Rising costs push more restaurants to close across Estonia
A wave of restaurant closures has hit Estonia this year, from Tallinn to Tartu, as customer spending drops while operating costs keep climbing. Industry figures warn that without a VAT cut, more shutdowns are coming.
Estonia's restaurant sector has seen a steady wave of closures this year, with several well-known Tallinn eateries — including La Tabla, Lendav Maaler, Rudolf, Vatican, Pomo, Barbarea, O2, Tai Boh and St. Vitus — shutting their doors. This Sunday marks the final day for Ülo.
Co-owner Steve Heinlo says Ülo's situation reflects the same pressures behind other closures: customers are spending more cautiously, while labor, tax, gas and electricity costs keep rising. Heinlo, who also runs Pegasus and Rataskaevu 16, says every business has its own dynamics, but staying profitable in the current environment is extremely difficult.
Tartu restaurateur Henri Loodmaa reports the same pattern in his city — diners think twice before ordering an expensive wine or running up a large bill, and even as average spending per visit rises, costs are climbing even faster.
Ülo posted a €24,000 profit in 2024 on turnover of €619,000, but last year turnover dropped 18 percent and the business ended the year with a loss of nearly €24,000. Heinlo expects more closures this autumn, since restaurant owners typically wait to see how the summer season performs before deciding whether to shut down.
VAT cut seen as key fix
The Estonian Hotel and Restaurant Association (EHRL) has repeatedly warned about the sector's struggles, noting that turnover has stagnated for two years while costs keep rising. It views cutting food service VAT from 24 to 13 percent as the essential fix.
Loodmaa says there is no more room to cut costs — food cannot be sourced more cheaply, and staff need fair wages amid rising salaries nationwide. He points out that 21 European countries have already lowered food service VAT, with Germany cutting its rate from 21 to seven percent in January.
Estonia's current 24-percent VAT rate on food service is the second-highest in the EU, while the sector's average profitability has fallen to just over one percent. EHRL estimates that if cost pressures persist, Estonia could lose nearly 600 food service businesses and 2,800 jobs by 2028, mostly outside Tallinn.
