Between the tipping issue and the introduction of a National Living Wage, the sector is facing a perfect storm when it comes to wages and staff recruitment. At a time when people are the x-factor that divides an evenly matched sector, a number of companies have started to factor in increased investment on attracting and retaining staff. With others likely to follow, what will suffer, expansion plans or refurbishment targets? And will the issue finally force the Government to create a more level playing field with the supermarkets on tax?
If there were two themes to pick from our annual restaurant conference last week, it was the importance of people and of continued investment. Both, it was argued from the respective leaders of Five Guys and Jamie’s Italian, to the Casual Dining Group and PizzaExpress, would continue to be essential to allow their business to have a point of difference in what they all agreed was the most competitive market the industry has experienced. CDG for one is grappling with the turnaround of Café Rouge and the continued roll out of Las Iguanas and Bella Italia, while Five Guys will look to add a further 20-30 sites next year. Real estate is not going to get any cheaper.
However, when does it get to a point when the latter is impacted by the need to service the former? “If you want engaged and motivated people they must be able to pay the rent,” so stated Peter Borg-Neal, founder of the award-winning Oakman Inns & Restaurants at the recent Fourth conference, when it comes to the introduction of the National Living Wage and it’s hard to argue with his point.
From the moment that George Osborne announced the introduction of a National Living Wage, annual budgets were being reviewed. The threat of Government intervention on tipping and from that the possibility of blanket regulation on tipping, means those same budgets may have to be tweaked again.
Some have already moved to publicise their stance on the matter in the hope of retaining but also attracting new staff. Costa, Starbucks and Five Guys have all announced new pay structures with the lowest paid members of staff and the NLW in mind. Indeed, Starbucks has launched a new scheme to offer interest-free loans to help its staff pay deposits on their housing. Under the new Home Sweet Loan scheme the group will offer loans for tenancy deposits to help its employees, particularly those under the age of 25, “tackle the cost of living”.
The NLW creates a new floor for pay, therefore do you try and maintain a gap or differentiate through other ways rather than just pay, or is it a mixture of both? For operators like Borg-Neal, it may come down to measuring each individual and what they are achieving. Borg-Neal says: “Our view is that we need to make our staff more productive, hence the link between your pay and productivity – service generated reward.”
Five Guys launched its new pay structure last week which will pay all team members a wage beginning at £7.20 per hour with incremental pay raises to reflect experience. UK managing director John Eckbert said team members will be encouraged to complete front and back of house training to move up to the next pay bracket in increments of 20p until they have completed six stages and can be considered for shift leader positions. Eckbert said: “We want all staff to earn £8.50 as soon as possible.”
While our sector is still getting to grips with the impact of the NLW, whole swathes of the retail sector have laid out their plans, with supermarket operators such as Lidl, Morrisons and Sainsbury’s, even pledging to better the terms set out by the Government. Last week, Morrisons announced a 20% pay rise for more than 90,000 members of staff. Despite on-going trading problems, it has found c£40m to be able to increase the wages of its lowest paid. Some achievement, but then again, unlike our sector, it and its supermarket colleagues don’t have the same cost issues to deal with.
It is worth then repeating, JDW chair Tim Martin’s feeling on the matter: He said: “The recent government announcement regarding the ‘living wage’ adds considerable uncertainty to future financial projections in the pub industry. The average price of a pint in a supermarket is less than £1 and we estimate staff costs to be around 10% or 10p. In contrast, a pint in a pub costs around £3 and staff costs are about 25% or 75p. Increased labour costs therefore affect pubs with far greater force than supermarkets. This disadvantage is compounded by a huge VAT and business-rates disparity between pubs and supermarkets, which is putting unsustainable pressure on many pubs in our industry, especially in smaller towns and less-affluent areas.”
John Hutson, the company’s chief executive, said that the impact on Wetherspoons of the initial increase to £7.20 an hour from April would be “pretty negligible” because it had recently put up the rate for hourly paid staff by 8%, on top of a 5% pay rise last October. Speaking at the group’s full-year update last month, Hutson said that, although the group’s top-line and like-for-like sales growth had been “up there with the best in the industry”, profitability had been hit by rising staff, utility and other costs. He said that immediate prospects remained challenging and predicted flat profits this year. How many other companies are likely to be in the same position over the coming year?
Payroll costs for licensed retailers increased from 24.2% of turnover in 2013 to 26.4% last year, according to the latest benchmarking report from the Association of Licensed Multiple Retailers. Payroll costs have increased from 17% of turnover since the ALMR first started monitoring them in 1999. The report also showed another rise in the cost to licensed hospitality of increased legislation, particularly in the late night sector through more levies and rising licensing fees.
Serial investor Luke Johnson was more pointed in terms of ongoing minimum wage increases. He states: “A large increase in the minimum wage in the UK would immediately freeze our hiring plans and cast doubt on future investments. If restaurateurs are obliged to pay more, then watch them adopt technology such as computerised ordering and buy more ready- prepared dishes made in industrial plants with lots of machines. Obliging business to pay staff more does not increase economic activity; it is merely redistribution but with added collateral damage.”
Perhaps we are already seeing that wages point come through on to expansion plans, with Bill’s already looking to pull back its openings pipeline. Or maybe it comes to down to refining recruitment schemes. Dawn Cheetham, head of culture development at TGI Friday’s, says the group ensures it rewards people on a performance model, so its pay structure underpins that. She says: “Our other aim to look at retention and to make sure that the wasted pounds spent on recruiting, training and developing people and turning them over early on. We want to make those savings and secure the revenue so we can pay people more.”
We have already talked about an increase in intensity in the war for talent, the biggest weapon in that battle will be wages. The question will be can you afford not to have the most up-to-date model at your disposal.
