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1/3 of hospitality firms could die. So what ?

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A press conference was recently organized by the union of independents to denounce the expected negative effects of the black boxes in the so-called Horeca (HOtels – REstaurant – Coffee shops) sector (in other words the sector of hospitality). As a short reminder, these black boxes are devices to be implemented in the cash register of stores to eradicate the possibility to make black money.

Jean-François DONDELET, the president of the union of independents (SDI), said that 1/3 of hospitality firms could die (bankruptcy) because of the implementation of this surveillance device. He called for a delay of the implementation date so that impacted companies could better prepare.

I was interviewed by the RTBF (Belgian national radio) to counterbalance the union’s opinion (you can listen to me as of 7 minutes 10 here) and thought it would be good to sum this up for the readers of this blog.

Delaying the implementation of the black box will not improve the situation

First of all, let’s be very clear about one thing. Delaying or suppressing the implementation of the black box will not help improve the situation. We have explained it already in another article. The rate of bankruptcies in the HoReCa sector is structurally higher than in other sectors.

Let me use a metaphor. When you have a flu, you have a runny nose and a sore throat. The latter are symptoms of the disease. Taking a syrup against cough will help to ease your throat pains; but it will not cure the disease.

Suppressing the black boxes is just like this. It will ease your pain (of being controlled). But it will change nothing to the very reasons why you must make black money to survive.

Why are HoReCa entrepreneurs forced to make black money ?

Neither the State nor the Unions are willing to investigate the very reasons behind the difficulties of the sector.

The Unions blame the State because of the employer’s contributions ; the State blames the entrepreneurs because they are hiding revenues.

The solution to the profitability of HoReCa entrepreneurs is not a one-size-fits-all solution. It’s a mix of different measures.

What should be done to lower the bankruptcy rate in the HoReCa sector ?

First of all, it’s obvious that contributions should be lowered to make the sector more profitable and more attractive. The food & drink sector is labor-intensive and the configuration of the value chain doesn’t allow to produce incredible value at any step in the chain. The profitability will therefore be lower by essence. However I doubt that this will be sufficient to balance all the bad habits entrepreneurs in the sector have.

As a second step I would strongly recommend to give better management and marketing knowledge to would-be entrepreneur in the HoReCa sector. The average education level of would-be entrepreneurs remains low compared to other sectors of activities and would-be entrepreneurs are unprepared for launching a venture. Marketing is unknown to most of them, Accounting is outsourced and General Management has at best been mentioned on the occasion of a workshop of the HoReCa federation. This lack of knowledge leads to fatal errors. My “favorite” one is the localization of the store that is decided most of the time without any prior analysis. Yet this is the criteria number one for the success of a food-over-the-counter shop.

Conclusion

Firms are like living organisms. Some were born, other will die. Whether the firm is in the HoReCa or not makes no difference.

The question that should be asked is therefore whether it makes sense to maintain firms alive that otherwise would be long dead. I’m not saying it should or that it shouldn’t. I’m just saying that someone needs to think about and to compare the costs (of letting firms die and having thousands of unemployed) and the benefits for the Society.

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Author: Pierre-Nicolas Schwab

Dr. Pierre-Nicolas Schwab is the founder of IntoTheMinds. He specializes in e-commerce, retail and logistics. He is also a research fellow in the marketing department of the Free University of Brussels and acts as a coach for several startups and public organizations. He holds a PhD in Marketing, a MBA in Finance, and a MSc in Chemistry. He can be contacted by email, Linkedin or by phone (+32 486 42 79 42)

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