NATIONAL OFF-LICENCE ASSOCIATION
PRE-BUDGET SUBMISSION - OCTOBER 2012
The National Off-Licence Association (NOffLA), which works to promote the responsible sale, marketing and consumption of alcohol, represents 315 independent specialist off-licences. NOffLA’s members are specialist or pure off-licences and tend to be owner-operated, located in the heart of their communities and employ expertise in responsibly retailing many unique products. In total, 5,300 people are employed in the independent off-trade sector across Ireland. NOffLA welcomes the opportunity to submit this short paper to the Department of Finance ahead of Budget 2013.
CHALLENGES FACING THE SECTOR
Independent off-licences make a significant contribution to both economic activity and the Exchequer in Ireland. However, this contribution is declining significantly as a result of business closures and job losses. Since 2008, there have been 2,800 job losses in the independent off-trade sector across Ireland. This in addition to reduced staffing levels represents 75 closures in four years, with seven closures since July 2012 alone.
The Association expects this situation to worsen in 2013 with further business closures and job losses. Based on the current rate of closures, NOffLA expects a further 25 – 30 businesses will cease trading in 2013. 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. This practice is ultimately making the survival of small, family-owned independent off-licences in this country extremely difficult.
Overall, the off-licence market is growing, but this is solely confined to the multiples sector, much to the detriment of the indigenous, independent owner off-licences. Multiple retailers can afford to sell alcohol at below-cost selling levels, which poses a severe threat to the commercial viability of NOffLA’s members and the independent off-licence sector as a whole. Likewise, many multiples can afford to absorb increases in excise duty because firstly, they sell other products and can therefore off-set the cost and secondly, they can continue to promote alcohol to drive footfall to sell other dearer household products.
If steps are not taken urgently, 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.
1. Retain The Current Level Of Alcohol Excise Duty
In 2008, wine was singled out for an excise increase. This was a key factor in the dramatic increase in cross border shopping throughout 2009. This situation was reversed when excise duty on alcohol was reduced by 20% in Budget 2010 and this succeeded in stemming the flow of cross-border shopping activity.
However, the VAT increase of 2%, applied on 1 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 4% and wine excise receipts are down 4.8%, 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.
Currently in Ireland, taxes on alcohol are amongst the highest in Europe – all of which encourages out-of-State retailing.
• Ireland’s wine excise is the third highest in the EU. 15 other EU member states have 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;
• Cider tax is very high by other European standards (second highest in Europe) and is 40% 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. 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.
2. Reduce Independent Off-Trade Licencing 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). Turnover in the independent off-licence sector is down 25-50% and is now on par with that of the on-trade; given that the sales in both sectors have declined significantly in recent years. 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 licencing 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 at below cost. Since its abolition, retailers can reclaim VAT on the losses they incur on products chosen to be 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% of the cost of the loss leader in their VAT return; saving the State an average of €21m each year.
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.
NOffLA is committed to working with Government to identify and implement the most effective measures to ensure 1) the responsible retailing of alcohol in this country and 2) protection of the jobs and revenue that the independent off-licence industry drives.
The simple measures identified above would, we believe, go some way towards supporting this industry and also increasing revenue to the Exchequer; both aligned and essential objectives in this difficult economic environment.