Understanding the Downturn in the Hospitality and Restaurant Sectors

TEMPO.CO, Jakarta - Most business players in the hospitality and restaurant sector are under heavy pressure. This could potentially lead to layoffs of their employees.

Based on the data collected by the Indonesian Hotels and Restaurants Association (PHRI) in Jakarta, about 70 percent of business players in this sector have expressed that they are considering reducing their workforce due to a significant decrease in occupancy rates.

The survey in Jakarta shows that most business players estimate they will cut the number of employees by 10 to 30 percent of their total workforce. In addition, almost all business players are considering drastically reducing the number of daily workers, even up to 90 percent of the current amount. Furthermore, 36.7 percent of respondents stated that they plan to reduce permanent staff.

The decline in occupancy rates is the main factor driving these efficiency measures. PHRI Jakarta noted that about 96.7 percent of hotel owners or operators reported decreasing room occupancy during the same period. The sharpest decline occurred in the customer segment from government agencies, reaching 66.7 percent. This situation is related to budget efficiency policies implemented by various government agencies, thus reducing travel expenses and activities that usually contribute to hotel room bookings.

In addition to reduced demand from the government segment, business players face challenges from the low number of foreign tourists visiting Jakarta. Based on data from the Central Statistics Agency (BPS), the average contribution of foreign tourists to the hotel occupancy rate in Jakarta from 2019 to 2023 was only 1.98 percent per year compared to domestic tourists. This raises concerns about the effectiveness of the tourism promotion strategies to attract international markets to the capital.

Aside from demand pressures, industry players also face the burden of rising operating costs. One of the highlighted factors is the 71 percent increase in clean water tariffs from the Regional Water Company (PDAM), as well as a 20 percent surge in gas prices. The 9 percent increase in the provincial minimum wage (UMP) in the current year further exacerbates this increase in operating costs. Collectively, these three components exert additional pressure on cash flow and business sustainability, especially for small and medium-sized businesses.

Administrative regulations also pose another obstacle perceived by business players in the hospitality and restaurant sector. The numerous types of permits that must be obtained, such as environmental permits, certificates of compliance, and permits for the sale of alcoholic beverages, are considered to add complexity to business management. On the other hand, lengthy bureaucratic processes and document duplication between institutions and opaque costs are also considered to hinder efficiency and smooth business operations.

In the context of contributing to the regional economy, the hospitality and restaurant sector plays a crucial role. PHRI Jakarta noted that this sector contributes about 13 percent to Jakarta's original regional income (PAD). Data from BPS in 2023 also shows that more than 603,000 people depend on jobs in the food and beverage and accommodation sector for their livelihoods.

The declining performance of the hospitality and restaurant sector not only impacts entrepreneurs and direct labor in the sector, but also has the potential to have a subsequent effect on other closely related sectors. Micro, small, and medium enterprises (MSMEs), farmers, logistics players, as well as artists and cultural workers, are part of the ecosystem affected by the slowing down of this industry's activities.

Alfitria Nefi P. contributed to the writing of this article

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