By identifying the specific challenges facing the Hotels, Pubs, Restaurants and the Care sector , , Christie + Co has offered potential mitigating solutions to the issues and analysed the expected impact the NLW will have on these labour intensive segments.
- Care – The introduction of the NLW adds yet another cloud on the horizon in an industry where staff costs are the single biggest item of expenditure, particularly for adult social care. Based on an analysis of care homes which Christie + Co has appraised this year, we estimate that net wages will increase by around 5% if pay rates for staff below the Living Wage level are increased. Christie + Co estimates that approximately £1.2 bn of additional public funding would be required by 2020 to cover the cost of the NLW. Positively, the Autumn Spending Review raised the possibility for local authorities to increase council tax by 2% per year which could generate approximately £550m in extra funding next year.
• Hotels – In a sector where 1 out of 2 employees currently fall below the NLW threshold, this new measure has not gone unnoticed and costs are expected to increase significantly. Smaller operators and independent owners are most likely to feel the pressure from the NLW as they do not have the operational flexibility of larger groups. Hoteliers need to adopt a proactive, strategic and creative approach to mitigate this impact and leverage the opportunities triggered by the NLW.
• Pubs – The NLW announcement shakes the Pubs industry at a time when the sector is gradually recovering from various measures that have gradually weakened the sector in the past decade. Inevitably, margins are going to be squeezed and in the longer term, other actions will have to be taken to compensate for this, whether it is a reduction in staff or reduced investment in facilities
• Restaurants – The introduction of the NLW coincides with a complete rethink of remuneration packages in the restaurants sector, with the tipping culture already under scrutiny by the Government. Tips have always been an essential component of any employment package offered to staff and employers now have to balance their equitable distribution whilst also managing the potentially conflicting implications of the NLW.
Chris Day, Managing Director at Christie + Co comments: “In our view, competent quality operators in both the corporate and individual sectors will weather the storm as far as the NLW is concerned, and will find ways to mitigate the impact either through economies of scale or innovative solutions.
“Whilst the implementation of the National Living Wage will undoubtedly create challenges within certain sectors, it would appear that most operators are proactively tackling it and drawing up inventive plans to limit the impact on their businesses.
“Within the Care sector, those operators with leased models at full market rent will need to renegotiate their rental obligations to avoid the risk of forgoing their leases. Operators in other sectors with long term fixed price contracts will almost certainly experience difficulties going forward, but in most instances, operating margins should have enough of a cushion to absorb the impact, and quality operators will find innovative ways to offset this.
“Across our sectors, it is likely that corporate operators will undergo strategic reviews of their estates and poorer performing units will come out of the corporate sphere and return to the individual sector. We have already seen that there is a ready market waiting for such investment opportunities.”
Download “Is the National Living Wage Creating National Living Rage? – The perspective from UK Businesses” from http://www.christie.com/en/publications/243.pdf