Restaurant closures drive growth of fast-food outlets in Estonia

Estonia’s restaurant sector remains in crisis as costs rise while revenue stagnates, ERR reported. Restaurant operators say the 24 percent value-added tax has eliminated their remaining financial buffer and are calling on the government to reduce the tax on catering businesses to 13 percent.

Several restaurants across Estonia have closed their doors this year. While the hotel sector generally ended the summer positively, the situation in the food service sector has not improved.

“As of spring, there were about 1,100 tax-debtors in the food service sector, with total tax arrears exceeding 14.5 million euros. The sector’s total profit is roughly the same amount,” restaurant entrepreneur Henri Loodmaa said.

“This means we cannot have so many poorly managed companies. There is some kind of disruption in the market that we now need to resolve,” he said.

Rising prices are hitting businesses that prepare food from local ingredients particularly hard. Despite the overall increase in prices, people in Estonia have not stopped visiting restaurants.

“I actually go to restaurants relatively rarely, mainly on special occasions such as birthdays or the start of the school year,” Gabriela said.

Anastasia said she normally visited a restaurant once a week and had already gone three times that week. She said she rarely visited expensive restaurants and tried to avoid places with very high prices.

As restaurants close, the share of fast-food outlets is inevitably growing, said Külli Kraner, chief executive of the Estonian Hotels and Restaurants Association.

“In the longer term, this will certainly have a significant impact on people’s health. Experiences from different countries show that once this change has taken place, it is very difficult to reverse,” Kraner said.

Kristjan Peäske, a co-owner of three restaurants, said the current tax conditions were putting businesses’ survival at risk.

“Germany recently permanently reduced the restaurant VAT rate to 9 percent. It was stated directly there that this was not about lowering restaurant prices, but about ensuring the industry’s sustainability,” Peäske said.

“For us, the increase from 20 to 24 percent was relatively fatal. We operate with very low profit margins and are highly labour-intensive. While other businesses can optimise through modern technological innovation, our business has historically been built this way,” he said.

The sector’s contraction is also affecting young people. Restaurants struggling to survive cannot create or maintain new jobs, leaving thousands of young people without their first work experience and pushing unemployment higher among this age group.