Highly profitable multinational fast-food operators stand to be the big winners from Budget 2026.
The Government followed through on a commitment to cut the rate of VAT for food and catering businesses – as well as hairdressers – to 9 per cent from 13.5 per cent in Budget 2026.
The measure is expected to cost the exchequer €681 million in a full tax year, almost €300 million more than the next most expensive tax cut announced by Minister for Finance Paschal Donohoe. Business will benefit to the tune of €232 million next year once the measure goes live in July.
[ Hospitality VAT cut about sector’s viability, Burke saysOpens in new window ]
The industry had sought relief, arguing that rising costs on a range of fronts, and changed patterns of dining in a hybrid working world, have forced the closure of hundreds of restaurants around the State in the past couple of years.
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Managing warehoused Covid-era debt has also proven to be a big challenge for restaurateurs.
However, some of the biggest beneficiaries of the new tax relief will be large fast-food and catering businesses.
McDonald’s operates close to 100 outlets across the State through a series of franchisees. Annual revenue can vary from one location to another but, based on an examination of the accounts of companies running 68 of its outlets, it averages €4.5 million per restaurant.
On that basis, McDonald’s Irish franchisees will share a tax windfall of just shy of €20 million a year under the new rules unless the benefit of the cut in VAT is passed on to consumers by way of lower prices.
There is no indication yet one way or the other whether that will happen.
Rival Supermac’s had revenue of €294 million in 2023. Not all of this will have come from Pat McDonagh’s chain of restaurants as he also has property and entertainment interests, but the lower rate of VAT will still save him around €12 million over a full year.
Again, there is no information yet on whether prices for consumers will fall.
While the expectation for smaller outlets is that the VAT relief will be used to boost margins and ensure the businesses are sustainable, there is anticipation in Government that very profitable beneficiaries of the VAT measure will look at passing the benefit on to consumers.
There had been some talk of trying to exclude fast-food operators from the initiative but it is understood that this proved untenable.
And it is not just burger bars that will benefit. Domino’s is just one of a number of large pizza chains in the State, running close to 100 outlets. Shorecal, which runs one-third of those, reported sales of €64.4 million back in 2023. Assuming its performance reflects the wider group, Domino’s had revenues of around €280 million in Ireland in that year, which would translate to a VAT cut return of €12.75 million.
Doughnut operator Krispy Kreme does not operate on the same scale as those fast-food giants but, with 2024 revenues of €14.13 million, the lower rate of VAT will be worth around €635,000 to the Irish unit of the business.
[ Pending 9% VAT rate for food and catering sectors to cost €675mOpens in new window ]
It is not just fast-food restaurants that will benefit. Large catering operators will also be able to avail of the new relief.
That includes Compass Catering, a business with turnover of €130.4 million in the 12 months to last September, which saw profits comfortably more than double to €6.16 million in that period. The new lower VAT rate amounts to a tax saving for the business of €5.8 million.
The Irish arm of French catering and facilities manager Sodexo, where profits jumped 44 per cent to €4.95 million in the year to end-August 2024, will similarly benefit.
It will be some time before it becomes clear whether these businesses are passing on some or all of the benefit to their customers.
