Failte Ireland report outlines true recipe behind costs for a meal in Ireland

Fáilte Ireland today published research into the costs associated with food preparation in the hotel and restaurant sector in Ireland.

The study concluded that there was no evidence to support a view that excessive profits were being generated in the restaurant sector. The cost of a restaurant meal in Ireland appears to be driven by input costs that are higher than similar input costs in other countries.

Fáilte Ireland commissioned consultants Howarth Bastow Charleton to undertake this research to examine costs within the sector and, if possible, to benchmark Ireland’s performance against other countries in order to set a broader international context for the analysis.
 
Mr Caeman Wall, Fáilte Ireland’s economist today emphasised that:
 
“Eating out is an integral part of the tourism experience but high food costs can have a significant impact on a visitor’s perception of Ireland. We now have some valuable information around food production costs to support further rigorous analysis of the issue. Fáilte Ireland will be sharing this data with a number of government agencies, including the Competition Authority and Forfás, to advise the formulation of future policy”.
 
Mr Wall, went on to point out that:
 
“This report has now given us an objective standard with which we can approach the issue of the cost of dining out. The research suggests that excessive profit taking is not evident in the sector”. 
 
“Furthermore,given that the research underlines that almost half of the cost of a standard meal is fixed, the restaurant sector is therefore vulnerable to fluctuations in demand as these fixed costs need to be spread over as many customers as possible. Given the nature of the costs, a significant drop in a restaurant’s trade can prove very damaging for even the best of restaurants. ”
 
The study’s findings looked at the costs factors for a typical meal and found that each could be broken down into:

• Raw materials costs 31%
• Labour costs: 25%
• Utility and operational costs:14%
• VAT & Excise: 17%
• Other costs: 13%

The international benchmarking element of the study, which set the sector in a wider context and drew on existing published material, came to the conclusion that the cost factors in Ireland were higher than in other European countries. This exercise lends credibility to the view that restaurant sector is not engaged in excess profit taking – concerns about value-for-money are rooted in the sector’s high cost base.
 

Next Steps

Prompted by some of the findings in today’s report, Fáilte Ireland will conduct a comparative international study into the cost of regulation in the catering sector – by comparing the regulatory burden across a number of countries.
 
On utilities, the research reflects a view among restaurateurs that more information on the detail on how local authority rates and charges are set would be welcome.
 
With regard to improving efficiency and lowering costs in the sector, Fáilte Ireland will continue to resource, as a priority, support programmes specifically tailored for restaurants.
 
Mr Wall concluded:
 
“Tackling high costs in the restaurant sector is challenging. While the recent economic slowdown has moderated cost pressures and, in some cases, led to cost reductions, concerted action will nevertheless still be required on the part of restaurants to contain costs”.
 
“Fáilte Ireland will work with firms to help them survive the recession and emerge prepared to take advantage of the anticipated upturn in the medium term”.
 
Please see note below for further information. A copy of the report and an executive summary can be accessed at:  www.failteireland.ie/About-Us/Reviews-and-Reports
 
 

ENDS

For further information please contact:
 
Alex Connolly
Head of Communications
086 7966320/01 8847884


Note for editor
 
Cost factors for the typical meal
 
The study’s findings looked at the cost factors for a typical meal and found that each could be broken down into:

• Raw materials costs:  food items and ingredients account for 31% of a meal’s cost with food and beverage inputs featuring as the largest single cost component. The vast majority of restaurants use fresh, premium foods rather than less expensive lower quality options and this contributes to the overall meal cost. 

• Labour costs: the hiring and retaining of the necessary skilled staff constitutes 25% of a meal’s overall costs. Pay rates in the sector are governed by a significant body of legislation, and the minimum remuneration for the sector is set by a system of Joint Labour Committees (JLC). It is important to note that the JLCs have generally set rates of pay for the sector above the national minimum wage. 

• Utility and operational costs: These factors account for 14% of a meal’s cost. The operational costs incurred by the restaurant sector include variable costs (e.g. tablecloths, tableware, cleaning products, etc.), utility costs (e.g. electricity, gas, waste, local authority rates and water charges) and administrative overheads (such as repairs, maintenance, insurance and sales and marketing). Utility costs in particular have grown faster than general inflation.

• VAT & Excise: taxes comprise 17% of a meal’s overall cost. The drinks element of a meal is impacted by high VAT rates (21.5%) and the highest excise rates in Europe (€2.46 on a standard bottle of wine). The food component of the meal is subject to 13.5% VAT.

• Other costs: the balance of 13% of a meal’s cost is down to property costs (either owned or rented – in other words mortgage or lease payments), capital expenditure on equipment and fittings, taxation and profit. 

 
The study’s findings do not support a view that the restaurant sector is engaged in excess profit taking (a point of view which is occasionally presented in public commentary). Based on the findings derived from this study, there is no evidence that firms in the restaurant sector are making above normal profits.
 
Rather, in a comparative context, the cost of a restaurant meal in Ireland appears to be driven by input costs that are higher than similar input costs in other countries.
 

Key cost drivers

The reasons why meat, fish, fruit and vegetables cost so much more in Ireland need to be examined. Work by the Competition Authority found that a number of factors contribute to prices differentials between Ireland and elsewhere; i.e., the cost of doing business, scale, tax regimes, levels of competition and regulations. Their main finding was that the best way to ensure that Irish businesses are capable of remaining competitive is to tackle the higher cost of doing business – in Ireland – if we can achieve this, the lower business costs can benefit all businesses including, importantly, those who supply into the restaurant business..
 
With regard to labour costs, the restaurateurs involved in the research noted that Joint Labour Commission (JLC) arrangements have tended to set wage rates in the sector above the statutory minimum wage. They further observed that if the sector is to remain competitive that all cost factors, including labour, would need to be tightly controlled.
 
Utility costs are another significant cost factor and have increased at rates far above general inflation. Ireland’s electricity and energy costs are amongst the highest in the eurozone. While these costs have fallen recently, Forfás has noted that improving energy efficiency and investing in strategic infrastructure could contribute significantly to improving Ireland’s energy cost competitiveness.
 
With regard to local authority charges (rates, water services, waste services etc), the sample case studies conducted in this study presented some concerns about how these charges are determined. Many of the restaurants consulted seemed unaware of how their local authority commercial rates and water, waste and other charges were calculated.
 
A further area of concern to emerge from the restaurants in the study was  a perception of unexplained difference in charges, especially water charges, being applied across different local authorities. As a general point, greater consistency of approach, more clarity regarding the precise methodologies used in setting charges, and better communication on the part of local authorities may help the restaurant sector understand how such charges are levied.
 
 

Improving efficiency

While some factors remain beyond our remit, Fáilte Ireland is able to work with the hospitality sector, and the wider tourism industry, on some identifiable ways and means of making business operations more efficient and effective.
 
This support includes a number of programmes specifically for restaurants focusing on operational efficiency and productivity so that firms are well placed to provide tourists with a better ‘value experience’. These include:
 

• Chefs’ Workshop Programme: Sweat the Menu, Reduce the Cost & Savour the Profit: a nationally run, highly relevant, workshop designed to give participants an overview of the essential elements of kitchen cost savings and menu design for profit.  

• Front-of-House Productivity Programme: another area to improve efficiencies is making front-of-house staff more productive, through better menu knowledge and awareness of the role they play in the overall service experience from the time the customer enters the restaurant. Good knowledge of the menu, dishes, ingredients, cooking methods and food presentation will all influence how staff can best guide and advise the customer.

• Quality Food Toolkit: is designed to support the full range of food operations servicing the tourism industry including pubs, clubs, restaurants, visitor attractions, bed and breakfasts and guesthouses. The toolkit provides food operations with a range of resources that assist in improving visitor satisfaction in terms of food quality, use of local ingredients, presentation standards and value for money.

 

Environmental Measures

There is also potential for restaurants to make cost savings through environmental measures. In 2008, the 100 businesses participating in the Green Hospitality Award (www.ahaward.ie) reported cost savings of over €3 million. This gives an indication of the potential further millions which can be saved by both the existing and future participants in the scheme and by all tourism businesses employing environmentally sustainable business practices.
 
The Green Business Initiative (www.greenbusiness.ie) also highlights the following:

• Wastage of resources costs businesses up to 4.5% of turnover;
• Water wastage can cost as much as 1% of business turnover;
• A systematic resource efficiency programme can save up to 1% of turnover;
• Payback periods on resource efficiency initiatives are often months not years.

Fáilte Ireland is working for a higher level of awareness among tourism enterprises, including restaurants, about the potential improvements which environmental changes can bring to their businesses, helping them to achieve savings and reassuring them about any concerns they might have about the price of going green.

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