Julie Shiels says that Hartley’s Restaurant, the landmark Dún Laoghaire eaterie that she owns with her wife Kirsty Argyle, is busier than it has ever been before. There is only one problem: The restaurant is making virtually no profit.
“There’s something wrong,” Shiels says, “when you’re busier than you’ve ever been, and you’re still struggling to pay the bills.”
Barry Flanagan, the owner of Lock 13 Brewpub in Sallins, Kildare, uses different words to sum up the same problem. “We’re busy fools, as it stands at the minute,” he says.
Likewise, customers are not a problem for Jonny Barr, who founded East Village Coffee, a Dublin café, in 2016 with his wife and co-owner Emma. He said that East Village is busier than it’s ever been, serving between 250 and 350 cups of coffee a day. The problem, he says, is that his costs have gone up too much.
Rachel Keane is the founder of the Póg, a chain of five cafés that employs between 80 and 110 staff, depending on the season. She had hoped that the Government would bow to the lobbying and reintroduce the reduced nine per cent Vat rate for the hospitality sector.
The move would have been worth €11,000 to €15,000 to the business per month. “We’re really, really busy, the sales are amazing,” she told Alice last week. “It’s just what’s left on the bottom line is not so amazing.”
Shiels, Flanagan, Keane, and Barr were among those who marched in Dublin last week as part of a protest jointly organised by the Restaurants Association of Ireland and the Vintners’ Federation of Ireland.
It is easy to understand the industry’s problems. Since the final quarter of 2019, food inflation has run at 18 per cent, labour costs in the accommodation sector have increased by 22 per cent and energy costs are up around 75 per cent.
And the impact has been devastating. Based on its calculation, the Restaurants Association of Ireland says that almost 600 restaurants, cafés or other food-led businesses have pulled down their shutters for good since last December, when the special nine per cent Vat rate for the hospitality sector ended.
An accompanying survey, released in August, revealed that 74 per cent of 212 members that responded believe they will have to close their businesses if the special Vat rate is not reinstated in the recent budget.
The rate, of course, was not reinstated. Instead, the sector had to make do with the €170 million ‘Power Up’ grant scheme for retail and hospitality businesses.
Even though it received the public support of the enterprise minister Peter Burke, the hospitality sector needed to look beyond Vat as the cure to its ills. The government was always unlikely to reinstate the reduced Covid-era rate. The €545 million cost of the reduction was deemed too expensive – plus, the government argued that if it was extended to one sector, why not to others?
Instead, hospitality needed to focus on other areas that would reduce the cost base, including lobbying for PRSI rebates for businesses in the service sector most affected by increased costs. Ibec has previously called for such a move.
Last week, I interviewed the Minister for Public Expenditure and Reform Paschal Donohoe at an event organised by Cantor Fitzgerald in partnership with The Currency. Before the event, I got an email from Brody Sweeney, the entrepreneur who built O’Brien’s Irish Sandwich Bars into a global brand. When he lost control of it, he started again with Camile Thai.
He was unable to attend the event but wanted me to ask a specific question. He explained that his business will have had, over three years, additional costs of over 10 per cent per cent imposed by the Government. All those costs are unrelated to Vat.
For an average well-run Camile restaurant, which was able to make an over 10 per cent net profit pre-Covid, the current net profit is effectively zero, he said.
“When we try to pass our increased costs on to consumers, they are voting with their feet, not surprisingly in a cost-of-living crisis, and our average branch sales have been declining for two years. While no fair person argues with the thrust of Government policy to help the lower-paid have better lives, does the minister and his Government realise that the consequences of these cost impositions are killing good businesses?”
It is a fair point. A recent report by the Department of Enterprise, Trade and Employment showed that firms in the hospitality sector could see payroll costs rise to 37 per cent by 2026. The report examined the impact of auto-enrolment, parent’s leave and benefit, statutory sick pay (SSP), additional public holidays, the transition to a living wage, and the right to request remote working.
When I put the wider concerns of the sector to Donohoe during the Cantor event, Donohoe responded: “We certainly need to have a consideration of what are the issues that are making it harder for small and medium-sized businesses. And I do accept that point. Decisions have been taken, which all individually are welcomed, but in the round are posing the challenge. That is a critique that I’m aware of, and it’s one that we will need to address in the time that is ahead of us.”
Donohoe, however, pushed back further, warning of the problems of looking at a budget through the prism of one interest group or one government department.
“Let’s just not lose sight of the broader picture and the impact that five budgets have now made to where our country stands. Most notably the fact that we have 400,000 more people working in our economy than we did before 2020 and those 400,000 people are all working in jobs that didn’t exist four years ago. That, by any measure, would not be happening if small and medium-sized businesses weren’t supported within our economy,” he said.
Some within the industry are trying to buck the trend, as Alice noted last week in her report on the rise of experiential hospitality offerings. In recent months, a number of new retail franchises have been announced, including Flight Club, a social darts concept due to open on Dawson Street; Lane7, a bowling alley and bar; and Bounce, a ping pong bar. Last year, Pitch, an indoor golf experience, agreed to take an 850 square metre space off Grafton Street, while Sandbox VR, a virtual reality experience, is due to open in the same location.
“Considering the size of the Dublin retail market, for six new offerings like this to enter the market in a relatively short timeframe, it is quite noteworthy,” said Dan McLaughlin, senior director and head of retail occupier advisory at CBRE.
Not all existing restaurants and cafes can move into this market, and in all likelihood, many will follow the 600 that have shut down over the past year.
But it shows the potential for innovation within the sector. When I interviewed Peter Burke after the budget, the enterprise minister was vocal in his concerns about retail and hospitality.
A Vat reduction was not the answer. But, clearly more needs to be done to support the sector and improve the bottom line.
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