HORECA & The CoVid19 Crisis

Amigoe Di Aruba featured an article on March 30th titled “Hotels are cutting staff without a legal basis.” The article reported how restaurants & bars are coping with the Covid19 crisis.

After reading that article you might get away with a negative impression that hotels/ restaurants/ cafes are getting rid of staffer based on flimsy excuses.

I want you to keep in mind that the pandemic is huge: In the USA alone 3 million people lost their jobs, one day to the next. Our F&B (Food & Beverage) sector is now waiting for GOA, but for some reason the government is taking its time, late to reveal an emergency plan.

So, here is what we can expect from F&B operators and what we cannot expect.

AHATA recently published a long list of tax increases and measures, introduced since 2013. The hospitality sector was frequently surprised by these “adjustments,” which increased the cost of doing business, without prior notice or consultation.

Under these circumstance, it became increasingly difficult for any hospitality sector business to build up a financial reserve.

These fiscal measures were designed to help GOA lower its deficit, while GOA, did zero to lower its expenses.

With the pandemic, the F&B sector, employing about 5,000 employees, spread among approximately 500 outlets, is at a loss, it will fail to generate income in April, May, June and beyond, unable to pay employees.  

GOA mentioned a stipend of up to AWG 950, as financial aid to private sector employees who qualified. YET the public sector employees, another 5,000 strong, is guaranteed 100% job security and a full income, plus benefits.

According to the Prime Minister everyone should make a sacrifice but, that mantra has not be translated into action in the public sector.

Aruba’s timeshare sector for example will be more resilient and will probably cope better with the crisis. The TS resorts will be meeting their Board of Directors in the summer and get approval for the 2021 budget which will include all operational expenses including staff.

The meetings will set maintenance fees for 2021, at the appropriate level.

Our TS sector, with about 40% of our rooms inventory, is maintaining security and landscaping and at zero occupancy at least staff salaries are secured, because fees have already been collected.

That said, that sector is also facing difficulty with giant increases in new ground tax levies, and beach levies, unexpectedly imposed. Example? A surprise Awg 170,000. – increase in the cost of doing business, for Ground Tax, in addition to beach tax, for an average-size TS resort, which members will have to carry as a fiscal adjustment.

 

So obviously the TS sector feels better today than the transient sector which in just one week reached close to zero occupancy, having always depended on a steady flow of income from rooms — which will remain flat for months to come.

How social is the F&B business? Or how anti-social?

What can this sector expect with only a few functioning exceptions such as drive-through windows, and take-out places??

Will our Mom & Pop operators continue to pay staff salaries?

Why didn’t this sector create reserves for a rainy day?

Before we start answering, rest assured all operators are feeling the pain over closings with the negative consequence of offering staffers an uncertain future.

It hurts and hurts a lot and there would be some light at the end of the tunnel if there was certainty that this would only last one or two months.

Due to the mega size of the crisis in the USA, I am of the personal opinion that this could take months and months and extend well into 2021.

Securing staff salaries for months would mean that not even one of the F&B businesses would have any tiny reserve capital left over, for the eventual start-up.

This would result in restaurant closings prematurely and that according to GOA is not an option.

Roughly 200 restaurants opened their doors between 2010 – 2020 of which the majority experienced small profit margins.

Based on those margins several closed within a year.

Why did others survive?

They subsisted on the hope that next year would be better.

Former AHATA CEO Jim Hepple was always of the opinion that there were too many restaurants in Aruba. More tourists, more restaurants but the cake was being divided among more businesses and the prospects of making money or creating a reserve, only materialized for few.

Back to the questions.

Could Mom & Pop operators still afford to pay their staff without GOA’s help?

The answer will not surprise you. It is negative. NO.

Why did this sector not create reserves?

The answer is because it was continuously pouring water into the ocean, as the sector was obliged to contribute to Aruba’s public debt.

The reserves that restaurants held were used to fix a broken dishwasher, a faulty ice maker, and re-printing menus after GOA decided that BBO should be included in the price featured on the menu. Obviously, low tax compliance of businesses not paying their fair share, put extra weight on those who paid.

And surprisingly, those in arrears are now being compensated with a discount as a stimulus package to kick start the economy! Amazing and only in Aruba!! If all taxes were collected diligently we would not be in need of an emergency fund.

Lastly, a very important question, restaurant employees will ask their employer: “What are you going to do for us”?

And my answer will be: “I am going to ask the GOA for a substantial contribution, so that its 5,000 public servants may deposit 50% of their pay in an emergency fund. And with these funds, we might perhaps come up with a higher than Awg 950 a month amount, for you.”

We now have an opportunity to plan a good strategy, with less bureaucracy, to kick start the island’s economy in post-corona times. Hopefully in an organized, well-paced manner because if all F&B operators start up at the same time, we may discover that some aren’t able to make ends meet, and then we would be back to square one.

Jan van Nes

President AF&BA

 

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April 02, 2020
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