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Eating-out costs to rise as VAT hike kicks in

Increases in minimum wage and other costs put added pressure on prices

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INFLATION WARNING: Adrian Cummins

INFLATION WARNING: Adrian Cummins

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Consumers face increases of hundreds of euro a year on eating out and takeaway meals as restaurants seek to pass on a triple whammy of a VAT hike, wage increases, and other rising costs.

Increasing restaurant costs hit Irish people harder than other EU nations, as customers in Ireland spend a great share of their household expenditure on restaurants than their European counterparts. We are second only to Spain in the share of our spending in restaurants, cafes, pubs, and canteens.

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INFLATION WARNING: Adrian Cummins

INFLATION WARNING: Adrian Cummins

Adrian Cummins, of the Irish Restaurant Association, warned: "I can see price inflation in restaurants and cafes rising ahead of inflation...we're looking at anything between 5-15pc price increases on average.

"We are in the midst of a perfect storm for a serious correction in our industry.

"A lot of businesses will be treading water come April."

Consumers' Association of Ireland spokesman Dermott Jewell said customers will abandon cafes and restaurants that put up prices by "unreasonable" amounts.

"Consumers will reduce spending if they need to and if prices increase unreasonably then they can, and will, exercise their choice to spend their money where their custom is valued as much as their euro," Mr Jewell added.

Economist Anthony Foley said very few hospitality businesses could afford to not pass on the increase in VAT which rose from 9pc to 13.5pc on January 1.

Small restaurants and hotels in rural areas were most vulnerable to cost increases.

He said restaurants and cafes operate on tight margins with very few making big profits. They were facing higher insurance costs and wage costs as well as the VAT hike.

"Prices should only go up by 5pc or 6pc overall. A price increase of 20pc could not be justified - 6pc at the most," said Mr Foley, associate professor of economics at Dublin City University.

He advised customers to shop around for the best value, saying there has been "an explosion" in the numbers of people eating out in Ireland in recent times.

"In urban areas, we are not bringing our lunches with us anymore. We are going out and getting takeaways, or sitting in restaurants or bars with sandwiches.

"In the last few years there has been an explosion in eating out. A lot of that is catching up with the rest of the world and us becoming time poor and we are doing a bit better… within an office block in Dublin, there are probably 50 outlets around - a huge level of competition and variety," he said.

Speaking of the VAT increase, he said the Government's stated view that the VAT increase would not have any effect was "a little disingenuous" because of the large numbers of small operators in the sector surviving on very tight profit margins.

Thriving businesses in city centres could absorb the tax increases, but a lot of businesses are not able to absorb it, he said.

Wages make up 30pc to 40pc of costs. The 25c increase in the minimum wage to €9.80 will add about 1pc overall to restaurant costs, he said.

Mr Cummins, chief executive of the Irish Restaurant Association, said his members would have to absorb the rising costs of business or pass it on to the consumer as the cost of running a business was "skyrocketing".

"Some business won't be able to survive going forward. Each business will have to determine what to do but I can see this year being a terrible year for the restaurant and cafe industry.

"We're talking about - not just a VAT increase - but the rising cost of insurance by 35pc, rising wage costs and taxation.

"The ultimate loser will be the consumer. Businesses are not charities. They have to make money to keep their doors open and each business will determine what it has to do to survive," he said.

"And if Brexit hits the industry, it will also be the first to be affected.

"The Minister for Finance should have thought about this before he put up the VAT rate. The VAT increase - when you take everything else into account - will be a monumental disaster for the industry," he said.

Mr Jewell criticised some restaurant owners who put up their prices ahead of the January 1 VAT hike.

He also criticised restaurants who did not bring their prices down when the Government reduced VAT to help the sector some years ago.

"There is an immediate question of credulity regarding the 'impact' of the return to the original rate of VAT… a return to the original rate…is offset against VAT on purchases by the restaurant as a normal course of business," he said.

Economist Dr Alan Aherne said: "There is a worry that they will act opportunistically and hike the price excluding VAT," adding it would have little negative impact on the overall health of the economy.

"If consumers don't eat out they will have extra money left in their pockets and they'll probably spend it on something else, so, from the overall economy's perspective, it will still be spent."

Sunday Independent