Lets start from the land of too big to fail with an observation. You cannot subsidize forever what you cannot sell. NZ learned that the hard way in the 1980s. Farmers had a bottom guaranteed price for their goods — so they produced as much as they could and we had a butter mountain and a mutton mountain range. Until NZ almost went bankrupt, and all the subsidies stopped. My Dad was the farming, and when I visited him on the weekend he noted who had walked into the back field and did not come out.
That recession (thank you Roger Douglas and David Lange) was lethal. The coming one could be worse.
Getting stronger rarely feels good. It involves aches and pains. It involves discomfort, and moving your body in ways it may not have moved for a while. In a “good” recession, this is what happens. The economy sheds, often in very painful ways, companies that are no longer competitive and gets stronger. That recession is the spur for changes within companies that allow them to survive. Sentimentality goes by the wayside – the harsh blade of profitability determines what products will be built and what products will be discontinued. Plus the bank helps lots of folks get back up on their feet, mainly by repossessing the car.
This, however, is no ordinary recession. Entire industries are going to be destroyed.
Wilder Wealthy Wise
I have a new habit. When the television news is on, I do music practice. It keeps my blood pressure down. I only buy a newspaper if I am out of lockdown and my mother in law (who is in her eighties) is here — one paper fills up her reading for three days.
I used to read the NZ Herald (the Auckland morning paper) every day. Not for years: I don’t live there and when I visit and look at it is is now a sub Sun tabloid. As a result, they are going broke, and this is the second media firm to cut staff — the other closed up completely.
The company which owns the New Zealand Herald and Newstalk ZB as well as regional papers, websites and other radio stations made the announcement a few minutes ago in a release to the New Zealand Stock Exchange.
It says that it expects April 2020 advertising revenues to be approximately 50 percent lower than April 2019, due to the Covid-19 lockdown.
It is going to be bad. Bob Jones hopes we will only get 10% unemployment (what Treasury is predicting) but expects 25%: he predicts deflationary pressure will allow the government to print money. And lose the next election. But he is Wellington elite.
For the rest of us, one of the fast food chains in NZ has gone. We can no longer eat at the King, that purveyor or burgers in most food halls.
Grant Graham and Brendon Gibson of KordaMentha were appointed receivers for the business.
Burger King restaurants have been closed as part of the level four lockdown in response to the Covid-19 pandemic.
Gibson said this has had a significant impact on the business in New Zealand.
The receivers will now seek support from suppliers and landlords to possibly restart the business once the lockdown is lifted.
Gibson said the senior management team remains committed to the business and is working on a plan to reopen after the lockdown.
The Burger King shareholding companies in receivership are Tango Finance Limited, Tango New Zealand Limited and Antares New Zealand Holdings Limited.
In a letter addressed to staff, Burger King chief executive Michelle Alexander said that inability to earn revenue had created significant financial challenges for the company.
“As you know we have applied and received the Government wage subsidy, and this is assisting to pay all staff during the lockdown, however with no sales since lockdown commenced, the Company does not currently have the cash flow to fund trade creditors and rent payments,” Alexander said.
She said there was a high degree of uncertainty to when the lockdown would end and how quickly the economy would recovery.
In this context, she said that the Burger King shareholders had decided not to put any additional equity into the business.
Alexander explains that the aim of putting the business into receivership is restart the business and then find a new owner.
“We believe that this is the best way forward for the business and are committed to finding a new owner who is confident in the long-term prospects of the Burger King business in New Zealand,” she said.
In my view, this is the beginning of the death spiral. We have four burger chains in NZ — and to see one go this early is a surprise. I expect half the cafes to shut, but not the second most popular of the chains. It’s not looking good.
I’ve formatted it so you can see the table. CPI is consumer price index. From Dave Farroa, Kiwiblog
Treasury has done some high level forecasts for what may happen to key indicators under different scenarios. They scenarios broadly are: 1. Level 4 for 1 month and Level 3 for 1 month 2. Level 4 for 3 months 3. Level 4 for 6 months and Level 3 for 6 months 4. Level 4 for 3 months and Level 3 for 3 months 5. Same as Scenario 1 but lower global growth They key indicators are: Scenario Peak Unemployment CPI in 2021 5 yr GDP loss 1 13.5% 0.25% $124b 2 17.5% 0.25% $155b 3 17.5% -0.75% $270b 4 17.5% -0.75% $224b 5 13.5% -0.25% $214b They also say that the Government spending an extra $20 billion in Scenario 1 means unemployment would only peak at 8.5% and drop back to 5.5% in 2021. That seems heroically optimistic.
This is not going to end well.