Living the higher life: how has the National Living Wage affected the pub trade?

The Jolly Crispin in Dudley employs 11 people – many of them on 16 hours a week or fewer. Six months ago, seven of these employees came under the regulation of the national living wage (NLW).

Since April, all workers aged 25 or over must be paid £7.20 an hour, unless they are at the start of an apprenticeship. This was up from the existing national minimum wage of £6.70 for over-21s, albeit that rate has now risen to £6.95 this month.

There was plenty of doom mongering from the industry ahead of the introduction of the NLW, and in many ways the early evidence suggests this was well founded.

In a poll by the Association of Licensed Multiple Retailers (ALMR), all 257 pubs questioned said the legislation had increased wage bills and decreased profits.

Yet at the Jolly Crispin – a former CAMRA West Midlands Pub of the Year – licensee Robin Carey has a different story to tell.

When he adjusted pay in line with the NLW, he took the opportunity to have a fresh look at how the pub utilised its labour resource.

“When I brought in the higher wages, I looked at the rotas to see if I was getting the best possible use of the staff,” says Carey.

This might sound like an invitation for time-consuming human resources gimmickry, but Carey took a down-to-earth approach – with great results.

“All I really did was make sure I was paying staff to work busy shifts, and that I was working the quiet ones,” he says. “I decided to increase trade by having better service on Thursday, Friday and Saturday teatimes.”

Competition for staff

So although the pub’s wage bill went up as a result of the NLW, its sales did too. “Wages as a percentage of takings has actually fallen,” says Carey. “Overall, we have profited.”

Not too far up the road, Keith Marsden, licensee of the Prince of Wales in Moseley and former BII Licensee of the Year, also has positive things to say about the NLW.

Marsden, who maintains that pubs are competing with sectors such as banking and retail for good workers, says pubs can benefit from paying more to staff through better engagement with customers.

“I run four sites and speak to 100 customers a week if I’m lucky. My staff speak to many more than that and I want them to represent the business and be enthusiastic. You won’t get that if you take the p*ss on wages.”

“In an industry that demands you create a first-class customer experience, you need to pay for good staff,” he says.

“We have about 70 people and the national living wage only directly impacted one. Many of our younger staff were already on £7.50 an hour for bar work and glasses washing.

“You need a brand that is attractive to staff not just to customers,” he says.

“We have a lot of graduates and we find they understand about customer experience and training. But we are competing for these graduates with other industries.”

Danger of costs going up

Evidence given to the ALMR suggests that the Prince of Wales is unusual in its approach to wages.

Kate Nicholls, chief executive of the membership body, says: “The employment bill of pubs across the UK has risen by almost 3% since the NLW came in. Some two thirds of workers were affected.”

Nicholls says there has been a knock-on effect on top of the direct impact, with under-25s asking for pay rises in many cases.

“A 21-year-old who has been with you for two years will expect to be on a higher wage than a 25-year-old who starts on the NLW,” she says. “And it’s not just our workers – costs have risen from suppliers who have staff affected.”

Nicholls says that with rising costs, and future demand uncertain in the wake of the EU referendum result, many pubs have cut back on investment.

Average profit margins in the industry have fallen by one percentage point, she adds. “That is significant for investors and banks looking for a return on investment. We are still a dynamic industry, but this will be a brake on the rate of growth.”

Nicholls says Government plans to increase the NLW steadily to £9 by 2020 could be a “recipe for disaster”.

“The planned growth of the NLW is well in excess of normal wage rate growth,” she warns. “The latest forecasts on the effect of Brexit show the economy will slow. A lot of cost pressures are being put on businesses in very short order and with next to no notice. We are a robust and resilient sector, but we are not getting the breathing space we need to keep our heads above water.”

These cost pressures are outlined in more detail in the ALMR’s response to the Low Pay Commission’s recent consultation on the NLW.

“As well as the NLW increase, 2017 will see pensions contributions rise and the apprenticeship levy introduced. Our sector is also very likely facing reforms to tipping and service charges, which may add further costs and reduce the take-home pay of service staff.”

Neil Westwater, director at hospitality technology provider Polaris, agrees that the hardest times may be ahead for publicans when it comes to staff costs.

“People are feeling a small pinch, but maybe not looking ahead to 2020,” he says. “Our figures show that wage bills could rise by 27% between 2015-16 and 2020-21. To cover that would require a pint priced at £4 now to go to £5 – even if taxes, rates and supplier costs stay the same.”

But Westwater has encouraging words for those hoping to emulate Carey and come out stronger from paying higher wages.

“Improving productivity is key,” he says. “There are elements of training, to get the most out of staff, and also getting the right people on shift at key times. Can bar staff take more money? Can kitchen staff be more effective preparing food?

“Pubs will work smarter and if they don’t let service levels drop then they can overcome the majority of challenges of the living wage.”

Perhaps unsurprisingly, Westwater advocates a move to higher-tech administration to help with this.

“There are easy wins where pubs are working off spreadsheets and could switch to software that will run productivity models for them,” he says.

Hospitality software firm Fourth analysed data from thousands of sources across the broader industry.

It found that while the average hourly rate paid by pubs and bars had risen 94p between 2014 and the third quarter of 2016, the average volume of sales per labour force hour had risen by £6.03 over the same period.

Squeeze expected

Wage bill as a percentage of turnover has been steadily falling for pubs and bars over that period, with a minor reduction even in the past three months.

Kate Jones, who runs the Britannia Inn in Queniborough, Leicestershire, has not found difficulties coping with the legislation so far. She says that although only two of her 28 staff were legally entitled to pay rises in April, several others were given increases in the name of fairness and morale.

“We’ve put beer and food up in price,” she says. “There has been no detrimental effect to the business, no loss of sales. So the wage has had a positive impact as people are getting the wage they need to live.”
However, Jones has concerns about the next few years.

“The worrying thing is how much the national living wage could go up,” she says. “It could squeeze the business. Our food and beer would have to go up because we need the sales. I would put the prices up or use different suppliers to bring costs down. At the moment, we use our local butcher. It would be a heavy-hearted step to look elsewhere.”

In fact the living wage rises could drive her to even more significant action.

“We are looking at semi-retiring at some stage and it might speed up that decision,” says Jones. “I could go and work for £9 an hour myself.”

And she predicts a grave impact on the sector as a whole. “I can see this putting people off buying pubs.”

The Government, however, points to forthcoming changes in the way business rates are charged, and the scrapping of alcohol duty escalators, as measures of support for pubs.

A spokesperson says: “The Government is committed to building an economy that works for everyone and the national living wage is doing just that. We are making sure this works for employees as well as businesses, and will continue to back small firms by providing an environment in which they can thrive.”

Despite this, Marsden still predicts difficulties in the trade as the living wage rises.

“We are a small business and I don’t mind sharing profits with staff,” he says. “But some people will struggle as their wage bill goes up over the coming years. Some staff will go from £6.50 a couple of years ago to £9 in 2020.”

Nonetheless, he retains support for the legislation. “We can be a bit more generous than some bigger chains and pay people more,” he says. “We can share out the pie. It will put pressure on margins, but I’m not sure that’s wrong. People should be paid a decent amount of money.”