The hospitality sector is heading towards a ‘crisis situation’ as prices of stock and energy continue to skyrocket in Ireland, according to a new report.
Commissioned by the Drinks Industry Group of Ireland, the research highlights the soaring costs of doing business in the hospitality sector, and how unsustainable it is for businesses nationwide.
It shows how the spiralling costs have taken their toll on the sector, with businesses facing a serious and sustained rise in costs.
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According to the results of the report, “further to general inflation of 9.1%, indicative price changes from the Consumer Price Index show serious increases across the board in food prices.
“Over the period July 2021 to July 2022, food costs increased by 8.1%, beef was up 11.4%, poultry rose by 13.4%, and the price of fresh milk jumped by over 20% (21.2%).”
However, it is soaring energy prices that remain the biggest concern to the hospitality sector as the price of electricity increased by 40% in July 2022 compared to July 2021.
Gas increased by 60.2% in July 2022 compared with one year earlier, while heating oil increased by 91.9% in July 2022.
These worrying figures do not take into account the further hikes announced by electricity and gas providers over recent weeks - meaning the pressure on businesses is reaching new heights.
The report found that energy price increases for businesses have far exceeded household increases in many cases - they were found to be 60% higher than the EU average in the second half of 2021.
According to the report, the cost situation for hospitality will 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’s author, Professor Foley said: “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.
“The sector is going through a phase of real upheaval. In deciding which policy levers to pull, the government would make the biggest impact by focussing on high consumption taxes like excise which would have a positive effect on the commercial sustainability of businesses within the sector.”
DIGI Chair, Kathryn D’Arcy said: “The findings of the ‘Estimation of Costs of Doing Business in the Hospitality Sector: 2022 and 2023’ report are distressing. It demonstrates again the need for policies and actions that reduce the costs facing thousands of businesses and employers throughout the country.
“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.
“The majority of hospitality enterprises are sole traders and small businesses who create employment and operate on the thinnest of margins. For the long-term sustainability of the hospitality sector, we need to ensure there is a hospitable environment for businesses to thrive.
“One measure that the Government can enact overnight is a reduction in excise by 7.5%. Small businesses would be able to utilise the cost reduction to offset the rising costs elsewhere in their businesses namely; food, energy, and labour costs. Therefore, we call on the Government to enact this change in Budget 2023.”
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