taken away for immediate consumption, catering services, and those

businesses involved selling alcoholic beverages for consumption both on and off the premises.

Takeaway food services (4512)

This class includes only those businesses who are engaged in providing food services to be taken

away for immediate consumption.

Catering services (4513)

The Catering services class includes businesses involved in the provision of catering services at

specified locations and events. Meals and snacks are prepared and served either on or off the

premises and/or transported. They include Airline food catering services.

Pubs, taverns and bars (4520)

Businesses in this class are mainly involved in the serving of alcoholic beverages for consumption on

the premises or the sale of alcoholic beverages for consumption on and off the premises. These

businesses include:

bars



hotels

night clubs

pubs and taverns

wine bars.

If the main activity involves the retailing of alcoholic beverages for consumption off the premises,

then the business is classified in 4123 Liquor retailing.

Clubs (Hospitality) (4530)

The Clubs (hospitality) class consists of associations that are engaged mainly in the provision of

hospitality services to members, including gambling, sporting or other social and entertainment

facilities.

Chain volume measure

Annually-reweighted chain Laspeyres volume price indexes referenced to the current price values in

a chosen reference year (i.e. the year when the quarterly chain volume measures sum to the current

price annual values). Chain Laspeyres volume measures are compiled by linking together

(compounding) movements in volumes, calculated using the average prices of the previous financial

year, and applying the compounded movements to the current price estimates of the reference

year. Generally, chain volume measures are not additive. In other words, component chain volume

measures do not sum to a total in the way original current price components do. In order to

minimize the impact of this property, the ABS uses the latest base year as the reference year. By

adopting this approach, additivity exists for the period following the reference year and non-

additivity is relatively small for the years immediately preceding. A change in reference year changes

levels but not growth rates, although some revision to recent growth rates can be expected because

of the introduction of a more recent base year (and revisions to the current price estimates

underlying the chain volume measures).

Compensation of employees

The total remuneration, in cash or in kind, payable by an enterprise to an employee in return for

work done by the employee during the accounting period. It is further classified into two sub-

components: wages and salaries; and employers' social contributions. Compensation of employees is

not payable in respect of unpaid work undertaken voluntarily, including the work done by members

of a household within an unincorporated enterprise owned by the same household. Compensation

of employees excludes any taxes payable by the employer on the wage and salary bill (e.g. payroll

tax).

Current prices

Estimates are valued at the prices of the period to which the observation relates. For example,

estimates for 2003-04 are valued using 2003-04 prices. This contrasts to chain volume measures

where the prices used in valuation refer to the prices of a previous period.



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 goods and services produced in Australia within a given period after

deducting the cost of goods and services used up in the process of production but before deducting

allowances for the consumption of fixed capital. Thus gross domestic product, as defined here, is 'at

market prices'. It is equivalent to gross national expenditure plus exports of goods and services less

imports of goods and services.

Gross Value Added (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. Basic prices valuation of

output removes the distortion caused by variations in the incidence of commodity taxes and

subsidies across the output of individual industries. State GVA in current prices is not directly

compiled so the Australia GVA by industry is allocated to the states using factor income shares. GVA

can also be compiled in volume terms. For most industries an output indicator approach is used to

create the volume measures of GVA by industry for each of the states.

Total factor income

That part of the cost of producing the gross domestic product which consists of gross payments to

factors of production (labour and capital). It represents the value added by these factors in the

process of production and is equivalent to gross domestic product less taxes plus subsidies on

production and imports.

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