Too hot to handle
With rising costs, increased VAT rates and staff shortages, Ireland’s restaurant sector is facing mounting challenges. What can be done to help the sector?
Kevin O’Toole and Carol Walsh, owners of Chameleon restaurant in Dublin’s Temple Bar: “It’s almost like the Government doesn’t want small businesses to survive.”
Ireland’s restaurant industry is faced with rising costs, talent shortages, increased VAT rates and high rents, with closures becoming more frequent as a result.
The increase in the VAT rate in January this year from 9 per cent to 13.5 per cent was quickly followed by a rise in commercial rates. There’s more to come, with the price of water for firms in the capital set to increase in May next year.
This has all led to an industrywide standstill in urban areas and a decline in some parts of Ireland in 2019, according to Adrian Cummins of the Restaurants Association of Ireland (RAI).
“Aside from all this, skills shortages remain a major issue. In 2012, the RAI identified a skills shortage; there was not enough chefs coming out of colleges to provide employers with staff for the number of vacancies they had. It has got worse every year since 2012 and in 2015, eventually the penny dropped with the agencies and Government and they established the expert skills group committee to review our industry. Findings from that said we need 5,000 chefs every year for our sector. Since then, the number of chefs graduating out of colleges hasn’t increased; we graduate about 1,700 to 1,800 a year. Because of this, businesses are closing on Monday and Tuesday nights as they don’t have cover for a seven-day operation.”
Co-owners of the Chameleon restaurant in Dublin’s Temple Bar, husband-and-wife duo Kevin O’Toole and Carol Walsh can attest to this. They have only been able to run a five-day operation in recent years as the cost of doing business keeps going up and it’s impossible to find staff.
“It’s almost like the Government doesn’t want small businesses to survive. They have a very short memory. During austerity, it was SMEs that kept the economy going but now they’re really putting the squeeze on us. There are severe staff shortages and we can only open five days per week because of this. We are lucky though, we have a very good team that have been with us for years. We appreciate them, and they know it. Carol and I are fortunate whereby I run the kitchen and she runs the floor, so when we are short staffed we can knuckle down and do the job,” O’Toole says.
The biggest concern for O’Toole at present is the VAT increase, which he calls “an act of pure stupidity” by the Government.
“It was completely clueless. The VAT rate was reduced as a temporary measure when times were tough, but in the interim, everything else went up, then they brought it back to 13.5 per cent. This has already put restaurants out of business and I guarantee you that there will be many more. One bad week can kill a business and with the VAT currently at 13.5 per cent, we just can’t afford to have the odd quiet night. I wish this Government would admit that it made a mistake with the VAT and bring it back to 9 per cent, immediately,” he says.
Cummins agrees. “The increase in VAT is in essence an extra staff member lost and that’s what’s hitting restaurants hardest. The Government has reneged on the Programme for Government and we won’t forget it,” he says.
A spokesperson for the Department of Finance said currently there does not seem to be a case for reviewing the impact of the increase.
A review, published in 2018, found that tourism expenditure was more sensitive to income growth and the economic cycle than price changes. The economy is currently performing well, with high levels of employment and strong demand in the tourism sector. This positive economic outlook means the income channel of demand is likely to ensure that economic activity within the sector remains strong. The review concluded that the VAT rating applied to the tourism sector should not greatly impact demand or employment in the sector. The budget decision to increase the VAT rate was made following this analysis.
The review also found that restaurants saw a very strong recovery since 2011 in terms of private consumption, employment, turnover and profit. Employment in the restaurant sector increased by 4 per cent over 2011 to 2016. For restaurants, profits grew relatively faster than wages and turnover. Profit margins increased by 53 per cent for hotels and restaurants from 2011 to 2016. While prices increased by 3 per cent in the overall economy, restaurant prices increased by 7 per cent in that period.
Furthermore, the Revenue Commissioners also published a report on the 9 per cent VAT rate in June 2018 which analysed the output and employment impact of the 9 per cent VAT rate using Revenue data. The analysis found an estimated increase in employment of on average 1.8 employees for each firm benefitting from the reduced rate in the accommodation and food sector in the year following the introduction of the rate. However, beyond the short term, they were unable to distinguish the impact of the rate on employment from the impact of other factors in the economy.
Given the impact of an increase in the VAT rate on the hospitality sector has only recently been reviewed by the Department of Finance and the Revenue Commissioners, there does not seem to currently be a case for reviewing the impact of the increase. “However, should the economic position alter, all economic activity will be reviewed in the normal way as part of the budgetary cycle,” they said.
Aside from the VAT rate, there is plenty to give restaurant owners sleepless nights. While keeping an established business trading is tough, opening a new restaurant is also an “undeniably difficult process”, Shane Rigney, who recently opened Riggers D8 in Inchicore says.
“Aside from securing finance, finding a location and identifying your market, there is an inordinate amount of red tape, administration and forms to be filled and ticked. Revenue is very difficult to deal with – they actively encourage using their online service, ROS, but the website is not user-friendly in my opinion.
“There is little or no help in terms of grants or incentives from Government to get into the hospitality game. The focus right now is on tech and whilst there are huge tax incentives for the Government to offer those breaks, this is poor foresight on their part – I mean the hospitality industry is such a huge employer,” he says.
In terms of finding and retaining staff, Rigney says he “didn’t realise quite how difficult this would be” until he became an employer.
“The industry is transient. As a new business, you cannot afford to pay more than standard, but I have been fair and tried to pay more. The market is currently saturated with jobs, which is great but tough for the employer. Profit margins are far lower than say in the tech sector and keeping staff costs below 40 per cent is tough. You always want to have great staff and plenty of people on the floor to provide the customer with the best experience, but during quiet days, when takings are down, this is problematic.
“It’s a constant juggling act and causes sleepless nights. I would say that you have to passionately want to be in the food business to do this and go into it with eyes wide open,” he says.
While the current chef shortage is putting massive pressure on restaurants, there are many good chef apprenticeship schemes in operation, such as in Crumlin College or Coláiste Íde, Kevin O’Toole says, but the Government needs to provide more funding for these programmes.
“It’s about time chefs were treated the same as those from other trades, it’s not an easy occupation, but it is extremely rewarding and offers great scope for creativity and travel,” he says.
Adrian Cummins explains the apprenticeship programme, which he says is “very good in theory as college is not for everybody. But there is one major problem, the restaurant industry must pay up, unlike with other trades.
“We fully endorse the principle and the opportunity is there to go to college one to two days a week and work for three days. The problem we have is that tradespeople are paid by the State when going to college, but the hospitality industry has to pay for the person to go to college. We are being treated unequally.
“Add to this the fact that even if we had an intake to the level of the highest intake in the State, we are never going to hit that figure of 5,000 of indigenous Irish graduates needed. The only way to solve this, in the short-term, is to send out ministerial trade missions to Malaysia and South Africa, like we did in the ’90s. But there are constant obstacles and barriers put in place to this as people think hospitality is a low-level, low-paid industry when it’s not,” he says.
Graeme McQueen, Dublin Chamber’s head of communications, says given the tough nature of the industry, there is an increasing need for the city to look at some of the other, simpler things that can be done to ensure it remains an attractive place to eat out.
“Central to that is ensuring that the Dublin experience is enjoyable, safe and easy. There are good moves being made to make the city centre more walkable, with plans for plazas on College Green and on Liffey Street. There’s much more we can do in this regard too. Making the city easier to walk around is a simple one. There’s a real need to look at wider pavements in many parts of the city centre. We’d also like to see Dublin City Council get serious about reducing the amount of clutter that we see on our streets. Little changes like these would help make the city centre environment more attractive and entice more people to come into the city’s restaurants and cafes,” he says.
Summing up the industry, Rigney says, at the end of the day, it’s all about the customer and delivering the best quality and service to them each day.
“I started Riggers D8 because I wanted to work for myself and control my own work-life balance and because I was ambitious to build a brand. I wanted to create employment, and a neighbourhood hub because I love the area of Dublin 8 and am really at home living and working here. I love the people and in Inchicore, they deserve to be far better serviced by a great little restaurant, and that’s what we are striving to deliver every day,” he says.