Amid rising incomes, people are willing to spend more on food and non-essentials alike. However, there’s a limit to how much they’ll splurge on a restaurant meal.
Opinion surveys show that Lithuanians are as optimistic about their financial situation as they’ve ever been since 2007.
Economists say consumption is at a tipping point and people are starting to afford food that they have not been able to buy before. This, however, is not good news for cafés and restaurants that complain about being squeezed between taxes and rising labour costs.
Lately, cafés and restaurants in Vilnius have been bustling with the participants of the Song Festival, many of whom came from abroad.
Even some visitors from the United States find the prices exorbitant.
Mara, who spends half her time in the US and half in Lithuania, says she can’t afford to eat out every day.
“Well, compared to America, even compared to Kaunas, Vilnius is expensive. Not to mention the provinces,” she says.
Aldona, another American-Lithuanian, says she is saved by her American pension.
“Prices are OK. They’re higher than they were last year, of course, but, I’d say, still affordable,” she tells LRT TV.
Growing consumption
Economists say food consumption in Lithuania has started to grow significantly after a long lull. Food is what is boosting the current growth cycle.
But for cafés and restaurants, this is not good. Restaurant turnover has already fallen by almost a tenth this year, and it may get worse.
“The current recovery in food consumption is killing restaurant turnover,” says Aleksandras Izgorodinas, an economist at Citadele Bank.
People are simply reluctant to pay the prices for eating out that restaurants are currently charging.
“The problem is not that people can no longer afford to eat in restaurants. The problem is that prices in restaurants have reached such a high level that it is psychologically devastating,” says Izgorodinas.
The catering industry says that, when it comes to prices, they are at a disadvantage compared to supermarkets.
“When there was high inflation, there’s nothing you can do in a shop, you have to buy food. But in a restaurant, prices are really biting,” admits Gediminas Balnis, vice president of the Hotels and Restaurants Association.
Cafés and restaurants blame the government for high prices. Earlier this year, it allowed pandemic-era tax breaks for the catering industry to expire, making the VAT jump from 9 to 21 percent.
According to Izgorodinas, more than the VAT, the prices have been inflated by rising wages. There is such a shortage of workers that restaurants have to compete for employees.
According to Balnis, of the Hotels and Restaurants Association, there is no room to cut prices, because the entire sector is just breaking even.
Meanwhile, restaurateurs are pinning their hopes on the new government which may, they hope, be more amenable to their pleas for tax cuts.
“We will join together in the three Baltic states to protest,” says Balnis. “We see the damage that has been done to this sector and we hope that the new government will move swiftly to correct those mistakes.”
Meanwhile, Izgorodinas, the economist, does not expect food prices in supermarkets to drop.
”Why would businesses cut prices if people are buying more and more food at current prices?” he says.
Still, Lithuanians are more optimistic than the other Baltic countries about their financial situation and are more inclined to spend their money on non-essentials
Surveys show people are willing to spend on travel, home improvements, even second homes.
Economists say what underlies this optimism is interest rate cuts – the European Central Bank has done it once already this year and two more reductions are expected this year.
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