Labour costs and raw materials dominate expenses for catering businesses, ACE study shows

Labour costs and raw materials are the among the highest costs incurred by catering establishments, according to a survey commissioned by the Association of Catering Establishments (ACE) shows.

The survey, conducted by statistician Vince Marmarà, served as a sustainability study on the Maltese catering industry, where 400 respondents were asked what percentage on sales was their cost in relation to sales.

The respondents, which were made up of restaurants, takeaways, bars and other establishments were asked about their costs related to labour, property, raw materials and utility costs among other criteria.

On average, the respondents claimed that labour costs are the highest costs incurred, with this cost eating up an average of 26.6% of their revenue from sales. Raw materials came in second place, eating up an average of 20% of catering establishments’ sales revenue.

The total average costs incurred by the catering establishments from their total sales is up to 79.5% including VAT, while this cost runs up to 89.9% when excluding VAT.

According to the survey, operators also pay 17.4% of their sales revenue to beverage costs. Meanwhile, property costs, utility costs and delivery costs reportedly ate up 6.3%, 7.7% and 1.5% of sales revenue respectively. 

Prior to the presentation of the statistics, ACE president, Michelle Muscat stated the association’s members are currently in troubled waters, with a high inflation rate being the main headache for the industry. This, Muscat said, is more worrying when one considers that the catering industry is one of Malta’s main economic pillars.

Muscat acknowledged the importance of government’s interventions in light of the Covid-19 pandemic, as well as rising grain and energy costs due to Russia’s invasion of Ukraine. Despite the challenges, Muscat stated that the industry has shown that it is resilient and alive.

Reduction in VAT

As the study highlighted the catering industry’s slim profit margins, calls for the reduction of VAT were made in the discussion of the study’s results.

During the discussion, economist and Project Green CEO Steve Ellul highlighted that Malta’s neighbours, namely Sicily and Cyprus have lower VAT rates, with one member in the audience noting that in some cases, VAT stands at 5% outside of Malta.

Reacting to the numbers, PN MP and businessman, Ivan J Bartolo stated that the numbers highlighted in the study “shocked” him, jokingly saying that after seeing these numbers he has no interest in entering the industry.

Bartolo stated that VAT reduction had been proposed by ACE, as well as the PN in order to mitigate its impact on the catering industry’s profit margin.

Tourism minister's intervention

Meanwhile, tourism minister Clayton Bartolo said that government is attempting to achieve a balance between quantity and quality with regard to the tourism sector during his speech.

Bartolo said that in order for Malta to have a competitive tourism industry, government, as well as the private sector must work together to better each sector of the country's tourism industry.