Priced out: The struggles facing operators in wake of increasing NLW
This year, there’s been a 11.5% surge in the annual minimum wage, once the increases for lower age workers are added into the mix. It’s left the industry shocked, and understandably raising ever more concerns about the hefty financial load weighing on our sector with the associated risk for the industry.
For those of us, myself included, still grappling with the aftermath of our coronavirus loans, life just got tougher. As I’ve been sharing with many, we took out loans of £150k per pub during the pandemic. Initially, a base +5% interest rate seemed manageable with such low base rates, but now our rate has doubled to 10% and the burden has significantly intensified. We’re still in the process of paying off the loan and now each pub requires an extra £40k before we even begin to make headway.
Even with payroll at 30% of sales for a business generating £1.5 million in turnover, the minimum wage hike is tacking on an additional £50k to our expenses, and our profit, if we don’t act. What used to be a substantial but manageable variable cost for labour is increasingly becoming the toughest and most challenging line on the P&L.
My job as a restaurant owner and software supplier is to figure out the best way to manage my business going forward. Really, there are only two options: put up prices or drive further efficiencies. The reality is we will have to do both. As we see month-on-month food prices dropping, and the price of electricity seemingly stabilising, we might hope that we can slightly raise prices and convert most of that increase to our bottom line. The question is how we much we dare increase prices when already the customer has a degree of cheque shock!
The remainder of the cost savings will have to come through further efficiencies. For us, the biggest debate will be how we can drive food efficiencies. We aren’t big enough to have a central kitchen, a smart efficiency which other businesses have enacted very well, but we can start to make dishes for both businesses and buy in where we can find a good enough quality product. I think over the next year many businesses will need to look much more seriously at this.
We really don’t like restricting opening hours. For us, availability is key, and we will lose business overall if we shut early in the week or in the afternoons. We have worked hard to get our team numbers down on those very quiet days, so we just about scrape through to zero profit on the day.
After these kinds of measures, it does come back to labour efficiency, and I still think there is a lot that, as an industry, we can do. The real challenge is how much effort and energy we can, and should, put into labour efficiency.
Giving someone a budget and telling them to deliver is not really management, just as the blunt instrument of a labour percentage is no longer acceptable. We are going to have to embrace several things we have chosen to avoid – proper slack-based budgets, good shift planning, and identification of slack tasks are just a few.
The hard yards in labour management are upon us again!