Penny Pinching – Nick Tarayan

Moving on to more day-to-day expenses, it was another slap in the face to see Mr Brown heading the wrong way on excise duty in the recent budget.

LOOK AFTER the cents and the euros will look after themselves.  It’s not a phrase we are likely to hear Mr Brown say for some years to come … if ever.

There have been all sorts of sundry, indirect taxes which have hit the restaurant business in recent years – taxes which continue to add to the woes of an industry which often struggles to make ends meet.

Stamp duty changes will have a big impact – especially on highrent, central London locations.  Deloitte & Touche gives the example that a 25 year lease at an annual rent of £500,000 would currently be liable to stamp duty of £10,000 (2% of £500,000).

Under the new rules, total rent would have a net present value of £8,240,575 and stamp duty of 1% or £82,408 would be payable.  No small increase there then.  Will it be reflected in the prices we pay in restaurants or will it simply be swallowed by business?

Moving on to more day-to-day expenses, it was another slap in the face to see Mr Brown heading the wrong way on excise duty in the recent budget.  Another 4p on a bottle of wine might not seem like much but it now puts the duty on a bottle of still wine (between 5.5% and 15% alcohol) at £1.19 plus VAT: a total of £1.40.

While it is probably true to say that, if duty were abolished, prices would be reduced by only that amount, it is also true to say that restaurants tend to work on gross profit percentages of between 65% and 75%.

Taking 70% as a mean average – especially at the cheaper end of the wine list – the gross profit on the £1.40 duty element is £4.66 at selling price.  If you assume that the cost of the wine, including duty, has already been marked up by a wine merchant at, say, 35% – the knock-on effect is a whopping £6.30 on the restaurant wine list.

And while there was no increase in duty on sparkling wines this year, the duty on a bottle still weighs in at £1.95 including VAT.  So what are restaurateurs doing about it? Without exception, everyone I spoke to was going to swallow the increase.

At a cost of around £700 per year for a medium-sized restaurant selling 40 bottles of wine a day, it’s probably not horrific but it is yet another expense. 

And, while they may not have plans to increase their prices straight away, there will come a time very soon when a combination of factors such as a review of the wine list; accountants unhappy with slipping GPs; other increases at source or a weak pound, will conspire to add yet more onto the ever-burgeoning price of enjoying a decent bottle with a good meal.

In some cases, wine merchants have had to swallow the extra – especially if it pushes a case of wine over one of the magic threshold price points.  In one case – unrelated to restaurants – a big Australian wine producer refused to swallow the extra duty as requested by one of the supermarkets and is subsequently on the shelves at £5.04 instead of £4.99!

 Restaurants will probably need to add 21p to a bottle to keep the accountants happy which means that anything bubbling under the £10, £15 or £20 mark will probably be raised by much more than that ("£20.15 sounds such an odd amount – let’s make it £21!").

Meanwhile, new shipments of French wine will be at least 10% more expensive than three months ago because of the strong euro. 

A strengthening of the rand from the giddy lows of R20 to the pound for a brief shining moment in January 2002 to a hard-hitting R13 a year later will have its effect, although reports of 2003 being "the greatest vintage in a generation" might help, temporarily, to sweeten the pill.

New Zealand is bound to be affected by a 50% decrease in quantity on 2002.  Furthermore, central London’s congestion charge adds costs to deliveries and discourages people from travelling into town.

John Lewis in Oxford Street reported a drop of 7% in sales while Peter Jones, outside the charging zone, reported an increase in sales of the same amount.  Surely that must affect on-trade sales in their respective areas.   And so the list goes on. 

Business may not have suffered as badly as was being predicted three or four months ago. In fact it is said that it has been particularly buoyant outside the West End of London.  But if London is to maintain its position as a leading, major gastronomic destination, then it needs its independent restaurants.

The constant eating away of margins through these aforementioned government "initiatives" means that only the chain restaurants which spread the costs of their operations throughout the country, or those businesses which are relatively immune to price-sensitivity can continue to afford to prosper.

If prosperity really does figure in Mr Brown’s handling of the economy, then there are two things which he should add to his list of economic tests: black cabs restaurants with empty tables.  They’ve always been sure signs that things ain’t so good!