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VAT increase will force decision on price rises

07 January 2011 by
VAT increase will force decision on price rises

As Caterer and Hotelkeeper went to press this week, the nation was beginning to come to terms with Chancellor Osborne's imposition of a 2.5% increase in VAT to 20%, to help tackle the national deficit.

The hike seems bound to trigger changes in consumer behaviour - not least among customers to the pub sector, more of whom are likely to opt for drinking cheap supermarket alcohol at home - and lead to declining turnover and job losses.

Whatever its fallout, the VAT rise is now a reality, and one that has left hospitality operators with choices to make. If you haven't already formulated your response to the increase, here are three questions to ask yourself.

First, do you freeze prices and live with lower margins; or do you pass the extra 2.5% on to your customers and risk loss of trade?

Second, if you do raise prices, how do you communicate this fact and the reasons behind it to your customers? It's crucial that you are transparent about your plans and that you emphasise the fact that the VAT rise is to blame.

Third, you must ask yourself: am I truly offering value for money? Customers will always pay for perceived value. Therefore, it's never been more important that you invest in staff training, your premises and your offering, ensure that your regular clientele feels well-loved, and work tirelessly to elicit feedback from your customer base. Wherever possible, you should offer added value as recompense for raising prices.

Remember, price is only part of the value equation. Another is service - turn to page 26 for advice on how to perfect the art of good service.

Mark Lewis, Editor, Caterer and Hotelkeeper

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Jacobs Media Group is honoured to be the recipient of the 2020 Queen's Award for Enterprise.

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