Closed for business: How the hospitality sector is being wrecked by the perfect storm

The Irish restaurant sector is buckling under an existential crisis caused by multiple factors and is in desperate need of rapid solutions, writes Joe McNamee

Restaurants are complex business models. They incur extraordinarily high costs for very low profit margins, 4% up to 8% in a very good year; highest for fast food, ever diminishing, the higher up the scale you go. 

IN THE latter half of 2023, 280 Irish restaurants and cafés were forced to close for good; 50 in November alone, too gravely wounded even to cling on until December for one last pay day in what is usually the most lucrative month of the hospitality calendar.

And yet all seasoned industry professionals could talk about back then was the grim reckoning that lay ahead in 2024, as if ’23 had been merely a series of skirmishes before the real carnage of a brutal war yet to come.

Sure enough, a new year was still rubbing sleep from its eyes when reports of first casualties began to trickle in from around the country, at least one independent restaurant business closing each day, with Pigalle, Tung Sing’s 60-year-old Patrick St restaurant, White Rabbit Bar & BBQ and Electric among the first blood drawn in Cork City.

But the visceral shock of hearing Nash 19 had closed, never to open again, was of an entirely different order, the moment it became all too real for the general dining public and even restaurant professionals — Ireland’s hospitality sector was facing an existential crisis unlike any encountered in the past.

Restaurants are complex business models. They incur extraordinarily high costs for very low profit margins, 4% up to 8% in a very good year; highest for fast food, ever diminishing, the higher up the scale you go. 

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The work is hugely demanding, physically, and mentally, yet the fruit of all this blood, sweat and tears has to be delivered to the dining public, like Oz operating from behind the curtain, as one endless, effortless, magical party that hardly knocks a feather out of your forever buoyant, forever hail-fellow, well-met restaurant host, the kind of blithe performance that, when done properly, has convinced many a half-arsed domestic cook that they too could one day ‘open a restaurant’ — those amateur aspirations are likely dimmed right now.

Even hospitality itself is betimes baffled by the crisis, and more than a few ill-informed professional chefs and restaurateurs have lashed out in — understandable — fear and anger, agreeing with a general public sentiment that it is ‘all the fault of the government’.

'There is no one single reason'

Yes, certain recent government interventions have been akin to dousing fires with petrol but the crisis is in fact the confluence of a whole clutch of serious issues, homegrown and global, arriving together at the worst possible time.

“What we are facing in the industry is an unbelievably perfect negative storm,” says Ross Lewis, probably Ireland’s most renowned chef-restaurateur.

“The labour market is dysfunctional and costs are spectacularly high, the cost of food, the cost of drink and the cost of labour are eating up 60% to 75% of income and then you have rent, rates, all the other random sundry costs rising sharply upwards — the guy who came in to service the coffee machine last year for €160 is now looking for €240 for the same job and when you query it, he says his costs have gone up as well. 

"And consumer spending is constricting — there have always been spikes in costs of energy, labour, produce etc but when they all come together and spending constricts…?

“I have been doing this for long enough,” says Conrad Howard, of Cork’s Market Lane group of restaurants, “to know that every closure has a number of reasons, it’s rarely one. Nevertheless, these are all highly experienced operators in the headlines right now and it is striking that so many have chosen to close. 

Our business is not like an oil rig, high risk and high reward — it is high risk, low reward, often done for the love of it but if the reward becomes too low...

“There is no one single reason,” says Tim Magee, owner of Host, Ireland’s leading food and hospitality PR company. “It is a lot of different reasons or various blends of different reasons. A lot of people carried a hangover from covid and no one has been able to see behind the curtains until now and I’m not really that surprised at the amount of closures. 

"Every new year over the last few years has brought a new challenge — covid, energy costs, inflation, staffing costs — but behind each closure, there are individual and differing reasons, single or multiple. The story this year is who was caught by warehousing.”

“Many of us are unsure of what is going on, there are so many issues,” says restaurateur Denis O’Mullane, of Liberty Grill, Café Gusto, and Proby’s Kitchen. “It is like that Air France plane that tragically crashed flying from Brazil, with 200 warning lights going off, so many that they weren’t sure which was the crucial one.”

Ross Lewis: “What we are facing in the industry is an unbelievably perfect negative storm.” Photo: Moya Nolan

Inflation is a global issue, much of it initially linked to economic and supply chain disruption of covid and geopolitical factors such as Russia’s invasion of Ukraine and a consequent rise in energy prices, but inflation’s impact on hospitality is every bit as virulent as on domestic households.

Then more locally, there is warehoused debt, with Revenue seeking from hospitality businesses payment of taxes and Vat long-fingered during the pandemic, a debt to be settled by May, an impossible deadline for too many restaurants.

Wage costs

Labour costs are typically the highest costs of a restaurant business and standard industry formula advises that they are kept between 20-30% of gross sales — that has just become substantially harder, thanks to new Government legislation. 

Over a quarter of all minimum wage workers in Ireland work in hospitality and a minimum wage hike came in on January 1, a 12% increase from €11.30 to €12.70; this in turn triggered entry-level staff just above minimum wage to request their own pay rises. 

A sick pay overhaul granted all staff, full- and part-time, five days at 70% of salary, again paid by employers. An upcoming mandatory pension scheme beginning in September will see any employee earning over €20k per annum automatically enrolled with the employer expected to match employee contributions up to a maximum of 1.5% of gross pay, rising by 1.5% every three years to 6%.

In such a people-focused business, restaurateurs are keenly aware of the impact of the cost of living crisis on their lower-paid workers, particularly with rent, but while the spirit to support staff is mostly willing, the wallet is beyond weak on foot of all the other spiralling costs, a final straw that may crush the camel into dust.

Lack of skilled staff

The problem of staffing is also about a decline in skillsets.

“During covid, I think the Government did a great job of minding all businesses, not just hospitality,” says Magee. 

“There was no other country in Europe other than Denmark to compare with Ireland, but now we are dealing with the post-covid hangover, and as a result, one of the biggest challenges of all is not just the huge rise in staffing costs, but the fact that so many left the industry for good, especially from middle and upper management, the people who really knew what they were doing and now new, younger, inexperienced staff are going, ‘I don’t know how to do this and I don’t want to do this’ — and that problem is the same in Cork as it is in Dublin as it is in London as it is in Manhattan.”

Throughout, the hospitality crisis has been further compounded by the drop in consumer spending caused by the cost-of-living crisis.

“The last of the post-lockdown release ‘dining revenge’ spending started to contract in the latter half of 2023,” says Dublin-based chef-restaurateur Domini Kemp, “Christmas was less crazy than December ’22. People are definitely spending less, sharing a starter, having a glass of wine instead of a bottle. When customers look at a main course for €25 or €30, they don’t understand how much of that is going on all the costs and that margins have been eroded significantly in just a year and it’s a double-edged sword because you can’t keep increasing prices.”

Changing tastes

As well as contracting, the restaurant consumer market is also changing radically. Global wine sales are plummeting as younger consumers turn towards cocktails or even regular abstention. 

Also street food, the hottest new take on casual dining, exploded around the world during the pandemic when indoor dining was prohibited but has now taken on a life of its own thanks to the lure of far lower operating costs; Tung Sing is opening a food stall in the Marina Market, while White Rabbit are expanding their own one.

“The restaurant market has been segregating for a long time,” says Lewis. “It was always fast food, middle market, and top end. Fast food is still there. The middle tranche is now divided into upper and lower. 

"The upper end is anyone charging anything from €50-€150 for dinner, including Michelin one-star restaurants, while the lower end of the middle market is ‘fast food formula’ doing, say, ramen noodles, Korean chicken, smash burgers, whatever is trending, a short enough menu, where the spend is around €25-30, a few, often semi-skilled, people in the kitchen rather than the eight, nine, 10 highly trained staff of the traditional restaurant — that’s where the battleground is going to be, in that middle section of the market.

“On top of that sits a very elite, very expensive, small group of top-end restaurants, that mostly appeals to that small segment of the population with real wealth. In Dublin, it is now just Chapter One, Patrick Guilbaud and Liath. 

"Such a small elite group of restaurants is to be found in cities all around the world and they will only get more expensive as the costs of running them are extraordinarily high. And the new young consumer is all about the fast-food formula, so traditional restaurateurs will get squeezed out, the middle market share is being eaten by the fast-food formula.”

Claire Nash, owner of Nash 19 in Cork City. Its closure was the moment the hospitality sector's existential crisis became all too real for the general dining public and even restaurant professionals. Picture Denis Minihane.

Nash 19 was very much a ‘traditional restaurant’, renowned for serving an authentic traditional Irish menu of local, seasonal produce from the finest of Cork’s speciality producers and Claire Nash, an excellent practitioner, didn’t become a bad one overnight.

“It was a real shock,” says Denis O’Mullane. “She is one of the faces of Cork food. Everybody who came to Cork, every minister, every foreign dignitary, every guest from abroad, were brought in to meet Claire, who was asked to tell the story of local, Cork food, she was like an ambassador. Such an onerous task, and it didn’t pay her.”

“I always got out of bed at the crack of dawn and worked hard,” says Claire Nash. 

But now we are just trying to get to the end of the liquidation process and right now I am very disillusioned, I feel flattened, ironed flat, I’m not given to downs, thanks be to Jesus, but... every single variable that is there in the sector right now is a moving part and there is no measure in it, no rhyme or reason. 

"It’s excruciating that you’ve worked so hard and are left with nothing. Twenty staff, and they are not finding it easy to pick up other jobs.”

“Prices keep getting pushed up and it’s pushing out people like Claire,” says O’Mullane. “We will be left with nothing but pizza places — you’ll have Italian tourists coming to Ireland looking for truly Irish food and finding only pizza to eat.”

O’Mullane’s ‘pizza point’ is of crucial importance: tourism is Ireland’s largest indigenous sector and biggest regional employer (254,000 in peak season), last year earning an estimated €5.3bn. Countless Fáilte Ireland surveys show 80% of overseas visitors consistently professing to being ‘blown away’ by the quality of Irish food and it is now a huge part of the promotional foreign sales package. 

In other words, a thriving local restaurant sector, using premium Irish speciality produce, is crucial to the tourism offering.

Government 'tinkering'

While government ministers are sympathetic though bridling somewhat at the notion that it is entirely their fault or that they have not done enough to support the sector, it seems they have failed until now to grasp the wider picture for a sector that gives so much to the country in real terms. 

On any given day, hospitality might have to answer to a variety of departments of State, including tourism, agriculture, health, finance, justice, enterprise and employment, yet the closed, siloed nature of those same departments has them operating at cross purposes in response, one giving, even as the other takes away.

“One of the biggest pressures,” says Lewis, “is that all legislation is made to favour businesses of scale and the small business person has been forgotten and there is an ongoing slew of legislation that piles the cost on small business people year on year.”

The Restaurants Association of Ireland is lobbying for implementation of a five-point plan: 

• re-instating the 9% Vat rate; 
• phased repayment of warehoused debt; 
• a bespoke supports package; 
• aid for areas where tourism has declined; 
• and stalling the automatic pension enrolment until 2025.

But some restaurateurs want to go further still.

“The Vat increase was really foolish and unnecessary,” says Kemp. “Part of the problem is we’re lumped in with hotels and then you see the extortionate charging they have engaged in and restaurants can’t and don’t do that. So, many people bypassed the capital last year, heading straight down the country because hotel rooms were so exorbitant and that does a lot of damage to Dublin City centre, including restaurants.”

“The time for government tinkering is over,” says Howard. “It is now time for triage, this is serious stuff. Survey after survey shows tourists are not coming for Starbucks or Wetherspoons — we are showcasing premium indigenous Irish producers and they want to sample that. The Government has to recognise that and to ask what does the sector need. 

Domini Kemp: “Christmas was less crazy than December ’22. People are definitely spending less."

"First, they need to decouple restaurants from hotels from a tax perspective and Vat for restaurants should not go back down, not just to 9% but to 4.5% or lower, to recognise that those restaurants are providing a vital domestic and international tourist service and the government need to act immediately as they did during covid. 

"In return, they need to put it up to the sector, saying, now we need you to show us within a 12-month period that more than 50% of your menu comes from local or regional suppliers."

All the above makes you wonder why anyone would even bother going into the restaurant game?

“People adore food and feeding people is one of the greatest privileges,” says Kemp. “An incredibly honourable profession, it contributes so much to people’s happiness and a good life.”

Magee says:

Restaurateurs get a dopamine hit from people loving the food, loving the service, seeing the smiles. “Ask a nurse why they want to be a nurse — on paper the numbers don’t make any sense, nor does the lifestyle, yet they want to do it.

“It is never really for profit,” says Nash, “it is the ‘madness of the industry’, it is a vocation.”

And what will happen without any intervention by Government?

“The sector will really hollow out and be very expensive for anything authentic and diners will have to pay for it because restaurants are too expensive to run,” says Nash, “my model is broken. I don’t know what the answer is.”

“To survive the next six months,” says Lewis, “a business will need to be sitting on cash and not have too much debt.”

“Everyone is talking to their accountant,” says O’Mullane, “and some will never be able to pay warehoused debt — there is a feeling, a sense that there is going to be carnage.”