Passing on VAT savings may offer lifeline to large foodservice players by offering respite to families and promoting ‘affordable luxury’, says GlobalData

Following the news that Starbucks and McDonald’s has promised price reductions after the UK Government’s announcement to cut VAT in the hospitality industry from 20% to 5%;

Yamina Tsalamlal, Consumer Analyst at GlobalData, a leading data and analytics company, offers her view:

“To the quarter (23%) of UK consumers saying they are extremely concerned about their financial situation due to COVID-19**, these savings will be very tempting. Even if it is small savings here and there, it will help stimulate consumer spending. Alas, in the same frame as the government’s ‘Eat Out to Help Out’ scheme, passing the VAT savings to consumers is not just a gesture of goodwill but a strategic way to get consumers to order a ‘Venti’ instead of a ‘Tall’, or a ‘large fries’ over a ‘small’, and relax into the experience they remember.

“This strategy is likely to pay off. While consumers are counting their pennies, particularly families who are taking care of their children while remaining concerned about their future job prospects, a trip to McDonald’s (once it reopens) could be seen as an hour of respite for families. The idea that they can save some money makes it all the more appealing. Furthermore, brands such as Starbucks have proved that, even in times of recession, they are able to survive because a chai latte can be seen as an ‘affordable luxury’.

“The food service industry has been hit hard. COVID-19 lockdowns have been especially impactful on the big players as, while many local and independent restaurants/cafes have been able to pivot to sell groceries or takeaway, establishments such as McDonald’s and Starbucks had to shut down completely. This scheme is likely to be very helpful in the recovery for the big players who have the resources and brand loyalty to bring in consumers excited to go back. The savings will be the whipped cream on the Frappuccino.”

*GlobalData Recovery Tracker, Week 2

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