Industry Research Reveals Very Challenging Operating Environment with 13.5% VAT Rate Taking a Serious Toll on Businesses
-
77% of hospitality business report a negative outlook for the next 12 months
-
Food sales down 9% on average so far this year
-
Operating costs across the sector up 16%
-
91% of hospitality businesses report a fall in profitability on food sales
In advance of a meeting with Minister Jack Chambers and Minister Paschal Donohoe next week, tourism and hospitality groups have today reiterated their call on the Government to reinstate the 9% rate of VAT for hospitality food service businesses. These businesses are facing a “perfect storm” as they grapple with an increasingly challenging operating environment due to rising costs, falling food sales and very tight margins. This is being further compounded by the increased 13.5% VAT rate, which came into effect in September 2023.
Findings from recent industry research looking at over 700 hospitality food service businesses*, show that over three quarters (77%) now have a negative outlook for trading conditions over the next 12 months with businesses reporting a 9% average drop in the value of their food sales so far this year. Virtually all hospitality businesses surveyed (96%) say they are being negatively impacted by the 13.5% VAT rate while some 68% say it is having a very negative impact on their business.
The cost of doing business remains a persistent challenge with hospitality businesses throughout the country reporting an average increase of 16% in operating costs year to date. This is largely driven by Government economic policies, including a series of employment-related cost increases – the impact of which has been particularly acute for given the labour-intensive nature of hospitality businesses.
As a result of the exceptionally challenging operating environment, many hospitality businesses have been forced to cut back on their operating capacity, leading to a reduction in the dining options available throughout the sector. Some 46% of businesses say they have reduced their opening hours while over a quarter (26%) say they have reduced the number of days they open. Meanwhile 59% of those surveyed said they had cut back on the range of their food offering.
Nine out of ten (91%) respondents report a fall in profitability for food-related services year to date. This is a major concern given the already very tight margins under which food service businesses are operating. They forecast an even more pronounced decline over the coming months, with food sales expected to be down 12% over the remainder of the year compared to the same period in 2023.
Commenting on the results the Chief Executives of the Irish Tourism Industry Confederation (ITIC), Restaurants Association of Ireland (RAI), Vintners Federation of Ireland (VFI), Irish Hotels Federation (IHF) and Licensed Vintners Association (LVA) called on the Government to act decisively to address the challenges facing food service businesses:
“We are calling for an urgent change in direction from the Government. Our sector is at a crossroads with hospitality businesses struggling to deal with the increased 13.5% VAT rate alongside very tight margins, falling food sales and significant increases in operating costs. However, despite reassurances that it understands the financial challenges facing our sector, we have yet to see a meaningful Government response to the severe challenge facing hospitality businesses.
“It is now essential that the Government does everything possible to assist struggling businesses and put our sector on a more stable footing. At a minimum, this must include the reinstatement of the 9% VAT rate for food-related hospitality services in the upcoming Budget.
“Further Government inaction would pose enormous risks to our industry which, as Ireland’s largest indigenous employer supports over 270,000 livelihoods the length and breadth of the country. As we look to develop and grow our hospitality and tourism product, the focus should be on making us more attractive as a destination and enhancing the range and availability of tourism and hospitality services. However, the combined effect of the 13.5% VAT rate and additional Government-controlled costs is having the exact opposite outcome by seriously undermining our tourism food offering and the viability of downstream businesses.”
  *The research was carried out on 14–20th August 2024 based on a sample of 730 hospitality businesses throughout the country including restaurants, pubs, coffee shops, hotels and guesthouses.
Issued on behalf of:
Eoghan O’Mara Walsh, CEO, Irish Tourism Industry Confederation
Adrian Cummins, CEO, Restaurants Association of Ireland
Pat Crotty, CEO, Vintners Federation of Ireland
Tim Fenn, CEO, Irish Hotels Federation
Donall O’Keeffe, CEO, Licensed Vintners Association