On-trade ill equipped for VAT hike

Poor financial management in the UK on-trade is likely to pose problems with the onset of the VAT rise to 20% in January, according to hospitality consultants The Bowden Group.

CEO David Hunter warned that many business owners will suffer either because they are reluctant to pass on the price rises or because they lack the numeracy skills to maintain their margins.

Of this first group, Hunter explained: “I regularly meet people who feel that increasing their prices by a penny or two appears mean in the eyes of customers so they simply do not do it.

That might work one year, but if they adopt the same attitude year on year it will chip away at the profits and make their business unsustainable.”

In order to help the second group, Hunter pointed to the calculator set up on his company’s blog.

Explaining the service, he said: “There is obviously more to maintaining your margin than increasing prices. This calculator just shows you what needs to be done to the selling price to maintain your current margins.

“You could equally source the same product elsewhere for less, or change to another product that has a different cost base – maintaining your existing selling prices.’’

While aware that such a device could appear patronising, Hunter added: “I regularly meet proprietors who have difficulties with figures”, noting that his calculator was designed to provide a simple formula for those owners “who maintain their success by being great hosts rather than financial managers.”

Gabriel Savage, 09.11.2010