Hospitality businesses are reporting higher levels of negative mental health amid declining profits and foot traffic, a new Restaurant Association report says.

The association’s latest Hospitality Dashboard, covering the second quarter of 2024, found 76% of surveyed members reported worse or significantly worse profitability compared with a year ago.

The report said inflation and rising operational costs were eating into profitability, despite revenue going up over the same period.

Annual sales revenue rose 5.8% to $15.7 billion in the year to March 2024, compared with the same period a year ago.

“However, these gains are overshadowed by the industry’s ongoing difficulties, particularly in Auckland, where Q2 sales revenue dropped by 0.7% from the previous quarter, signalling the persistent impact of economic pressures on the region,” the report said.

Businesses had been forced to adjust their menu prices by an average of 6.4%, the report said.

More than half (52%) of respondents said a decrease in foot traffic was their primary concern.

Meanwhile, mental health and wellbeing in the industry are also under strain, with 54% of hospitality owners indicating a negative impact on their health in the second quarter, up from 42% in the previous quarter.

“While the industry is undoubtedly facing challenges, we continue to see extraordinary determination from our members,” Restaurant Association chief executive Marisa Bidois said.

“We’ve weathered tough times before, and while the trading environment remains difficult, we are prepared to face these challenges head-on and are focused on surviving until 2025 and beyond.”

However, some businesses are bucking the trend.

The report said the takeaway sector experienced a notable 4.2% increase in year-over-year sales during the second quarter.

“This growth highlights a shift in consumer behaviour, as more people opt for the convenience and affordability of takeaway options amid tightening household budgets.”

Bidois said neighbourhood eateries with a strong local connection were also finding success by building loyal customer bases that value the community aspect of dining locally.

“These venues are thriving because of their close ties with their surrounding areas, which encourages repeat business.

“Additionally, businesses with a clear and unique offer are staying ahead of the curve. By doubling down on their distinct value propositions, these venues are able to differentiate themselves in a crowded market, ensuring customers continue to seek them out,” she said.

Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports. He reports on topics including retail, small business, the workplace and macroeconomics.