How the HST Will Affect Your Prices & Margins

Recently, the Canadian Restaurant and Foodservices Association (CRFA) published three calculators to help restaurateurs determine the effect of the new HST, effective July 1, 2010, on their prices.  The calculators cover wine, spirits and beer.  I’ve included the links, below.  Perhaps a short note is necessary to help you use them properly.  They are set up for “typical” value, medium and premium priced examples.  Unfortunately, you aren’t able to change the net cost figures, but they will give you an idea as to the effects on your prices and the price that your customers will be paying come July.

In order to use the calculators, you need to change the Licensee Margin figures for the Current and New price regimes.  When I looked at the calculator for wine, I found that it used a 246% margin for the medium wine.  In other words, a wine costing $14.85 would be sold for $51.38.  Not very likely.  If you sell your wine for 2.5 times cost, use 150% as your margin percentage (250% – 100% cost = 150%).  Under the New column, the calculator does not always use the same margin as under the Current column.  I doubt very many restaurants are planning on reducing their margins in July, so I would use the same margin before and after the HST changeover.
Here’s the good news:  The current 10% RST sales tax on alcohol sold in a restaurant is effectively being reduced by 2% when the combined HST rate on alcohol becomes 13%.
When we’re dealing with a government, when there’s good news, undoubtedly there is some bad news too.  In order to make up for the shortfall in liquor taxes, the LCBO will be raising prices.  Based on these calculators, it appears that wine prices will be rising 3.5% – 4.5%, spirits about 4.2%, and beer 3.7% – 5.5%.  Even though consumers will get a 2% break on sales taxes, the effect of restaurant markups on the increased purchase costs will ensure that most consumers will be paying more after June, 2010.
Based on these figures, beer prices shouldn’t rise more than about $0.10 per bottle.  Martini prices will probably increase about $0.50 and typical bar shots and cocktails about $0.25.  Low end wines will probably increase about $1.50 per bottle, and high-end wines about $6.00.
Even though these cost changes are relatively small, the effect of volume means that you will need to adjust your selling prices for all alcoholic menu items on July 1, 2010.    Here are the calculators.  If you have any problems using them, ask your questions in a comment to this post or email me directly at bartaxca@gmail.com.
Wine Calculator
Spirits Calculator
Beer Calculator

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