Surging input prices plunge hospitality firms into difficulty, report warns

Spiralling energy and food costs have pushed many hospitality businesses close to the brink of collapse, a new report has warned.

The study, commissioned by the Drinks Industry Group of Ireland (DIGI), said soaring energy prices posed the biggest problem for firms in the sector.

It also warned that the situation is likely to deteriorate further in the remainder of 2022 and into 2023, with additional cost rises expected in interest rates, water charges and employment taxes.

The report is the latest indication of the impact surging inflation, in particular around energy costs, is having across all aspects of the Irish economy. Meanwhile the European Central Bank is likely to increase interest rates further, which will hike the cost of loans for many firms.

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‘Eye-watering’ electricity

The report noted the cost of electricity rose by 40 per cent in the 12 months to July this year while electricity prices for businesses here were “an eye-watering” 60 per cent higher than the EU average. These rises in energy costs do not allow for further significant increases announced by electricity and gas providers over recent weeks, it said.

The Estimation of Costs of Doing Business in the Hospitality Sector: 2022 and 2023 report by economist Anthony Foley also highlighted the toll increasing food costs is taking on the sector.

Food costs increased by 8.1 per cent over the period July 2021 to July 2022, it said, noting that beef was up by 11.4 per cent. Poultry spiked 13.4 per cent while the cost of fresh milk increased by over 20 per cent.

“The economic turbulence in the hospitality sector is clear. Severe inflationary pressures on core costs mean we are looking at a crisis situation across much of the sector. Survival over the next six to 12 months will be the goal for many in the sector, with ever-tightening margins a reality for most,” Prof Foley said.

The “distressing” report “demonstrates again the need for policies and actions that reduce the costs facing thousands of businesses and employers throughout the country,” DIGI chair Kathryn D’arcy said. “When you combine this analysis with recent findings showing a decline in the number of pubs of almost 2,000 since 2005, it points to the need for meaningful policy measures to weather the immediate period.”

“For the long-term sustainability of the hospitality sector, we need to ensure there is a hospitable environment for business to thrive,” she added.