• Stephan Busch

The slow death of the traditional German “Gasthaus” - Pub

The Traditional German Pub “Gasthaus” is dying. An institution in every town and village it serves as restaurant- pub and for family functions from weddings to funerals. Some pubs are now only opening for pre booked functions or just once a week. The guests are not coming anymore and the costs are too high. Why?

Since 1995 more then 35.000 of this pubs closed their doors forever. In normal times people had their lunch break there, meet for a coffee and enjoyed a beer with colleagues at the end of the working day. Those days are over as many can’t afford anymore such simple pleasures.

A recent article by Spiegel Newspaper in Germany “Junger Wirt uebernimmt Dorfkneipe” 16.02.2018 describes the downward trend but offers only two reasons for it. Excessive Administration ( which is for sure a problem) and the pricing policies of the breweries. It seems the journalist was just not qualified to write about this topics and didn’t want to research the more obvious reasons behind the decline. The Government doesn’t like to hear it and complaints by Pub owners are not taken serious.

There are multiple reasons but three of those might have the biggest negative impact on private owners. Everbody should make up his own opinion but the facts which are listed might be interesting. Government miss management, EU supported Tax evasion by big cooperation’s and competition by non profit establishments.

Official German Government statistics and facts and numbers by Government and non government organisation answer some of those questions.

After the 2nd World War especially between 1950 and 1990 the number of pubs were increasing and profits could be made. In any country that is a sign of a healthy middle and lower class who can also participate in social life. After that in only went downhill up to the point when more then 35.000 pubs had to close.

The main reasons for the decline

The guests who can’t come anymore

Tax disadvantages by German and EU laws

Unfair competition by companies and Institutions that pay only a fraction of taxes or don’t pay taxes at all.

The guests who can’t come anymore

There are a few Million people who can’ afford a visit to a pub anymore and you can find those numbers in the statistics. The sad part is that most of those people really don’t have the financial means anymore to participate in social life.

One reason is that more and more old people have to life under the poverty level in Germany. Unimaginable a few years ago it is normal today and the situation is getting worse. Pensioners were always frequent good guest in any pub. They paid all their lives into the social system but now can hardly support themselves. Founded in 1994 the “Tafel” is a private organisation that distributes food to people in need. In 1994 Germany had seven of this places today there are more than 900 “Tafel” in Germany. A shame for a country that prides themselves as “World Champion in Export” but can’t take care of its own people.

The number of elderly people in Germany threatened by poverty or exclusion has increased in recent years to almost six million.

(Data of the European statistics office FAZ 8.02.2017)

Also to count are the younger ones who also live below the poverty line. Of these, 860,000 live as homeless without residence.

For the coming years, BAG W is even expecting a further increase in the number of homeless people: from 2017 to 2018, the working group expects an additional 350,000 people; In total there would be about 1.2 million homeless people in Germany.

"But the main causes of housing shortage and homelessness lie in a housing policy that has been missing in Germany for decades, in conjunction with insufficient poverty reduction by the state."

(BAG W Managing Director Specht. 14.11.2017 ZON)

Lt. EU-SILC 2012 and press release No. 361 of 25.10.2013 of the Federal Statistical Office show 13 million people (16.1%) living below the poverty line in Germany

(EU-SILC 2012 Federal Statistical Office Press Release No. 361)

In addition, the people who work in the low-wage sector do not even earn enough to live normally.

In the meantime, every fifth employee in Germany earns less than ten euros an hour. That's 8.4 million people in numbers.

(Figures Ministry of Labour, 11 December 2016, source: ZEIT)

In addition to those people who can’t afford a pub anymore we also have:

18.6 million people with a migrant background are understandably not necessarily attracted by a German pub.

(Figures Source: World Economy Welt am Sonntag - Daniel Eckert 23.10.2017)

According to the Federal Office for Migration, there are 1.5 million people without legal status in Germany and thus can not work and earn.

"As of April 30, 2016, there were --- 1,529,784 resident aliens living in Germany with regard to the asylum procedure, ie current asylum procedure or asylum procedure already completed."

(Federal Office for Migration & Refugees)

According to estimates by migration researcher Dita Vogel from the University of Bremen, between 180,000 and 520,000 "ilegal resident" foreigners were in Germany in 2014. Vogel and her research colleagues from the Clandestino project came to this conclusion through calculations based on police crime statistics. Also the BAMF uses numbers of the researchers.

(Federal Office for Migration and Volunteers / Marcel Leubecher 08.06.2016 World Economy - World on Sunday)

According to German authorities and the statistics these are 40 million people who can not or do not want to afford even a cheap pub visit. With 82 million inhabitants in Germany these are almost 50%. Half of Germany can not come to the pub! This has never happened before. Blaming only the internet for the decline in pub visits sounds like mockery.

Government and EU-sponsored tax evasion of large corporations are pushing pubs further into ruin.

A restaurant and every pub must pay 19% VAT in Germany in addition to all other taxes and fees. That's a lot considering the rising prices of products in recent years and you can not put that completely on the guest's bill if you want to stay attractive. Hardly anyone can or wants to pay 12 euros for a beer.

Thus, the profit for the operator of the restaurant decreases again. With rising prices and stagnating incomes and growing low-wage sector with falling numbers of guests, you quickly get into the negative. The total tax burden for a restaurant / pub amounts to around 30% percent

Is every company paying that much taxes? No! There are state and EU regulated possibilities to pay almost no taxes almost. But only for large corporations that can afford the right lawyers, politicians and lobbies. The pub and restaurant still has to pay up to 30% per cent and is thus exposed to an absolutely unfair competition. A fight they can only lose.

Especially fast food and coffee shops are a cheap competition as they are found in every small town today. They invest millions in advertising, PR and equipment, making them attractive to all age groups, but the particular target group are young people. They can afford the advertising because they have to pay almost no taxes.

Just two examples:

The restaurant/pub pays up to 30% tax.

MacDonald’s pays 2% tax

Starbucks pays 0 - 1% tax

McDonald's is said to have shifted profits in France to Luxembourg. It is about 75 million euros annually. The European Commission also initiated a lawsuit against McDonald's, as the group has "paid virtually no corporation tax on its profits in both Luxembourg and the US".

STARBUCKS - ZERO (0) Euro Taxes? For the US coffeehouse chain Starbucks this is the pleasant reality. According to a report by the Handelsblatt, the Group has never paid income taxes since 2002 in Germany and since 2004 in France.

(Kontrast editorial staff - Published on 2 March 2017)

It should be remembered that in contrast to the classic restaurant and pub fast food chains such as MacDonald’s produce huge amounts of waste - plastic, paper - without end which costs the taxpayer money and - according to official court confirmation - food produced is at the lowest quality level. These state-subsidized companies are also harmful to the labour market, as they only hire for low wages, per hour or offer temporary contracts.

This is just about the pubs and restaurants but this model is normal and funded by the state and the EU. Daimler pays no taxes in Germany, BMW pays taxes only in Belgium - not in Germany - although not a single vehicle is produced there. Apple has not paid 13 billion in taxes and will not have to. The list is long! How should the German innkeeper compete with it?

(Quellen: Johann-Günther König: "Alle Macht den Konzernen" (1999). Hans-Peter Martin und Harald Schumann: "Die Globalisierungsfalle" (1998).

Unfair competition from companies and institutions that do not have to pay any or almost no taxes

Uneven competitive conditions, such. as the tax-free hospitality in many club homes, make a profitable operation for pubs and restaurants, especially in rural areas without tourism, difficult. In addition, there are shopping malls or large corporations like IKEA that offer restaurants at absolutely cheap prices to keep people in shopping centres. They don’t want or need to make profit with their restaurants they make profits with furniture’s and shopping. IKEA pays all taxes? No - IKEA pays almost nothing as they use the same EU rules to avoid tax payments.

In addition, the rural population decline, increasing mobility, changing leisure behaviour and a changing work environment are increasingly affecting the taverns. Round tables and regular meetings in the economy are barely used for a common exchange. Today, communication is increasingly taking place in one's own home and through various social media channels.

(Market & Trend 16.04 2013)

Are restaurants simply not innovative and adaptable?

Do restaurants have to be innovative? Yes - but you do not have to change a good business model from the ground up. You have to adapt it, maintain it and renovate it, but otherwise it is important to preserve it. German pubs make sense for the German population and international guests. But a pub constantly fighting for survival - against bankruptcy and this not from 9am - 5pm but up to 18 hours a day on all holidays and weekends - can not be innovative anymore. Many of the young people who take over the restaurants have great ideas, are full of energy and want to make a difference. But even if they have to fight against unfair competitive advantages such as tax evasion and demographic disadvantages and authorities, the choice remains only to survive or give up. Winning is no longer an option - and that's not the innkeeper's fault. Innovation remains - unfortunately also state and EU hindered - a dream they would like to live.

The pub around the corner needs you!

The slow death of the “Gasthaus” may be difficult to stop and maybe - if we are unlucky – it might only survive for tourists. Not a nice thought that we might have to go to a department store in the future or to MacDonald’s for a hot meal. But it does not help to complain about all the disadvantages. You have to recognize them and mention them publicly. There is always a way to be successful. There are successful pubs open seven days a week, making a profit and bringing life and success to rural areas. Few - but from those few we can - we should - learn. Tax evasion as practiced by large corporations and supported by politics are not an alternative for small pubs and restaurants. What is practiced there without consequences would result in severe punishment for every pub owner. We probably would not feel comfortable anyway if we went to such a low level of social responsibility.

Next time you go out – don’t forget – the pub around the corner needs you!

© 2017 by Stephan Busch