Tuesday 20 March 2018

'Pubs are pivotal to society and the economy but we tend to run ourselves down'

With Ireland's levels of excise duty on alcohol among the highest in the EU, LVA chief Donall O'Keeffe says the Government has betrayed its commitment to help small businesses, writes John Mulligan. Photo: Caroline Quinn

John Mulligan

John Mulligan

It's hard to know whether Donall O'Keeffe's glass is half full or half empty after the Budget. Strong lobbying from the tourism and restaurant trade prompted Michael Noonan to retain the reduced 9pc VAT rate for the sectors, but as he was toasted for that he was being roasted for raising excise duty on booze.

The head of the Licensed Vintners' Association (LVA), which represents the bulk of the 730 pubs trading in Dublin, Mr O'Keeffe has claimed the hikes (10 cent on a pint of beer, cider and a measure of spirits, 50 cent on a bottle of wine) will result in 2,000 jobs being lost across the country in the pub trade.

Mr Noonan was unrepentant, saying he recognised the impact the increases would have on publicans, but said they had to be considered against the backdrop of the retention of the 9pc VAT rate, with food and hospitality forming "an ever increasing proportion of vintners' revenue".

The only thing is, of course, the lower VAT rate will eventually revert to its previous 13.5pc but you can be pretty sure the excise duty won't be reduced to counter that (alcohol is still subject to the 23pc VAT rate).

"Clearly on the excise side we were bitterly disappointed and we struggle to see how the Government can say it's pro-business and pro-small enterprise when in the alcohol sector we have some of the highest taxes in Europe," said Mr O'Keeffe, a Clareman and GAA fan, who prior to joining the LVA 10 years ago worked for State food agency Bord Bia and had a brief stint at PricewaterhouseCoopers.

Figures from the European Union bear out Mr O'Keeffe's claims. Even pre-Budget, the amount of excise duty levied in Ireland on a bottle of standard still wine was €370.64 per hectolitre (100 litres). That's the highest in the EU and skews the average across the bloc so much that it's worth bearing in mind that 17 member states charge no excise on wine, while only Finland, the UK and Ireland charge above the €300 mark. Then there's the 23pc VAT on top.

On beer too, Ireland fares among the worst. Per hectolitre, at greater than 2.8pc volume, beer attracts €19.13 of excise duty – even before the latest Budget. Finland is worst, at €29.90, but Sweden's is similar to Ireland's, at €19.59, while in the UK it's €23.95.

It would be easy to keep crying into the pint glass.

Nationally, the pub industry has been pummelled by a confluence of factors – the recession, coupled with emigration and the changing fabric of rural communities. In the past five years or so, according to drinks industry group DIGI, about 950 pubs have called time for the last time.

But Mr O'Keeffe insists that the Dublin pub trade is resurgent, bolstered by the city's large population and the fact that economic recovery is running at a two-track speed, with the capital emerging from the doldrums faster than the rest of the country.

"We have an industry that's started to stabilise and recover in Dublin. It's a pivotal part of the Dublin economy and its social scene," he said. "We've a fantastic product here and we tend to run ourselves down."

He adds that Dublin benefits enormously from tourism, which helps to underpin the trade. Pat McCann, the boss of the country's biggest hotelier, Dalata, recently said hotels in the capital have experienced their best trading this year since 2007.

While some Dublin superpubs can generate massive turnover in the region of €170,000 a week, the bulk take between €15,000 to €20,000 in weekly sales.

Across the country, the value of alcohol sales has risen, but the volume is down. In fact, per capita, alcohol consumption is about 20pc lower than it was at the beginning of the last decade.

The off-trade – particularly supermarkets – remains a huge threat to the pub business.

Mr O'Keeffe has called for a 15pc tax to be put on off-trade sales – something that seems to fly in the face of an open, competitive market. If people prefer to buy their wine and beer in a shop and drink at home, why shouldn't they?

"We've had a quasi-hysterical debate around alcohol in this country for the last few years," said Mr O'Keeffe. "The debates around Arthur's Day, sports sponsorship, all miss the point."

Do they?

"The big change in the Irish drinks market in the last six years, thanks to Micheal Martin (the Fianna Fail leader, who in 2009 as enterprise, trade and employment minister repealed the Groceries Order that banned below-cost selling), is the use of alcohol by the multiple retailers as a footfall driver," Mr O'Keeffe said.

"More than half of the volume – 55pc – of all the alcohol sold in the drinks industry today is sold by the multiple retailers," he said.

But that could be set for an upheaval.

The Government has just announced plans to introduce minimum alcohol pricing in an effort to combat abuse. But the measure would have to be an all-island one to combat shoppers loading up on cheaper booze in Northern Ireland.

The Government wants to structure minimum pricing so it directly impacts alcohol that is cheap relative to its strength. It claims the proposals wouldn't result in the price of a pint rising in a pub or hotel, for example.


Whether it can be implemented is another question, as it's likely to be legally challenged.

"There has been no proper discussion about where the alcohol abuse is centred, who are the alcohol abusers and what's driving it. We passionately believe that the pub is the best place to consume alcohol."

But he would say that, wouldn't he? And while he said that pubs obviously loved Diageo's manufactured Arthur's Day, it's difficult to argue against the perception that it temporarily raises Ireland's global profile for all the wrong reasons.

Regardless, the pubs soldier on. But with most pub owners heading towards retirement (Mr O'Keeffe said the average owner in Dublin is in their 50s), do the pubs themselves have a long-term future as stand-alone entities?

UK pub chain JD Wetherspoon has already bought two pubs in Dublin and plans to acquire more. Other British chains are also scouting the market.

"It is a significant development, but good strong Dublin pubs have nothing to fear. They compete with each other every day of the week. And if they (JD Wetherspoon) help the industry raise its standards further, that's good for the pub trade, it's good for customers and it's good for business," Mr O'Keeffe said.

He accepts that current Dublin pub owners considering their future could be more than willing to sell out to chains, but equally he believes many pubs in the capital are poised to pass on to a new generation of family ownership.

"Publicans will sell to the highest bidder, but I don't think we'll see a big shift in ownership," he maintained. "There's a lot of family coming through who'll take the reins and will bring, I think, a fresh perspective and new energy to lots of pubs.

"You'll see a regeneration of the trade, but all of that won't be through new owners or acquisitions. The trade has been around for 300 years. It goes through phases of evolution and development."

But there are a number of pub owners who've saddled themselves with debt – a legacy of buying pubs at high prices, renovating at the peak or moving beyond their core capabilities into the property market.

The Central Bank has said that there's about €2bn in debt attached to the licensed trade in Ireland.

"There is an issue in high levels of debt. Some publicans invested aggressively in property and that related debt is being serviced out of the pubs to some extent."

Despite the debt overhang, Mr O'Keeffe said the level of receiverships in the trade hasn't materialised at the kind of levels he expected three years ago.

"Where the publican engages with their bank, there is recognition by both sides that deals need to be restructured to allow businesses to survive and the debt to get serviced as best it can," he explained. "By and large, the banks are working reasonably well in that regard."

Mr O'Keeffe said the good summer provided a big boost to the trade, and with Christmas around the corner pubs will be hoping for strong sales before the lean months of January and February.

"As long as it doesn't snow."

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business