Restaurant Study Impact: Pressure points increase challenges within the business

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Aruba Gastronomic Association (AGA) was launched in 1993 and one of its founding members, Mr. Eduardo Ellis, will soon be honored during the launch of their new web-site. The association has close to 60 members and is still growing. Besides the objectives of marketing the restaurants, their mission is to be the voice of the Food and Beverage industry in Aruba. Recently the University of Aruba (UOA) conducted an Economic Impact Study for the association.

Why an Economic Impact Study? Before the outcome the economic impact of the F&B scene in Aruba was just a guessing game. AGA estimated 500 establishments, 500 million florins in sales, and 5000 employees. With ‘One Happy Island’ and us catering those seeking One Happy Island, it is the F&B operators that do not always experience this Happy Island phenomena. There are several myths about their industry and they would like to address just one: This is a fun filled easy business one will get rich soon. To which we answer: Wrong! We see many F&B outlets open and close in Aruba and the truth of the matter is that one needs savings for back up for at least the first two years. Profit margins are small, and cost of business is high. In a nutshell: An F&B business will typically encounter as a general rule of thumb:

F&B Cost 35%

Cost of labor 35%

Rent and Utilities/ Gas 12%

Advertising 4%

Administrative and Other 6%

This leaves still space for accounting and legal fees and reaching over the 90% cost line is not too hard.

As one can see, margins are consequently small and most operators do well 6 months a year and have to make ends meet for the other 6 months, says AGA. While most folks focus on the food and beverage products, utilities, fiscal and other obligations and rent do affect our business and many times reason a business closes at the end of the day. We consequently fear that not all operations in this study pay their fair share. Aruba is considered expensive and we are! In a meeting with the Minister of Finances it was mentioned that Aruba is only the number 12th most expensive island among 19 Caribbean neighbors. However other sources like the Travel Index bring us to number 6 and close to 4 according to AGA.

Outcome of Study
The industry’s costs this past year increased and partially was passed on to the consumer due to:

Government taxes (BBO) increased from 3.5% to 6% and as of July 1st, 2019 will have to be included in the price which again will be at a cost in re-printing menus. For some restaurants re-printing on average that is about Afl. 4000 and the sad part: when the BBO is replaced for whatever tax, menus have to be re-printed again. Perception of having increased the prices without a doubt will affect the average checks.

AGA still does not understand the reasoning or the lack of transparency in including the tax in the price as we are even not allowed to make mention that the tax is included in the invoice, subject to a fine. It is so inconsiderate of the industry…..and is commerce not the backbone of our economy, AGA wonders? Consequently, AGA does not ask for another extension they were granted until July 1st, they simply ask for the idea of the inclusion be abandoned until the next fiscal phase is announced and hopefully the private sector will be part or involved in this discussion.

The current idea of the inclusion is unpractical, in- transparent and seems to have been designed by those not having a business. Several letters implicating the negative consequences have been sent to the Government and a response was labeled valid by the PM….and a commitment followed by the PM in Parliament towards the private sector that a postponement would be coupled to fiscal phase 2 in July or another period. “We kindly urge the Minister of Finances to comply with the PM commitment as many small businesses will either not comply or will not be able to comply with this unnecessary administrative burden that is not generating more tax income but comes as a cost to the private sector in money and time.”

Plastic bags were banned (good idea) but the cost for other bags was eight times the cost of the plastic bags and replacing foam boxes and straws (good idea) will again be passed on to the consumer or absorbed by the operator.

Sin tax: another cost for the operator where he/she did not feel that increases could be passed on to the consumer. In the mean-time our customers have chosen another beverage during dinner: water. A rum Coke (Sugar Tax) combined with sin tax will make this a luxury drink and sodas for $5, 00 considered outrageous are becoming closer to reality with the sugar tax. Consumers will not point a finger at the government but at the “greedy” F&B operations not being aware of either sin or sugar tax.

Minimum wage: one day after sitting down in a tripartite meeting the Minister of Labor unilaterally increased minimum wage. Not many employees in our sector make minimum wage but go home with substantial salaries twice, triple and more the minimum wage, yet it will have a cost increasing effect on the sector.

Other than the above the industry faces red tape in almost every phase of operations like obtaining a restaurant permit, working permits for functions. Arubans have no interest in filling (cooks, dishwashers, bartenders). Permits instead of becoming easier to obtain are tedious and challenging to say the least in just every aspect of Aruban business life. On a regular basis the fifth or the tenth permit are denied with no proper replacement and ladies and gentlemen with hotel expansion: This and next year it will not get any better. Our youth is not waiting to work evenings, weekends, and holidays, working for the government means that they will pay a salary to even your children while you are set for life.

AGA: “Unfortunately, we are experiencing a business climate which does not entice investments….

And we need investments. Investments in the way that at least comply with government regulation and we see it in the impact study: We see more casual businesses on the rise but worse we see more F&B initiatives that are driven from cars at constructions sites, homes, food trucks, trailers, Facebook and we ask ourselves if these operations pay their fair share as we do.

Based on several letters to the PM last year a multi ministerial task force will soon sit down with AGA/ AHATA to see how these challenges can be minimized or solved. We have to admit we feel skeptical after the installation of a tripartite caucus where decisions were taken ignoring the entire private sector. Commitments made by the PM in regards to BBO/BAVP/BAZV in Parliament and a decision by the Minister of Finances differ and have not made us very optimistic to say the least. Dialogue is key!”

With more rooms added to the island’s inventory (O condominium/ Acqua, Embassy Suites/ Airport Hotel) to mention just a few and more in the pipe-line, we wonder how long our Bubali water processing plant can handle the current and new developments, how will we clean the additional rooms, how will we cook and serve, how will we fill the vacancies generally requiring work in the evening, weekend and holidays. Our service level as monitored by ATA has dropped from Excellent to Very Good and Fair should not be acceptable but realistic in several enterprises, says AGA.

This may sound as a bummer at the end of a wonderful presentation of the Economic Impact of the UOA on the F&B Industry in Aruba, however, AGA/ AF&BA wants to ensure at the same time that at the next interval of a follow up study by the UOA, our industry has grown and has solved the many issues the industry is facing at this moment. It will, however, take two of us to tango and we hope that Private and Public sector together can convert the current red tape atmosphere into red carpet scenarios. We ask this on behalf of the 7000 employees we now know find their daily bread and butter in the F&B industry. q