“I’ve had my restaurant for more than 20 years and it has never, ever been as hard as this. Between the taxes and the higher cost of everything, I honestly have no idea how I’m going to save my place from going under. I’ve staff willing to work three or four hours of their shift for free just to keep the doors open but I don’t know if it will be enough.”
That was the bleak and anxious assessment of the state we’re in that was shared by the owner of a popular restaurant in Dublin city centre at a low-key house party last Saturday night.
This was not a whinge from someone playing the poor mouth in the hope of a bit of attention. This was a person genuinely concerned about the future and sharing his perspective confidentially and in a low whisper.
He is not alone in offering a bleak and borderline terrifying assessment of the prospects for survival with restaurants and small hospitality businesses in the choppiest of waters – and facing worse storms to come.
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Many are hoping that a happy Christmas will see them through the dark winter months that come after it. Many will survive. Many others won’t.
Around 600 restaurants have turned the lights off for good over the last 12 months, with little sign of the shutdowns slowing down as businesses are being walloped from all sides.
The VAT rate remains at 13 per cent despite a strong campaign to have it reduced in the recent budget. And while there are promises of movement being made by parties in advance of the general election, it might be too little too late for some.
Wage costs have increased as a result of higher rates of employer PRSI contributions, the introduction of more paid sick leave, increases in the minimum wage and the auto-enrolment in pension scheme coming down the tracks.
Only some class of latter-day Monty Burns would argue against these wage increases and benefits – which will support some of the lowest paid, hardest working employees in Ireland – but it also can’t be argued that they will cost employers a great deal, leaving many in a position where they will have to find many thousands of euro extra in an already challenging climate.
[ Hospitality sector ‘gravely disappointed’ with budget measuresOpens in new window ]
While these higher costs have been well documented, another elephant in the room – one that has succeeded in staying relatively silent – is the soaring cost of the ingredients and products needed to keep a restaurant going.
Most businesses will use a wholesaler or food service provider, traditionally perceived as the best value option for bulk purchases, but in many instances what once was a given is no longer the case.
Business owners have highlighted how they can buy many of the key ingredients needed in discount supermarkets for far less than in the wholesalers where they normally shop.
One restaurant said their wholesaler is charging them €5.11 for 1lb of butter compared with €3.39 in Lidl, while vegetable oil that sells for around €1.45 a litre in their local Tesco costs them €2.30 wholesale. A 2kg tub of mascarpone cost €21.85 in a wholesalers, or more than what it costs in Aldi. Parma ham, meanwhile, cost €5.99 for 90g wholesale or €2.29 for 80g in the same shop. The list goes on and on.
Right across the industry there are stories of soaring costs of ingredients and sometimes wild differentials between wholesale and retail prices.
Milk has climbed by at least 10 per cent. Fifteen litres of extra virgin olive oil went from €97 to €167 overnight, a 72 per cent increase. The chocolate one food business routinely uses to make cookies cost €30 for a 2.5kg bag before climbing to just over €50, a 66 per cent increase. The cooking oil used by another business went from €350 per week to €852 per week, while the price of fish in the same restaurant more than doubled. The humble potato that once cost €10 for 9kg now costs €17 for the same weight. Peeled pistachios increased from €54.20 to over €75, a 38 per cent increase.
“We’re not being notified of price increases, only seeing the cost when the invoice hits,” one restaurant owner said. “Berries, milk, cream, etc are cheaper in the shop across the road.”
There is a feeling that some wholesalers are charging smaller businesses more simply because they can, and are doing so under the radar because there is so much focus on other costs such as VAT, wages, energy and overheads.
“Bigger businesses get sweetheart deals but small businesses don’t,” one small business owner said. “Big groups with lots of restaurants get special pricing on products for ordering large quantities and small independents are overcharged because it’s almost seen as an inconvenience to deliver to us.”
The prices they pay are not the only issue for small food businesses with some expressing concern about a decline in the quality of the products they are being offered.
“When we need to turn to food service companies for the gaps, it is really difficult to get the quality without staying on top of them constantly,” one person said.
“My wholesale supplier recently changed their supplier and the quality has really suffered. That’s why I checked out Lidl, and I’ll be honest, the quality was better,” said another. “Prices are increasing but the quality is decreasing. Every delivery, we have to send something back,” was the view of a third.
Responses were drawn from a diverse range of businesses from food trucks to cafes to higher end dining spots, spread right around the country. It wasn’t one single dissatisfied voice, but multiple independent voices.
The story of price hikes is the same one that is being shared all over the world from Camden to Canada and Tokyo to Temple Bar, with costs jumping sharply almost everywhere.
There are multiple factors behind the spikes, including the climate crisis, war, supply chain issues and higher input costs across the board.
For small Irish businesses, buying power – or a lack of it – has weakened their hand. While large restaurants and chains have more clout when it comes to negotiations, small business are left with the scraps and often have to pay through the nose for them or are faced with a simple ‘take it or leave it’ choice.
The next challenge they face is how to manage the higher prices they are presented with. If ingredient costs make up one third of a business’s overheads and they jump by 20 per cent, a cafe or restaurant can either pass those higher costs on to consumers or absorb them at a cost to their bottom line.
Passing them on in a cost-of-living crisis when consumers are already less inclined or less able to eat out is risky business, made riskier in a climate in which many are already deeply unsatisfied with the prices they are being asked to pay.
A top of a napkin calculation highlights how difficult it is to make money.
VAT of €2.60 has to be paid on a dish that costs €20, while the wages attached to making and serving it might account for another fiver. If we allow a further €8 for energy, rent and other overheads, €15.60 of the €20 is already gone without so much as single ingredient being added to the mix.
The cost of ingredients varies wildly depending on the nature of the restaurant, but if we say it accounts for just 25 per cent of the total, the cost of providing the €20 dish has already surpassed €20 – based on these calculations, it has reached €20.60.
Add a 20 per cent jump in the cost of those ingredients and it is not hard to see why so many restaurants are sinking.
