Amid the foodservice industry’s struggle to recover, the Canadian government is getting ready to introduce the largest alcohol tax hike in history. On April 1, the federal alcohol duty is set to go up 6.3 per cent.
The yearly increase has always been considered a nuisance for the industry, as alcohol excise duties are imposed at the manufacturing stage, with an annual adjustment made to reflect inflation. However, it has typically been manageable – before the upcoming biggest increase to take place in 40 years.
As the industry continues to try and recover, it can’t absorb any more increases, says Olivier Boudreau, vice president of federal affairs at Restaurants Canada. “Restaurant margins are always thin, but right now they’re around two to three per cent,” Boudreau says. A recent Restaurants Canada study found that about half of Canadian licensed restaurants are operating at just at or below profitability levels, as some restaurants try and absorb some of the riding inflation costs.
Many restaurants have indeed been covering the inflated costs. Statistics Canada shows that grocery prices were up 10.6 per cent in February year-over-year, while restaurant prices only went up 7.7 per cent. Alcohol prices were up 5.2 per cent in February, which is only slightly higher than the overall inflation rate of 5.2 per cent, but the April rise will see the alcohol inflation surpass the predicted general inflation for spring.
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The April alcohol tax increase will cost the foodservice industry 750 million dollars this year, with the average casual dining restaurant paying an extra $30,000 for alcohol.
Although it is not a sales tax, ultimately, the raised prices will trickle down to the consumer. “It’s imposed at the point of production and paid by the manufacturer, which means it’s built into the price of the product and magnified as it goes through the supply chain from the distributor to the retailer,” says CJ Hélie, president of Beer Canada.
While restaurants struggle to maintain a balance between absorbing the additional cost and passing it on to consumers, many worry it will result in lost business. “At the end of the day, customers will only pay so much before they start to cut back,” confirms Boudreau.