The harsh reality of being a restaurateur in Ireland

Being a restaurateur is without doubt, a vocation. Since late last year, there seems to be a never-ending slew of restaurant closure announcements which has been alarming and heart-breaking. 

According to the Restaurant Association of Ireland, over 320 restaurants, cafés and other food-led hospitality businesses closed nationwide since September of last year when the VAT rate increased from 9% to 13.5%. Over 40 restaurants have closed in Dublin alone in recent months. Is the VAT increase the only reason for the closures of our cherished restaurants? 

JP McMahon, runs Galway’s Michelin-starred Aniar and tapas restaurant Cava Bodega as well as a cookery school and the annual symposium “Food on the Edge.” He thinks that there are several issues, including the cost-of-living crisis and the impact of the war in Ukraine, which have combined to make it unsustainable for some restaurants to carry on. His café and wine bar “Tartare” closed in 2022 because it was simply “non-viable”.

“I think one of the reasons why places are closing now is that you have [the] VAT increase coupled with minimum wage going up. Then you have the high energy and high food [costs] [and] it’s just like a perfect storm, and the warehouse debt, so you’ve got five things impacting [restaurants].”

Tax liabilities

The Tax Debt Warehousing Scheme was introduced for businesses in the pandemic, allowing them to defer paying some tax liabilities. The date for repayment was May this year. However, Minister for Finance, Michael McGrath, has said the government is considering possible changes to be “as flexible as we possibly can”.

JP thinks a lot of restaurateurs are simply giving up. “You have two years where it was just mentally difficult and then you came into 2023 and it was just as difficult. I think a lot of them are giving up because there’s so little reward in it anyway. I think a lot of Irish people confuse paying money for food with lots of profit being made and the reality is that in a restaurant you might see between 5% and 10% profit at the end of the year.”

Changing landscape

Vanessa Murphy is the co-owner of Dublin restaurants Las Tapas de Lola and La Gordita with her partner Anna Cabrera. She said that the restaurant landscape has changed dramatically since pre-Covid. As well as high costs, there are new government proposals like auto-enrolment which is a new pension savings scheme for certain employees who are not paying into a pension. It is expected to be introduced in late 2024.

“It’s everything – it’s very hard to recruit at the moment, the cost of business has just gone so through the roof that nobody’s making any money on their food anymore. And then the VAT went up. Between minimum wage, the potential auto-enrolment for pensions, the sick days that we’re now paying which we weren’t paying previously, all of these things. In Lola’s are looking at having to find an extra €120,000 to €150,000 in revenue a year to cover that,” she says.

Where are restaurants going to get it? “That’s the question we’re all asking ourselves at the moment. There are a lot of people who’ve asked that question and have said, ‘I can’t do it’. So, they’re closing,” says Vanessa.

Covid aftermath

Although we all want to forget about Covid, its profound impact is continuing to ripple on as we pick up the pieces in its aftermath. JP thinks the echoes of the pandemic might be something we need to address instead of ignoring. 

“I think Covid is just one gigantic trauma that we haven’t really acknowledged. I think it’s the equivalent of our world war in the sense that it just ended, and then we felt that we just had to get on with it. It’s almost that people are going ‘don’t talk about the war. Let’s just keep on moving forward’. But we do need to address it, we’re almost acting like it didn’t happen,” he says.

One of the most devastating aspects to these restaurant closures is when we reflect upon how much they meant to us when they did open. They went above and beyond to welcome us back, safely, by providing outdoor seating, screens and socially-distanced tables. 

Vanessa is keen to note how much the loyalty of their customers means to them, but she understands the cost-of-living crisis is affecting everyone.

Recruitment pool

“Just as much as restaurants are struggling, [so] are our customers. Our customers are going through a cost-of-living crisis, their mortgages have gone through the roof, their utilities have gone through the roof,” she says.

She believes Covid was a time for self-reflection for everyone and with people changing career or leaving Ireland, the recruitment pool shrank dramatically. 

Vanessa Murphy and Anna Cabrera,  of Dublin restaurants Las Tapas de Lola and La Gordita

“Since Covid, we had huge problems with recruitment. We were employing 33 people before Covid happened and [when we finally] reopened for good, we opened with 14 staff because everybody had gone; they were all Spanish. They were fantastic members of the team, but they had to look at their lives [and] that’s a natural thing for people to do to make a decision and say, ‘okay, I’m going to go home’.”

JP agrees with Vanessa that we all did some soul-searching during lockdown(s) and many people, not just in the food industry, changed jobs. But the consequence of a small recruitment pool meant huge wage inflation.

“Because of the loss of chefs and front of house people, the demand for wages were through the roof. We were completely wiped out after Covid. It did change a lot of people.” he says. 

VAT rates

Restaurant owners like JP and Vanessa are fighting for the VAT increase to go back down to 9%. “We’re fighting it for good reason. Everybody seems to forget that (1) Ireland had the longest and the most strict lockdown of any country in Europe; (2) when we were allowed [to] open we had major social distancing so we lost 40% of our actual revenue. Yeah, we came out of Covid but we’re all still trying to recover from Covid,” says Vanessa. 

We are world renowned for our hospitality but if things keep continuing, smaller independent restaurants and cafes will close and more and more could get scooped up by larger global companies.

“If our government doesn’t act, we’re going to end up with a very sad looking country to offer to our tourists because it’s the small, family-run businesses that give Ireland the essence that it has that draws in the tourists. It’s not the big conglomerate, it’s not the big chain, it’s that small pub, it’s that small little shop, that small little restaurant, it’s the small businesses that need some help. 

Shuttered businesses

“We’re all shouting as loud as we can at the moment and we just hope that we’ll be listened to because otherwise we’re going to be looking at a city with a lot of shuttered businesses and a lot of chains,” says Vanessa. 

JP believes there can be a disconnect for people eating out as the hidden costs in a restaurant mean they do need to increase their prices for food and drink. “We base everything on the supermarket, but the supermarket model is not the restaurant model. There’s nowhere else to get money in a restaurant except by selling food and drink, there’s no other avenue. So, the only way to pay people, pay insurance, pay VAT, pay tax is to increase the price of food and drink and that will keep on going up. I think people have to understand that it’s not about the restaurant making profit, and increasing [prices], that’s the restaurant trying to survive,” he says. 

He favours an all-Ireland VAT rate for restaurants from the government and for them to factor in the differences in SMEs and bigger companies. “They have to separate out small independent businesses. They need to start catering for a different division because at the moment, it’s the same playing field for us and say Google and Facebook. 

“We have the same corporate tax rate, we have the same VAT, and you could say that that’s not creating an equal society. If we keep going, we’re only going to be left with the big guys.”

Vanessa says anybody who opens a restaurant is wholeheartedly committed to making a go of it, and those surviving the current climate are digging deep to survive. “Anybody who opens a restaurant opens it because they love it, and the decision to close a restaurant is probably one of the hardest decisions you’ll ever make. It’s heart-breaking. 

Support local

“Anna and myself get so upset every day when we see another closure. But for those who haven’t closed as of yet, I think everybody is going through every single line of P&L and just trying [to find] where can we possibly shave here and shave there to keep jobs and to try and get through this,” she says. 

JP hopes some stability returns for the industry and people can support when they can, which is needed now more than ever. “I just hope that people continue to support independent restaurants and coffee shops and small hotels. If you have an independent café or a restaurant in your town and you like that place, then you need to try and support it because you’re the lifeblood of it. You have to nurture the things you love.”

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