The media has been full of stories of businesses – in particular, restaurants – coming under considerable pressure and closing down. What is the explanation? Genuine economic strain? Or is this narrative being fashioned to justify a money grab - for more state subsidies, for higher profits at the expense of wages? What is going on?
Closures and Start-Ups
There is little verifiable evidence in this discussion. Most of the stories rely on anecdote, usually an owner explaining why they have to shut doors or are thinking of it.
For instance, according to a ‘survey’ by the Restaurant Association of Ireland (RAI), 280 food and drink businesses closed their doors in the last 6 months of 2023. Does this actually signal a crisis and merit demands for government action (tax cuts, more subsidies, a ‘pause’ in the minimum wage)?
‘The RAI has said it compiles its figures on closures in the sector from liquidation lists published by the Companies Registration Office and through contacts with its own members. It is difficult to independently verify these figures.’
Figures that can’t be verified must be treated very carefully. It would help if the RAI published their survey in full, showing how they arrived at their number.
The restaurant sector is subject to considerable volatility. Even during the recovery period – 2014 to 2019 – there were high levels of closures.
In 2019, there were over 1,400 restaurant and pubs that closed down. This cannot be directly compared with the RAI’s survey but it does raise a question. The RAI states that 280 restaurants closed down in the second half of 2023. Is this consistent with previous years? Are the number of closures higher or lower or about the same? What is the context of the RAI survey?
Nor does any of this address the other side of sectoral volatility - restaurant start-ups. Despite high level of closures between 2014 and 2019 the total number of restaurants increased – by over 1,400 or 10 percent.
Even now, restaurants are opening up: the Business Post (pay-walled) lists a number of new start-ups and expansions in the hospitality sector, or what they call ‘an abundance of new ventures opening their doors’, from restaurants to cafes to wine-bars and pubs. Restaurants close, restaurants open - are the number currently opening exceeding the number closing? We don’t have the current data but, without context, the RAI’s 280 closures tell us less and less.
Profits, Wages and Income
What information we do have does not necessarily show a sector in crisis.
From the CSO’s quarterly productivity database we find that profits per hour (capital compensation) in the hospitality sector more than trebled over the last four years. Wages, however, rose by 41 percent. Unfortunately we don’t have restaurant-specific data. But this puts the hospitality sector in a different light than that portrayed by employer organisations.
Another measurement is the Services Index which fortunately has restaurant-specific data. This measures the volume of output (turnover) in the restaurant sector:
- Between 2019 and 2023 (Q3), sales volume in the restaurant sector increased by 43.3 percent (taking into account inflation).
This performance compares to the service sector as a whole which increased by less – at 35.4 percent. So the restaurant sector out-performed above the total services average.
Warning Signs
There are some warning signs.
While restaurant volume output performed strongly up to the 3rd quarter of last year, the October and November provisional monthly data shows a fall. This was, however, consistent with the downward trajectory of the total services sector. We don’t know if this is temporary or part of a new, downward trend. Another measurement is employment.
In the last four years, hospitality employment increased by 14 percent compared to a national growth of 12 percent. However, in the last year hospitality employment trailed national growth. From a high point in April of last year, employment in the hospitality sector edged downwards up to November – suggesting some retrenchment, though this could also suggest employees working more hours.
Corporate Insolvencies
Another measurement of overall business closures is the Deloitte insolvency statistics which measures all sectors. While this captures only a portion of business closures, the categories are consistent: voluntary liquidations, receiverships, examinerships, etc.
While the number of insolvencies has risen from 2021, this shouldn’t be surprising. It’s been a bruising time with lockdowns and the cost-of-living crisis. However, the number of insolvencies in 2023 is still below 2017 and 2018 levels when the economy was recovering. We await to see if the numbers keep rising or plateau or even fall in the years ahead.
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So what do we have? In the restaurant sector we have a RAI survey which is ‘difficult to independently verify’, producing a figure which has no context (comparison with previous years). We know that restaurant closures can be high, even in good years; but there are also start-ups and expansions. We also see this sector’s turnover performing well with hospitality profits rising significantly since 2019. Corporate insolvencies are rising across the economy but they are still lower than in the good years. Yes, there are some warning signs in late 2023, but little yet to suggest that gains made since 2019 are being reversed.
What we have in the media, though, is a constant anecdotal stream highlighting individual restaurant closures and calling it a crisis.
The case for a crisis in the business sector – whether the hospitality or SME sector – is, so far, weak. So what’s at play? Maybe the owners of businesses just want more money to enhance their profit line; maybe they got used to Covid subsidies and want them to continue by other names). Maybe they are opposed to rising wages (e.g. the minimum wage) because it is eating into their profits. All this is up for debate. Or maybe some businesses find it difficult to adapt to a post-Covid, post cost-of-living-crisis environment?
I’ll just leave it with this story from a retail chain. Centra recently announced:
- Record-breaking sales in 2023 (€2.1 billion) with strong sales growth projected to continue
- Plans to open 20 new stores and revamp 40 existing stores
- An investment programme of €27 million
Yet the managing director said:
‘The cost of doing business has just gone off the charts, really . . . [the €250 million business support fund is] just insignificant, completely . . . We want the government to do more. We want support. What we want are policies to help us . . . ‘
What’s wrong with this picture?
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