Home' Australian Hotelier : AH SEPTEMBER 2017 Contents 22 | SEPTEMBER 2017 AUSTRALIAN HOTELIER
When utility costs rise, it's felt by all
users, as it's an essential service for
running lives and businesses day-
to-day. So when those costs rise
exponentially, the impacts are weighty and have
consequences other than just higher costs. For
the pub industry, dearer utility prices can have
In South Australia, energy prices have been
on the rise, and at incredible intervals for the
last few years. Recently, utilities expert Bruce
Mountain of energies consultancy firm Carbon
and Energy Markets suggested that South
Australia has the most expensive electricity
prices in the world -- pipping the nation of
Denmark at the post for an unwanted top spot.
A large part of the problem is the
supply chain, with the state relying on an
interconnector from Victoria for its electricity
supply, after the close of the coal-powered
plant at Port Augusta. While South Australia
leads the country in terms of renewable energy
sources, with wind, solar and geothermal
plants, many blame the lack of a proper
transition from coal-powered to renewable
sources for the extreme hike in electricity rates.
Regardless of debate on renewables versus
traditional sources of energy, there's no
question that while everyone in the state is
feeling the effects of the rates hike, it is hitting
THE COST OF UTILITIES IN SOUTH
AUSTRALIA IS A LARGE CONCERN
FOR BOTH CONSUMERS AND
BUSINESS, AND THE PUB INDUSTRY
IS NO EXCEPTION.
the pub industry particularly badly.
"The obviously hit industries are hospitality
and retail grocers because we rely on air-
conditioning and refrigeration. You can't have
a pub without air-conditioning, and you can't
have a pub without refrigeration for both
beverage storage and food safety," stated Ian
Horne, general manager of AHA SA.
In his communications with AHA SA
members, Horne has heard of tales of up to
200% increases in utility costs for venues.
"We just had quite a substantial suburban
hotel that was paying about $8000 a month
[for electricity], under the new contract it's
roughly $18,000 a month. We've got country
pubs where their bills are going up by nearly
200 per cent. That's just debilitating because in
South Australia business is flat."
BILLS, BILLS, BILLS
The increases in rates are varied throughout
the industry, dependent on the term length of
contracts and when they were renegotiated.
For Matthews Hotels, which operates 10 pubs
divided evenly between Adelaide and regional
areas, utilities make up a significant proportion
of operating costs, and is only growing. Utilities
make up 14 per cent of the group's total
overheads, and are forecast to rise 12 per cent
year on year.
At Palmer Hospitality Group, which runs
the award-winning Warradale and Highway
Hotels, the figures are even more alarming.
"[We've had] a large increase of 45 per cent
in electricity prices over the last three years
and next year's contract is going up another,
37.5 per cent. These types of increases mean
an additional $50,000 in electricity bills per
annum increasing to approximately $85,000
next year," explained Martin Palmer.
"This equates in a loss of earnings for the
company as these types on increases cannot be
passed on to consumers in the current retail
environment, and increases of this magnitude
can only be partially absorbed."
At the Lion Hotel, the recent winner of
AHA SA's Best Overall Hotel of 2017 award,
co-owner Tim Gregg says the increases negate
profits completely and make it harder to grow
and improve your business.
"We're just not making any profit, all we're
doing is working to keep our power bills
paid. And that just takes a whole lot of other
options off the table, like investing more in
your business, looking after your staff better,
marketing your business -- those things all get
put in the too hard basket, when you've got a
mandatory increase in a cost that you can't do
Palmer agrees, stating that due to the increase
in utility rates, the group has had to veto
employing extra staff. It's a decision that was
hard to make in the hospitality business, but a
necessary one in the current business climate.
At the Seven Stars Hotel, publican Tom
Ricketts has yet to have a hefty rise in his
electricity bills due to the length of his contract,
but is already bracing for impact at the end of
the year when it runs out.
"I don't know what I'll be paying until it's
time to sign up to the new contract. I've heard
of bills close to doubling."
Utility costs are
eating up most of the
profits at Lion Hotel
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