The new £11.44 minimum wage kicked in this week. It’s a huge moment for the food and drink industry. With so much pressure on retailers and suppliers to keep a lid on food price inflation – it halved in March to 1.2%, according to BRC/NIQ figures out this week amid the raging supermarket price war – the 9.8% increase feels like an outlier at this stage in the inflationary cycle, however necessary, well deserved, or well flagged. And absorbing the extra costs will be enormously challenging – as will other continued cost price increases on commodities such as potatoes and dairy, as well as more Brexit costs.
Over the past three years we’ve seen massive headcount reductions on supermarket shop floors and head offices. And CEOs who insist the store overhead cuts have been directed towards areas that don’t impact the customer are delusional.
The repercussions for the retailers themselves have been every bit as stark: average supermarket operating profit margins have fallen from 3.2% to 1.8% in 2023 [Competition & Markets Authority]. Across the top 150 retailers in the UK, pre-tax profit margins halved from 9.1% to 4.4% over the past 10 years. And it’s only getting worse: the BRC predicts that employment costs for retailers will increase from 36% of gross value added as reported in 2021 [Office for National Statistics] to 44% in 2024.
Many are paying rates over and above statutory minimums to retain and recruit the best workers. (Amid appalling levels of abuse and violence towards shopworkers, churn rates are as high as 60%.) Among smaller retailers and suppliers, such a premium is not always an option, however. Nor does the absurd apprenticeship levy support much-needed training. And the NLW also has a ripple effect on higher paid jobs.
On the manufacturing side, the NLW has less of an impact, as the combination of a more highly skilled workforce and the continued skills shortages (albeit vacancy rates were down to 5% in the latest FDF State of Industry report) means remuneration tends to be higher. But the fate of white collar workers on the fmcg side is more perilous. While mass redundancies have been uncommon, swathes of head office jobs have been quietly cut as teams have been restructured. With sales and marketing teams among the casualties, our new salary survey shows sales and marketing salaries have failed to keep up with inflation. And yet the skills and the stakes are higher than ever.
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