Based on the current rate of closures, NOffLA expects a further 25 to 30 businesses will cease trading in 2013.
It’s submission also points out that 5,300 people are employed in the independent off-trade sector across Ireland but the contribution of independent off-licences to both the economic activity of this country and to the Irish Exchequer is declining significantly as a result of business closures and job losses.
The Association expects this situation to worsen in 2013 with further business closures and job losses.
The principal reason for these closures “is the irresponsible promotion and sale of cheap alcohol which is being used as a driver of footfall into mixed trading outlets” making the survival of small, independent family-owned off-licences extremely difficult.
Overall, the off-licence market is growing, points out the submission, but this is solely confined to the multiples sector, much to the detriment of the indigenous, independent owner off-licences “as the multiple sector can afford to sell at below-cost and can also afford to absorb increases in excise duty.
“If steps are not taken urgently” warns the submission, “the independent off-licence sector will disappear entirely – with a loss of jobs and revenue for the State. This will not be replaced by any other group as the multiples will continue to squeeze margins and engage in irresponsible selling practices.”
NOffLA makes a number of recommendations in its submission:
1. Retain the current level of alcohol excise duty
In 2008, wine was singled out for an excise increase, a key factor in the dramatic increase in cross-border shopping throughout 2009, it argues. This situation reversed when excise duty on alcohol was reduced by 20 per cent in Budget 2010 and this succeeded in stemming the flow of cross-border shopping activity.
“However, the VAT increase of two per cent applied on 1st January 2012 has been a key factor in the reduction of alcohol sales, particularly wine sales. The level of wine sales in 2012 has dropped by four per cent and wine excise receipts are down 4.8 per cent, partly driven by the increase in VAT.”
These significant drops have caused damage to the industry as a large portion of sales within independent off-licences comes from wine.
Current taxes on alcohol are amongst the highest in Europe – which encourages out-of-State retailing. Ireland’s wine excise is the third-highest in the EU with 15 other EU member states having no excise on wine at all.
“Irish beer tax is the fourth-highest in the EU and is almost eight times higher than the level of Germany,” it points out, “Cider tax is very high by other European standards (second highest in Europe) and is 40 per cent higher than the UK for example.”
Spirits tax is the fourth-highest across the EU and 3.8 times the level in Spain.
“It is critical that excise duty is not increased in Budget 2013,” argues NOffLA, “To do so would put a fragile industry which is already facing unparalleled challenges under even more pressure.
“At a time when creating and sustaining employment is of critical importance to Government policy, an increase in excise duty will result in further business closures and job losses,” it predicts.
2. Reduce independent off-trade licensing fees
Currently, the average excise paid by the on-trade (€778) is much lower than the combined fees paid by the off-trade (€1,500), states the submission.
“Turnover in the independent off-licence sector is down 25-50 per cent and is now on par with that of the on-trade. It is the perception that the turnover of large multiple retailers is much greater than that of the independent off-trade sector. Therefore a higher fee can be sustained by this sector. In addition, it was announced as part of Budget 2011 that a full review of Ireland’s alcohol licensing regime would take place. To date, this review has not taken place and NOffLA calls on Government to include this action as part of Budget 2013.”
3. Introduce a ban on below-cost selling
Prior to the abolition of the Groceries Order in 2006, it was not possible to sell alcohol below-cost. Since its abolition, retailers can reclaim VAT on the losses they incur on products sold below-cost. The Exchequer loses out significantly because of this practice. VAT is refunded on the higher bought-in value and paid on the lower ‘below-cost’ selling value.
Banning the retailing of alcohol at below-invoice cost-price will ensure that retailers cannot reclaim 23 per cent of the cost of the loss-leader in their VAT return saving the State an average of €21 million each year, claims NOffLA.
“Introducing a ban on below-cost selling would also eliminate deals promoting heavily discounted branded alcohol such as ‘buy two 20 packs of premium branded beer for €25’ thus aiding Ireland’s ongoing fight against an unhealthy relationship with alcohol – particularly amongst our young people.”