RESTAURANT OWNERS HAVE appealed for Government support and warned that without it, we will see a tidal wave of closures across the country.

Owners of restaurants and cafes have said the pressures facing them are like never before, and many have said they are fearful for the future.

Low margins, rising costs and (maybe surprisingly) the housing crisis are all contributing to the perfect storm that makes doing business increasingly challenging, they say.

According to the Restaurants Association of Ireland (RAI) over 300 restaurants have closed in Ireland in the last six months. It says these figures are based on discussions with its members and data collected by the Companies Registration Office.

CEO of the RAI Adrian Cummins told The Journal that multiple factors like an increase in the minimum wage, extra sick days, upcoming pension auto-enrolment, increasing PRSI, a VAT hike, and rising supplier costs are all fueling a nightmare scenario.

“Everything that is coming at us all at once has the cumulative effect of making our industry unviable,” Cummins said.

The Journal spoke to a number of restaurant, cafe and bar owners, with all of them reporting the same problems and suggesting similar solutions. 

It’s worth noting though, that not everyone is convinced that there is indeed a “crisis” in the sector. 

Micheal Taft, a researcher for the trade union SIPTU, has highlighted the fact that there is little verifiable evidence in the discussion on restaurant closures and argues that the information we do have “does not necessarily show a sector in crisis”. 

Taft asks instead if businesses “just want more money to enhance their profit line”.

This idea is flatly rejected by the business owners we spoke to. 

Vanessa Murphy who co-owns the popular Las Tapas De Lola on Dublin’s Wexford Street with Anna Cadrera, said the pair have taken pay cuts themselves in an effort to avoid laying off staff. 

Murphy said in her 11 years running the restaurant she has never seen things so bad and that when they opened their doors in 2013 the overheads were nothing like they are today.

Murphy explained that the optimism that was present in the industry immediately after Covid restrictions were lifted has now entirely faded away, with Russia’s invasion of Ukraine in February 2022 completely changing the landscape in terms of costs. 

“The profit margin in restaurants is minute. People seem to think Ireland is expensive, but we’re not in comparison to what we have to pay to put food on the plate,” Murphy told The Journal.

What basically happened last year is that that the tiny profit that was there has been completely eroded.

Murphy made the point that on one hand you have increasing supplier and utility costs and on the other you have Government initiatives like increases to the minimum wage and sick days.

On the Government initiatives, Murphy said she doesn’t think there is anyone in the country who doesn’t agree with them, but she says the timing is key. And right now, businesses can’t withstand the burden, she argued.

Murphy claims Las Tapas De Lola will need to find between €120,000 and €150,000 in extra revenue this year to keep up with these initiatives. 

“Where do we find that? There’s only so much you can charge a customer.”

She also raises the tax warehousing programme (which allowed businesses to defer tax liabilities during the pandemic in an effort to support them) as being the “elephant in the room”. 

Murphy argued that while the initiative was great at the time, the people she speaks to in the industry say the terms of repayment are too tight. 

Likewise, the RAI wants to see the repayment period for businesses that availed of the scheme increased to 10-years. 

Anna Cabrera and Vanessa Murphy, the owners of Las Tapas De Lola PIXELATED BETTY PIXELATED BETTY

The reversion of the VAT rate from 9% to 13.5% for hospitality in September 2023 was something that was also brought up by all of the business owners we spoke to.

The VAT rate for hospitality businesses was lowered from 13.5% in November 2020 in an effort to support businesses in the sector, but many restaurant owners now argue that the lower rate should be reintroduced specifically for restaurants and cafes. 

Murphy says the Government’s response during the pandemic shows that it is capable of “responding to a crisis” and that the same response is needed now.

We can’t wait until the next Budget in October. If we do, we’ll be left with a very sad, sorry, looking country.

“One of our biggest exports is tourism. If our villages and cities are being decimated and we’re just left with chains, and conglomerates, what are we selling? What are we trading out?,” Murphy asked.

The housing crisis

Duncan Maguire, has owned Dublin city-based restaurant and late bar Ukiyo with his wife Lou Leahy for the last 20 years.

He says the hospitality industry and night time economy are in need of urgent Government support because of the same reasons outlined by Murphy, but he also makes the point that the major problem for the industry is the housing crisis.

“When I was working in a restaurant when I was young my rent was maximum 25% of my wage. Today it’s 40 to 60%, so every time somebody gets a rent increase they come to us straight away and say I need more money or I’m gone. 

“So you’re just bleeding key people all the time and the wages are going up astronomically,” Maguire said.

Clamping down on cash in hand

The problems aren’t just being felt by those in the food business. 

Sam Donnelly, is the owner of barber chain Sam’s Barbers and three cafes – two in Dublin and one in Galway. 

Donnelly made the point that he is feeling the same stresses across all of his businesses. 

He says trade for him has been down 40% since the pandemic and makes the point that his business is really feeling the impact of remote working, with lower footfall across the week.

But the big problem in his eyes is what he terms the gig economy, and the Government not clamping down on cash in hand.

Donnelly said for legitimate businesses that are fully paying their taxes and declaring all of their income, they just can’t compete with those that are not.

“I’m losing staff hand-over-fist because they are getting cash in hand and the Government isn’t doing anything about it,” he said.

In Donnelly’s opinion, all the Government is doing currently is penalising business owners who are following the rules and who are trying to do the right thing. 

He argues incentives are needed for businesses to operate legitimately and that they are needed now. 

“Government have shown at times, like during Covid that they can do things fast – have they forgotten all of that?”

Government response

Pressure has been mounting on the Government to take action to support SMEs, in particular restaurants and cafes, but to date little has been done. 

Finance Minister Micheal McGrath has recently pledged that the Government will be flexible when it comes to businesses repaying their warehoused tax debt. 

But he has not signalled any intention to be moved on the 13.5% VAT rate for restaurants. 

He made the point this week that the rate is 20% for restaurants in Northern Ireland and argued that a VAT reduction would stimulate demand – which he said is not the problem. 

“The main issue being raised with me by businesses at the moment is not around lack of demand, many of them are busy, but access to labour,” McGrath said.

“By reducing VAT, the price to the end consumer reduces and it stimulates demand. That is not the fundamental problem that businesses are facing now. It is a viability challenge because of the level of costs that they are incurring.”

The regional group of TDs, which includes among others Denis Naughten, Peadar Tóibín and Micheal Lowry, have this week added their voices to calls for the VAT rate for businesses in the hospitality sector to be reduced to 9%. 

They argue that this would be “a lifeline” for many businesses. 

With a motion planned by the group in the Dáil next week, the issue does not look set to go away anytime soon.