Hospitality groups warn of 'perfect storm' facing industry ahead of Government meetings
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A consortium of tourism and hospitality groups have reiterated calls for a reinstatement of the 9% VAT rate for the sector ahead of its meeting with the Minister of Finance and Minister of Public Expenditure.
Business groups have warned the industry is facing a "perfect storm" as it grapples with an increasingly challenging operating environment due to rising costs, falling food sales and very tight margins. This is being further compounded by the reinstatement of the 13.5% VAT rate in September 2023, the consortium said.
Citing findings from a recent industry research looking at over 700 hospitality food service businesses, the group stressed that over three quarters of companies 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.
In addition, 96% of hospitality businesses said they have been negatively impacted by the 13.5% VAT rate while some 68% say it is having a very negative impact on their business.
The group, which comprises the Restaurants Association of Ireland (RAI), the Irish Tourism Industry Confederation (ITTC), Vintners Federation of Ireland (VFI), Irish Hotels Federation (IHF) and Licensed Vintners Association (LVA), said costs remain 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 the Government’s 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," the group said.
"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 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.
In addition, nine out of ten respondents reported a fall in profitability for food-related services year to date, which the group called 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 consortium 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."
The group added that it was now essential that the Government does everything possible to assist struggling businesses and put the 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.
"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.”