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06 Apr

National Living Wage - The Opportunity Within the Threat

Last week saw the introduction of the National Living Wage (NLW), meaning that all workers aged 25 and over will have to be paid a minimum of £7.20 per hour by law which is set to rise to £9 per hour by 2020. A reflection of the government’s vision of a higher wage, lower welfare, and lower tax society, the NLW has been welcomed by many but heavily criticised for the potential detrimental impact it could have on many industries, hospitality and retail businesses in particular.

Since the announcement was made in the Chancellor’s Budget Speech last July, warnings of future job losses, higher wage bills and higher costs being passed to the customer have been widely reported. The British Hospitality Association (BHA) called on the government to counterbalance the plans, asserting the view that the worth of the industry to the UK had been underestimated, the industry being one of the UK’s largest employers, having grown at double the rate of any other industry over the last few years. 

Viking Hospitality commissioned some research into the potential impact of the introduction of the NLW earlier this year and found that a number of hospitality companies were concerned that the compulsory wage increase would lead to higher costs and result in loss of staff, closures and selective price increases – all the things we would expect. In this research it was reported that Deutsche Bank believed “the National Living Wage will place significant pressure on companies in the hospitality industry space and would stunt potential growth for a few years.”

PwC estimated that the NLW will cost the sector £13.2 million over the next four years and the Office of Budget Responsibility (OBR) has warned that 60,000 jobs will be lost across multiple sectors as a direct result. 

This issue has been making headlines for almost a year, but through all the instability and threat, there are always some businesses who grab the threat with both hands and shake it into an opportunity.

At the time of the Budget announcement, London Mayor Boris Johnson addressed the British Hospitality Summit and offered assurance that the living wage would be ‘made to work’ for businesses and could result in many benefits such as increased loyalty and productivity from staff. A solution to the costs of high staff turnover, if you like.

As the jaws of an entire industry hit the floor…

A week into the brave new world of wage increases and disparity, is the hospitality industry really going to be taken down by the NLW or does it serve as an enormous prompt to start doing things very differently? 

Of course the knee jerk reaction is going to be one or all of the following (in blunt terms): 

  • Increase the number of under 25 year olds working in the business
  • Pass on the higher wage costs to the customer
  • Reduce the number of staff hours
  • Cut jobs 

All of which could take your bottom line in a downwards spiral and leave your reputation all over the floor. And you’ll probably not have enough staff to find someone to sweep it into the corner away from public view.

So what’s the choice? Change or die?

Probably.

Of course change is frightening, unsettling and the living wage has undoubtedly created a black cloud for many hospitality businesses, just when the sun was starting to shine again and the future looked good. 

So who’s winning in the living wage cost savings game and how do you even stay in the game?

Profitability and reputation are everything. To win and stay in the living wage cost cutting game, it’s about retaining (and growing) profit whilst maintaining (and building) reputation. Some believe that it can be done.

Fourth Analytics, provider of cloud-based cost control solutions to the hospitality industry reported earlier this year that increasing growth in hourly wage rates for staff in hospitality may not cost the industry as much as originally predicted as the perceived gap between pay rates and the new living wage was not as big as many in the industry thought.

So, there is the view that wage growth within hospitality could curb the living wage impact. Yo! Sushi announced last week that it will pay the National Living Wage to all of its 1,800 employees across the UK, regardless of age. Commenting on the decision, chief executive Robin Rowland said: “For us, it is the fair and right thing to do. Our teams drive our business – are the face of the company day in and day out, delighting our guests in over 75 locations across the UK."

Teams who delight – isn’t that something to aim for? How do we make delightful and delighting teams?

Through reward of course. 

He also added; “"We are also very conscious and proud of the fact that many of our younger employees – and we have a lot – are extremely dedicated to YO! Sushi and regularly rise through the ranks into management positions. We want that positive and motivating culture to continue.”  

Delightful and delighting teams that you hold on to. Which means:

  • Reduced recruitment costs
  • Increased retention
  • Happy, motivated employees
  • Healthy company culture
  • Engaged staff with happy, motivated, enthusiastic people at the frontline 

For Yo! Sushi, this pay rise is not an alternative to employee benefits. For workers who were on the minimum wage, the rise comes in addition to a whole package of benefits such as friends and family discounts, monthly incentives which can be exchanged for rewards and vouchers.

So there’s a split. It’s not an equal split, but there’s a division between the companies embracing the national living wage movement, standing out, often going over and above the minimum requirements to deliver the best possible experience for guests and the companies who are going to struggle living with the living wage.

The real effects of the introduction of the National Living Wage will be seen by all in the coming weeks and months. There is an encouragement by many for the hospitality industry to embrace the living wage, to retain and build employee benefits programmes rather than add to the burden of cost by introducing risk to profitability through the costs of staff recruitment and retention not to mention company culture and service delivery. Impact is also influenced by company size. Smaller companies with smaller margins may have less scope for embracing change while larger companies will be hit with the sheer magnitude of implementation costs.

Many questions need to be asked and answered and much research done around areas such as price threshold, quality of customer experience, use of technology as a productivity enabler, staff engagement and loyalty before companies dealing with the threat of the National Living Wage are able to turn it into an opportunity and say ‘This is how it’s done’.

Until then, we need to look beyond the headlines and dig a bit deeper for how companies within the sector are surviving and perhaps embracing the National Living Wage.

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