Bag of Chips. Price increase.

Bronco Lane

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I see my local chipper has increased the price of a bag to an even €3 from €2.80. A bit higher than the recent VAT price increase? Not even a few extra thrown in on top.
 

Leo

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Potato harvests are down after a poor year across Europe, but particularly in Ireland. Prices overall are twice that of last year, worst affected are the prices for peeled potatoes which are now ~5 times what they were last year as supplies can't as easily be replaced with European sources.
 

newtothis

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I see my local chipper has increased the price of a bag to an even €3 from €2.80. A bit higher than the recent VAT price increase? Not even a few extra thrown in on top.
When was the last time they increased the price? My guess is it was more than a year ago.

The VAT increase taken by itself would bring the price to €2.92. No doubt other costs have risen too in the last year (just out of interest, did you get a pay rise this year, or if not were you hoping for one?). Businesses do not in general like rising prices, for the very reason you've highlighted: customers don't like it. They will try and minimise the amount of times they do this unpopular move. Given they more or less have to pass on the VAT increase, many will roll in their own increase at the same time. So of this particular increase, the business gets 8c and the government takes 12c.

A lot of people have complained and questioned whether prices fell when the rate was reduced. If you recall, much was made of this at the time and many places reduced prices more than the VAT rate decrease in an effort to retain business at the height of the recession. With the possible exception of hotels in Dublin, the sectors affected by this are under increasing pressure due to rising costs and increased competition. Already there have been some casualties: expect to see more in the coming months.

Disclosure: as you may have guessed, I run a business that is affacted by this VAT rate.
 

noproblem

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I understand staff costs, overheads, ins, heating, rent, rates, etc, etc, but €3 for a bag of chips is absolutely ridiculous. Same as €3 for a cup of tea or coffee is extortion. Some day soon the big bubble will burst and it won't take long for the "potato in a bag" to behave properly with regard to its transfer fee to my belly.
 

newtothis

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I understand staff costs, overheads, ins, heating, rent, rates, etc, etc, but €3 for a bag of chips is absolutely ridiculous. Same as €3 for a cup of tea or coffee is extortion.
On what basis is it extortion? No doubt you're referring to all the Prosches and Ferraris that owners of chip shops round the country swan around in, the fruits of the overblown profits from their poor gouged customers. Do you have even the slightest idea of what it takes to run a business like that, or the economics that underpin it?
 

noproblem

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On what basis is it extortion? No doubt you're referring to all the Prosches and Ferraris that owners of chip shops round the country swan around in, the fruits of the overblown profits from their poor gouged customers. Do you have even the slightest idea of what it takes to run a business like that, or the economics that underpin it?
Answering your last question first and, Yes, I do have more than the slightest idea of what it takes to run a business and have run some very successfully and others have lost me quite sizeable amounts of money. As for your first question? Does one really have to explain tea/coffee and a fried potato @ €3 being extortion? If so!!!!!
By the way, if you had read my post you would have seen my understanding of costs already mentioned. Do also understand that it is my opinion, pretty much the same as your own one (opinion) and Mr Gekko's one (opinion) who suggested I fry them myself. He'll be delighted to know I do just that and I would determine it costs me aprox 15c to make quite a large bag which includes all staff costs, utensils, property tax, salt/vinegar, condiments, raw materials, production costs, seating, and whatever else you might care to mention. Oh, a cuppa might cost you the equivalent of less than 1c to put in front of a customer before staff costs are taken into account. Now, do your sums and determine if that's extortion or not? Thank you and good night, going to have a cuppa;)
 
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newtothis

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I would determine it costs me aprox 15c to make quite a large bag which includes all staff costs, utensils, property tax, salt/vinegar, condiments, raw materials, production costs, seating, and whatever else you might care to mention.
I think you need to (a) go into the chip shop business for a few months, enabling you to retire to the Bahamas at the end of it, or (b) get a new calculator, as your current one seems somewhat dodgy.

More seriously, you've just demonstrated you really don't have the first idea of the costs involved.

How much do you think it costs just to open the doors of a chip shop (or cafe for that matter, which is closer to my own business) each day, before you sell a single thing? Write that number down. Now write down how many bags of chips or cups of coffee it takes to sell at €2.64 a pop net (€3.00 selling price, including VAT) to cover that, not forgetting to deduct all the direct costs (potatoes, S+V, bags, credit/debit card fees etc.) for each bag sold (and yes, the bag itself does cost money). Divide the first by the second number. If you're accurate with your numbers, it will be rather a large number of customers you'll need to attract just to break even. If it’s not, maybe you could share the numbers you’ve used: I could do with a good laugh.

Just for the record, in the coffee business with which I'm more familiar (and you also mentioned), you are doing very well if you come out with a 5% net profit. If you don't believe me, check out the reported profits of the larger public companies in the sector. Margins may well be higher in the chip shop world (though Harry Ramsden's wouldn't agree), but there's no way I'd put up with the sacrifices needed to build that kind of business. If they are rolling in it, good luck to them, though I don't see any evidence of it.
 
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noproblem

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Ha ha, been in the business and many others and not on the fringes like yourself, know all about it and the vast sums that can be made, All about quantity, get them in and get them out although to the couch potato that might seem ungentlemanly in the business world. Look, i've actually given you a very basic outline of a few items and if that doesn't fit in with your take on things then fine. No, I don't drive a Bentley, a Porche or Ferrari, that's not to say I couldn't. Next time you have a bag of chips, think of the small potato that's in there and the €3 you've given for it. Oh yeah, the cost, the cost, the cost of putting it into that bag? I forgot that ;). We differ, big deal.
 

Bronco Lane

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I forgot to mention that I also purchased a fresh cod with my chips. I was charged €7 for this. Previously it was €6.80. There may have been a shortage of potatoes this year due to weather conditions, maybe it also affected the fishing industry, or maybe it was the 4% VAT increase. Anyhow it was a miserable sized piece of grey coloured fish.

Incidentally are "take aways" treated the same for VAT. How do coffee shops charge a lower price for take out coffee than a coffee sitting down in the coffee shop, if all costs are the same?
 

vandriver

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'...you are doing very well if you come out with a 5% net profit...'
I was talking to a coffee shop owner about the impending VAT rise.His accountant told him to pass it on or go out of business.
I thought at the time that this was rubbish,but if the net margin is only 5%...
 

Firefly

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..... who suggested I fry them myself. He'll be delighted to know I do just that and I would determine it costs me aprox 15c to make quite a large bag which includes all staff costs, utensils, property tax, salt/vinegar, condiments, raw materials, production costs, seating, and whatever else you might care to mention.
Hi,

As you made the chips yourself for yourself you didn't have to pay someone. However unless you want to work for nothing and make everything yourself, you will need to hire people.
 

newtothis

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'...you are doing very well if you come out with a 5% net profit...'
I was talking to a coffee shop owner about the impending VAT rise.His accountant told him to pass it on or go out of business.
I thought at the time that this was rubbish,but if the net margin is only 5%...
Trust me: the near co-incidence of these figures (i.e. VAT increase and expected profit) has not gone unoticed in the industry. The word is also that very few places are actually achieving 5% net profit.
 

newtothis

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Ha ha, been in the business and many others and not on the fringes like yourself
What can you mean, "on the fringes"? You know nothing about my business, other than it's been affected by the rate increase and that I've direct knowledge of costs and revenues in the sector.

Look, i've actually given you a very basic outline of a few items
Er, no, you haven't. All you've done is claim to break even selling bags of chips (or indeed cups of coffee, presumably) at 15c a go with absolutely no figures to back it up.

if that doesn't fit in with your take on things then fine
My "take on things" is based on actual knowledge of the actual costs on a business, not fantasy ones.

Next time you have a bag of chips, think of the small potato that's in there and the €3 you've given for it. Oh yeah, the cost, the cost, the cost of putting it into that bag? I forgot that ;).
Yes, there is the cost of putting it in the bag. Maybe you expected to be handed a raw potato when you ask for a bag of chips? Better yet, get pointed to one still growing in the ground? It's all about the cost of putting the chips into the bag. The reason I mentioned the bag in particular is to highlight you need to consider every little thing in costs (for the record, packaging costs run to about 4% in the business I know, so it's not actually insignificant). I could have mentioned rent, rates, power, equipment financing, staff, PRSI, waste collection, equipment and property maintenance, phone, FOG license (look that one up), cleaning and disposable materials, the list goes on......

When you disclose some of your numbers then I might take you seriously: until then you're just someone spouting off about something they clearly know nothing about.
 

Sunny

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'...you are doing very well if you come out with a 5% net profit...'
I was talking to a coffee shop owner about the impending VAT rise.His accountant told him to pass it on or go out of business.
I thought at the time that this was rubbish,but if the net margin is only 5%...
The VAT decrease was introduced on a temporary basis. If any business closes simply because of the VAT increase, they should have closed before now before they have been basically operating on a subsidy by the taxpayer and that is not a sustainable business. Any business should simply pass on the increase if they can't absorb the cost in their margins. If customers stop buying cups of coffee because they are paying 13.5% VAT instead of 9% VAT, then there is a bigger problem. The issue is that the 4.5% decrease was never passed on the customer originally. It was used to increase margins (fair enough as a lot of this was probably re-invested in the business). But now businesses need to decide whether to pass it on or absorb it. There was no justification for keeping it at 9% when other sectors are equally as deserving of help and have to pay up to 23%. Tourism and hospitality sector are beginning to sound like farmers........
 

odyssey06

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The VAT decrease was introduced on a temporary basis. If any business closes simply because of the VAT increase, they should have closed before now before they have been basically operating on a subsidy by the taxpayer and that is not a sustainable business. Any business should simply pass on the increase if they can't absorb the cost in their margins. If customers stop buying cups of coffee because they are paying 13.5% VAT instead of 9% VAT, then there is a bigger problem.
Shouldn't the question be whether 13.5% VAT or 9% VAT will bring in more revenue from the sector as a whole (i.e. not just VAT, but also considering rates, wages, profits)? If 13.5% VAT leads to reduced demand and businesses closing, then there will be less money flowing into the state coffers... people may switch to nespresso coffee at home or airfryer chips and put the saved money towards a sun holiday. That's not a rhetorical IF btw.
 

Sunny

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Shouldn't the question be whether 13.5% VAT or 9% VAT will bring in more revenue from the sector as a whole (i.e. not just VAT, but also considering rates, wages, profits)? If 13.5% VAT leads to reduced demand and businesses closing, then there will be less money flowing into the state coffers... people may switch to nespresso coffee at home or airfryer chips and put the saved money towards a sun holiday. That's not a rhetorical IF btw.

Same argument could be made for every sector in the economy. Why not just abolish VAT altogether? The 9% VAT rate was a temporary measure. It was 13.5% up to 2012 and has now reverted to this rate. There is no evidence to back up the assertion that the reduction of VAT led to increased tax take for the State due to increased demand because of reduced prices. Simply because prices were never reduced. The decrease allowed businesses that might have closed to increase their profit margin and ride out the recession. It was basically State Aid for the sector. It served it's purpose. There is no justification any more for this though. If people want to discuss VAT rates in general, then fair enough but the hospitality sector has no basis for moaning about this particular increase. Let them make an argument for reducing the rate to 9% based on competitive pressures but as anyone who has holidayed ANYWHERE in Ireland (and not just Dublin) while the VAT has been 9%, the Irish Hospitality Sector has not been competitive with other locations for a very long time. And there are numerous reasons other than VAT for that.
 

newtothis

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The issue is that the 4.5% decrease was never passed on the customer originally.
What basis do you have for saying that? I recall when it was introiduced the minister made it clear that the response of the sector would be watched and if it wasn't passed on it would be reversed. Whilst I've no doubt specific examples can be found where it wasn't, in the main it was passed on, and indeed more than passed on in many instances, with the cost of dining out in particular falling considerably with all sorts of special deals being introduced. The stimulus worked: employment grew in one of the few sectors that had the ability to do so across the country, all at a time of significant recession. The question now is whether there will be a net increase in income to the government. This is highly questionable: sales are likely to fall as is employment, both of which will reduce rather than increase tax income (considering all of VAT, PAYE, PRSI and USC).
 
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