Blog: How will deposit return scheme affect key industry?

This article was originally published in the Herald on 16th May 2023. Since then, the deposit return scheme has been postponed until at least October 2025.

There has been plenty written about Scotland’s Deposit Return Scheme (DRS) since its original consultation back in 2018. The DRS is an ambitious scheme aiming to enact societal change using the ‘polluter pays’ principle: drinks bottles and cans will include a 20p surcharge which can be reclaimed by consumers by returning the used container to a return point.

While the vast majority of businesses are supportive of the idea of the scheme, criticism of its implementation has been widespread. With the go-live date being delayed by a further seven months, there is time to address the concerns of industry so that the goals of the DRS can be met.

We have heard a lot about the impact on small retailers and producers, but one sector that has been less vocal so far is hospitality. Here too, there are issues to be addressed.

As so called ‘closed-loop’ retailers, hospitality businesses are in a unique position in regard to the DRS. Instead of operating a return point for customers, they pay the scheme deposit to producers when purchasing drinks to sell in venues, store empty bottles and cans for pickup, and get their 20ps back after the containers have been collected and processed by Biffa.

The original Business and Regulator Impact Assessment (BRIA) for the DRS declared there were ‘no significant impacts anticipated’ for the hospitality industry as a result of the scheme. This was decided on the basis that used containers will be collected for free, and businesses will receive a small reimbursement of 0.13p per returned container to cover any costs related to the scheme.

Hospitality firms have told us they feel that the Scottish Government has failed to grasp the effects of the DRS on the sector.

In our latest Business Monitor Survey, we asked Scottish businesses how the scheme has impacted their costs so far. 13% of firms in the food and accommodation services sector reported a large increase in costs already, the highest percentage of any sector. This sector also had the lowest percentage reporting ‘no change’ in costs due to the scheme so far (17%). 4% reported a small increase in costs, and another 4% reported a large decrease.

There was a high non-response rate amongst businesses when asked about the DRS and its expected financial impacts in the future. Anecdotally, we’ve seen vast differences in understanding of how the scheme will impact firms – some hospitality businesses are clued in on the scheme, while others we spoke to were unaware of the DRS applying to their business at all.

So, what are the costs that hospitality businesses expect based on the scheme’s current implementation plan?

Hospitality businesses may not have the storage space needed to implement the DRS as-is. Doubling the number of bins in the back of restaurants and bars across the country to separate scheme articles from non-scheme articles will take up a significant amount of square footage. The assumption may be that kerbside storage will suffice, but we must also consider the fact that bins with DRS articles inside will need to be secured to avoid any potential theft.

Retailers can currently apply for an environmental health exemption for acting as a return point if their internal premises are below a certain square footage. It doesn’t seem as though the same hygiene risks have been considered for closed-loop venues.

Another cost business owners are worried about is the time their staff will need to spend learning and implementing new systems. With staffing being the biggest cost in the hospitality industry, any extra hours required will add up. On top of this, general uncertainty over the exact requirements of the DRS – whether bottles need to be rinsed and dried, for example – and how much staff time these will take up are adding to businesses’ worries.

The concerns we’ve heard from the industry add up to significant potential cashflow issues during the first month of the DRS rollout. Preparing the venue for the scheme, training staff, and paying the increased fee on bottles and cans upfront will add pressure to an already stretched hospitality sector.

However, as already mentioned there are some financial benefits for hospitality. The key concern that we are hearing from businesses is that costs to operate the DRS will be far higher than the financial benefit. This is an issue where we would like to see much more engagement from the Scottish Government and Circularity Scotland, along with the reassurance that if the costs for businesses are prohibitive, there will be another look at how the scheme is operating for hospitality venues.

Lastly, let’s return to the other key aim of the DRS: to reduce landfill waste and increase recycling rates. Will the scheme be successful in this aim for the hospitality industry?

The short answer is we don’t know. In the consultation for Scotland’s circular economy ‘route map to 2025 and beyond’, the government noted that “there is currently no detailed data or analysis of commercial waste at a national level”. While we have some understanding of household waste and recycling rates, we have no way of knowing the current rates – or quality – of recycling in the hospitality sector. Businesses are however obliged to separate out waste for recycling, and anecdotally, we have heard that rates (particularly for glass) are high.

Having better data on recycling before the DRS goes live is necessary in order to evaluate success. Otherwise, there risks a lasting impression of the DRS for closed loop hospitality looking like a sledgehammer to crack a nut.

Author: Chirsty McFadyen, Associate Economist at the Fraser of Allander Institute