In our recent Seasonal Overspend report, we discussed a number of variables that need to be considered to mitigate your (in some cases) inevitable Christmas overspend. In doing so, we identified an interesting statistic that we know can be a concern for hospitality businesses. We discovered the forecast “by 2020 the National Living Wage outside of London will rise to £10.30/hour.”
Granted, there are two direct influences of this over a foodservice operator. The first to consider is how this will squeeze margins. Among other variables that are having an impact on their bottom line, such as rental and food cost inflation (causing restaurants like Villandry, Jamie’s Italian, Byron Burger and more to close their doors), there are a multitude of moving parts that mean foodservice operators must be prudent in controlling where their money is spent in financing the overall operation. Otherwise, there could be leakages which ultimately bring the whole vessel down.
Maintaining competitive pricing
On the contrary (and second consideration), restaurants can mitigate the negative effects of such wage growth. Whilst their employment costs will go up, their menu prices should increase relative to this. However, we are at a time where casual dining is the most competitive it has ever been, and consumers have arguably anchored themselves at certain price points (associated with fast food, fast casual, casual and upscale/fine dining). So, unless your product noticeably differentiates you from your competition, you must maintain competitive pricing to avoid losing market share. Of course if you do go down this route, there are many revenue management methods to employ that avoid alienating your customers, such as adding extras, bundling products and creating loyalty schemes.
When considering the influences of a mandatory increase in costs, as a business created by hospitality veterans, our primary focus is controlling these costs and staying on top of expenditure. We take a more proactive approach, as opposed to reactive; to create the relevant infrastructure that support your purchasing habits and ensure you are efficient as possible throughout your procurement practices. We will continue to aspire to find solutions to all of the above, but in the meantime, we enable you to be more prepared for an increase in the national minimum wage (and any other cost that may affect you).
For more information, please don’t hesitate to get in touch.