Rising costs push Estonian restaurants to close their doors

Restaurants in Estonia are closing one after another as customer spending declines while labour, tax, gas and electricity costs continue to rise, ERR reported. The latest to close is Ülo, which has operated in Tallinn’s Kalamaja district.

Ülo’s last day will be Sunday. Co-owner Steve Heinlo told ERR that the reasons for the closure are similar to those behind other recent restaurant closures: customers are spending less, while all other costs have increased.

“Each place has its own dynamics and differences. We will continue operating our other establishments and do not plan to close them, but we could not make it work with Ülo,” said Heinlo, who also runs restaurants including Pegasus and Rataskaevu 16.

He said it is currently very difficult to remain profitable in the restaurant business. Customer behaviour has also changed, with people spending more cautiously.

Henri Loodmaa, who operates restaurants in Tartu, said customers are carefully considering how much to spend and how expensive a wine to order. Even when the average bill increases, he said, costs are rising so quickly that it does not solve the problem.

Ülo generated revenue of 619,000 euros and a profit of 24,000 euros in 2024. Last year, its revenue fell by 18 percent and the year ended with a loss of nearly 24,000 euros.

Heinlo said more restaurants are likely to close this year. He explained that the restaurant business is largely seasonal, with summer being the busiest period. Some businesses wait to see what the summer brings before deciding to close in autumn, when they would otherwise face more than six months of quieter business before the next summer.

“Autumn is definitely the time when this happens. No one closes in spring,” Heinlo said.

Loodmaa, whose restaurants include Pompei, Kampus and Humal, said the situation in Tartu is not significantly different from Tallinn. The main issue, he said, is what has happened to profitability.

“We see today that even very popular restaurants are closing. This means the question is not only whether people can reach us, but whether and how the business model is sustainable. Raw material and labour costs are simply growing continuously, placing profitability under such great pressure that this is the situation we see today,” Loodmaa said.

He added that many establishments have ended their operations and, like Heinlo, expects more closures to be announced soon.

Restaurants say there is nowhere left to cut

The Estonian Hotel and Restaurant Association has long drawn attention to the problems facing the catering sector. This week, it said the sector’s revenue had remained almost unchanged for two years while costs had increased.

The association has proposed cutting the value-added tax on catering services from the current 24 percent to 13 percent, saying the sector is on the brink of crisis.

Loodmaa said a VAT reduction would provide enormous help and was currently the sector’s main concern. He said there was nowhere else left to make savings.