Hospitality Business Costs Soar
A new report commissioned by the Drinks Industry Group of Ireland has highlighted the soaring costs of doing business in the hospitality sector.
The "Estimation of Costs of Doing Business in the Hospitality Sector: 2022 and 2023" report, researched and authored by Dublin City University (DCU) Associate Professor Emeritus and Economist Anthony Foley, shows that spiralling food and energy costs have taken its toll on the sector, with businesses facing a serious and sustained rise in costs.
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 pose the biggest concern to the hospitality sector.
The price of electricity increased by 40% in July 2022 compared to July 2021, which followed a substantial increase of 11.3% in July 2021. Gas increased by 60.2% in July 2022 compared with a year earlier, while heating oil increased by 91.9% in July 2022, this followed an additional large increase of 39.6% in July 2021. These rises in energy costs do not allow for further significant increases announced by electricity and gas providers over recent weeks.
The report found that energy price increases for businesses have exceeded household increases in many cases. Non-household electricity prices in Ireland were found to be 60% higher than the EU average in the second half of 2021. The differential was even more stark with gas prices, with business gas users experiencing rises of more than double those of households.
Along with most other sectors of the economy, the hospitality sector faces challenges in recruiting staff. This has already put pressure on payroll costs. Hospitality hourly earnings were €15.45 in the first quarter of 2022, a 16% increase on the same period in 2019.
Analysis by economist Foley found that the hospitality sector is particularly vulnerable to labour and food cost increases. The labour cost relative to turnover is between 28.9% and 33.3%. Food and beverages inputs amount for between 30% and 36.9%.
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.