Hospitality: A Value Chain Analysis 2021

The previous chapter focused on the suppliers of Hospitality services; this chapter focuses on where those services are being used within the economy. Consumption was measured using data from National Accounts, Balance of Payments, business and tourist survey sources. 

Use Table

The main consumers of Accommodation and Food & Beverage Services are households, who consumed €7.5 billion in 2021. This compared with €1.2 billion spent by businesses on these services. 

Table 4.1 below shows a summary of the 2021 Hospitality Use Table. This sets out how Hospitality services produced in Ireland were used. Inter-industry use of Accommodation was €298m and of Food & Beverage Services was €944m. This is business use of these services and includes business expense items as well as, for example, catering services provided in offices, schools, and hospitals. 

Unsurprisingly, households were the largest consumers of these services in 2021. Consumption of Accommodation services by households was €1.4 billion in 2021. The consumption of Food & Beverage services by households was €6.1 billion in 2021. This consumption figure measures only the consumption of the services themselves. It excludes those products such as bottled drinks in bars which are resold unmodified (these are treated as consumption of products of the beverage manufacturing industry).

Exports make up the final portion of the Use Table; this is the personal and business expenditure of non-residents in Ireland, such as tourists and business travellers. In 2021, non-residents spent €980m on Accommodation services and €713m on Food & Beverage services in Ireland. 

Household Expenditure

Figure 4.1 shows the household consumption figures from the ANA23 on goods and services in the Accommodation and Catering Services in current and constant prices. The household consumption figures include spending by non-residents in Ireland (exports) and exclude expenditure by residents outside of the State (imports). This is known as the domestic concept.

In 2021, households spent €12 billion in current prices on catering services. This was the total final cost to the consumer which included food, beverages and service charges across a variety of establishments. As part of the value chain analysis, we have removed the products of food and beverage manufacturers to estimate a figure for consumption of the services alone. This is the figure of €6.1 billion which appears in Table 4.1 above. The remaining €5.9 billion is estimated to be the cost of food and beverages in catering establishments, which are manufactured elsewhere in the economy and resold.

When examined in constant prices, spending on catering services declined by 38% in 2020 compared to 2019 but rebounded strongly in 2021 and 2022. Household expenditure on catering services was 13% greater in 2022 than in 2019. The effect of COVID-19 on household spending was more severe on Accommodation services which saw a 51% decrease in 2020; while spending in the sector has recovered post-pandemic, it is still 17% lower in 2022 than in 2019.

Tourist Expenditure

A breakdown of tourist expenditure in Ireland in 2021 is given in Figure 4.2. Tourist expenditure is included in exports as shown in Table 4.1. Even though this consumption takes place within the country’s borders, it is treated as exporting goods and services to non-resident consumers. The most significant spend for tourists was Accommodation, accounting for 43% of all expenditure. Food & Beverages followed at 31%, and the remaining day-to-day expenditure amounted to 26% of tourist expenditure. 

VAT

Value Added Tax (VAT) is one of the main components of taxes on products. It is a tax that is collected in stages but is ultimately charged to the final consumer for a particular good or service. The VAT charged on a product or service is determined by tax legislation but generally all non-exempt goods and services will belong to one of five VAT rates. On the 1 November 2020, VAT charged on certain services within the hospitality sector was reduced to 9%. This was done to help ease the burden on sectors more harshly affected by the COVID-19 related business closures. From the 1 September 2023, VAT in hospitality returned to the pre-pandemic rate of 13.5%. Figures from the Revenue Commissioners show the cost of extending the 9% VAT rate to the hospitality sector for one full year would amount to €810m¹.

The number of VAT registered traders in the hospitality sector stood at 17,290 in 2021². The figure has stayed relatively constant and by the end of 2023 the number of VAT registered traders has increased slightly to 17,651. This marks no change from 2022 since the number of new registrations balances with cancellations in 2023. The Revenue Commissioners have estimated total VAT payable for hospitality to be €269m in 2021³.

Figure 4.3 shows the breakdown of VAT receipts by year and sub-sector for hospitality. In 2021, the largest contribution to VAT came from Restaurants & Mobile Food Service Activities (45%), followed by Beverage Serving Activities (29%) and Hotels & Similar Accommodation (17%). The proportion of VAT generated by the Hotels & Similar Accommodation sector increases significantly year-on-year to 26% in 2022 and 30% in 2023.

¹Revenue Ready Reckoner - Pre Budget 2025, Office of the Revenue Commissioners.

²VAT Registrations by Sector, Office of the Revenue Commissioners.

³VAT Payments and Returns, Office of the Revenue Commissioners. 

Consumer Prices

The Consumer Price Index (CPI) for hospitality is shown by month and activity in Figure 4.4 below. Consumer prices in the Food & Beverage sector have been steadily rising since the start of 2020 but from February 2022 the rate of change began to increase. Prices rose by 8.2% in the year to February 2023 whereas in the year to February 2022 prices increased by only 1.2%. A different trend is observed in Accommodation that is reflective of the seasonal price variation in the sector but the overall trend of price increases from 2020 onwards is also observed, with the largest jump in prices occurring from 2021 into 2022, where prices in August rose by 18%.