NLW and Brexit create workforce headaches

More than half (54%) of Britain’s pub and restaurant groups believe the national living wage (NLW) is a positive change for the eating- and drinking-out market. However, 53% said it would have a negative impact on their own business. Moving from the new rate of £7.20 per hour (introduced back in April) to £9 per hour by 2020 is also not realistic.

“There is a real concern that driving it up too fast down the line will put excessive pressure on business, with fears that some will just go bust,” said Peter Martin, vice president at CGA Peach, which commissioned the survey of 100 senior executives.

The research also showed that 26% of respondents had already introduced new wage rates across the board, including for over 25s, while 29% had increased all staff pay to maintain differentials. Just under two thirds (65%) said increasing the base level to £9 was “simply not realistic”.

It’s a tough time for the sector. Already surviving on wafer-thin margins, a hike in one of the major overheads is likely to have left many reaching for the aspirin. Following last month’s vote to leave the EU, they may now be looking for something stronger.

The foodservice and hospitality sectors were, by-and-large, “remainers”. Hardly surprising when, as the Wall Street Journal suggested pre-referendum, a vote for Brexit could staunch the flow of relatively cheap labour, threatening higher costs and “taking a bite out of profits”.

CGA’s research was carried out prior to May’s vote. The purchasing manager’s index published by Markit/CIPS this week also relied mostly on pre-referendum data: a slowing of growth in June in the UK service sector reflecting the “intensified” anxiety over Brexit in the run-up to the vote.

Disaster or opportunity, we don’t yet know. Some are saying the tourism industry could be a winner – a weaker pound against the Euro, in particular, could make the UK a particularly attractive destination is the line that the British Hospitality Association has been casting about.

Stories of a boom in bookings from US and Chinese tourists have also emerged.

But conversely, will UK consumers faced with a long period of uncertainty spend less, as Greene King intimated recently. Publishing the company’s provisional results on June 29, 2016, chief executive Rooney Anand explained:

“Following the UK’s vote to leave the European Union, the increasingly uncertain trading environment is likely to weigh on consumer sentiment in the near term. However, Greene King has a strong track record of performing well in challenging trading environments and we have levers to pull within our business […] to refocus our investment and help limit the indirect impact from lower consumer confidence.”

CGA’s research suggested the most popular ways to mitigate the additional labour costs from the NLW included price increases (46%), cutting staff hours (24%) and reducing staff levels (21%). However, quite a few businesses appear content to ignore the new levels altogether.

Channel 4’s Dispatches programme (January 3, 2016) revealed that cafés and restaurants in the South East are offering between £5 and £6 an hour, and sometimes as little as £4.32. The NLW is £7.20 for those aged over 25, but one on four cafés visited by an undercover reporter did not acknowledge the new minimum.

Clearly the impact on labour is currently high amongst this sector’s concerns (it will be one of the themes covered in Footprint’s Brexit special published next month). Analysts for Moody’s Investors Service were perhaps underplaying things when they suggested the process of employing non-UK residents “could become more complicated”.

Each and every firm in the sector will, like Greene King’s Anand, be reaching for the levers to limit the impact of NLW and (possibly) Brexit – and hoping that none of them is for the trap door.

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