This year has brought a steady stream of announcements from eateries ending operations. In Tallinn, La Tabla, Lendav Maaler, Rudolf, Vatican, Pomo, Barbarea, O2, Tai Boh and St. Vitus have all closed.

This Sunday will be the last day for Ülo. Co‑owner Steve Heinlo said that the reasons mirror those behind other recent closures: customers are spending less, while all other costs — labor, taxes, gas, electricity — continue to rise.

"Every place has its own dynamics and differences. We're continuing with our other restaurants and don't plan to close them, but Ülo didn't work out," said Heinlo, who also runs Pegasus and Rataskaevu 16. "It's a time when it's very hard to stay in the black in this field."

He said customer behavior has clearly changed: people are more cautious with their spending.

Tartu restaurateur Henri Loodmaa confirmed the same trend: customers think twice about how much to spend or whether to order an expensive wine. Even if the average bill increases, costs are rising so fast that it doesn't help.

Ülo still earned a profit of €24,000 in 2024 on €619,000 in turnover, but last year turnover fell 18 percent and the year ended with a loss of nearly €24,000.

Heinlo sees no doubt that more closures will follow this year.

"We closed Ülo now because the restaurant business is mostly seasonal, and the high season is summer. Many wait to see how summer goes and then decide in autumn. If you don't close in autumn, you face a long, quiet, dark period until next summer. Autumn is definitely the time — no one closes in spring," he said.

Loodmaa, whose restaurants include Pompei, Kampus and Humal, said the situation in Tartu is not much different from Tallinn. The core issue is profitability.

"We're seeing popular restaurants close. That means the question isn't just whether customers come, but whether the business model is sustainable. Raw material and labor costs keep rising, and profitability is under huge pressure — that's why we're seeing what we're seeing."

He added that many places are shutting down, and like Heinlo, he expects more closures soon.

Nowhere left to cut

The Estonian Hotel and Restaurant Association (EHRL) has long warned about the sector's difficulties and noted this week that turnover has stagnated for two years while costs have climbed. The association sees lowering VAT on food service from 24 percent to 13 percent as the key solution, arguing the sector is on the verge of crisis.

Loodmaa said a VAT reduction would help enormously and is now the central issue. There is nowhere left to save — food cannot be bought cheaper, workers need decent wages, and salaries in Estonia are rising.

A customer‑unfriendly solution would be turning all restaurants into QR‑code ordering and self‑pickup places.

"People expect an experience — sommeliers, servers, chefs. That's labor. Price pressure is such that we can't ask customers for more than we already do," Loodmaa said.

He noted that 21 European countries have lowered VAT on food service, and Germany reduced it from 21 percent to seven percent in January to keep the sector sustainable, maintain vibrant city life and preserve jobs.

"Unfortunately, there's no better alternative — many countries have shown this," he said.

Heinlo also believes a VAT reduction would help restaurants stay afloat, given that similar steps have worked elsewhere.

In Tallinn, he said, the hardest place to run a restaurant is the Old Town, and businesses are not eager to open there now. But in North Tallinn, including Ülo's location, finding customers is easier.

"I think it's very likely that another restaurant will open there — not a shoe or book shop," Heinlo said.

Businesses see no alternative to VAT relief

Heinlo believes employees of closed restaurants will not be left without work. He noted that during COVID it was much harder, as people couldn't find jobs in the field and many left the sector entirely.

Loodmaa said the state must understand that mass restaurant closures will affect Estonia's overall food and drink culture. His own restaurants are staying afloat, but keeping their heads above water requires daily effort, and stability is fragile.

"The issue is that we haven't made additional investments, but that's not sustainable," he said. "Investment capacity comes from profit, and profit is under threat."

He stressed that tens of thousands of people work in the sector, and they do not want to switch fields. Tourism accounts for eight percent of Estonia's GDP — it cannot simply be discarded.

According to Loodmaa, the issue is more on the national agenda than ever before, because the situation is serious. The hotel and restaurant association, whose board he sits on, is actively trying to reach politicians.

"I hope the messages politicians have given us reflect that work is being done and that ways are being sought to lower VAT on food service," he said. "The sector is in a situation where there really isn't another option."

According to EHRL, Estonia's 24‑percent VAT rate for food service is the second‑highest in the EU and nearly double the EU average. The sector's average profitability has fallen to just over one percent.

If cost pressure and weak profitability continue, EHRL estimates that by 2028 Estonia could lose nearly 600 food service businesses and 2,800 jobs — most of them outside Tallinn.

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