The National Living Wage (NLW) remains a "Sword of Damocles" for the UK restaurant sector.
That's the warning from property adviser Christie + Co, which has released a new report gauging the initial reactions to the NLW's impact on the UK labour market.
The NLW comes into force in April 2016 and will initially see those aged 25 and above having to be paid a minimum of £7.20 per hour, rising to £9 an hour by 2020.
Christie + Co said that the NLW was expected to be 3% higher than today's median salary across the restaurants sector and coincided with a complete rethink of remuneration packages, with the tipping culture already under scrutiny by the government.
Larger corporate operators were more likely to be able to absorb the impact of the NLW while retaining operating margins through stricter staff controls such as more zero hours contracts, as well as portion control and menu pricing, according to Christie + Co.
But smaller independents were likely to face the greater challenge, although key staff have always been well looked after as operators attempt to retain quality employees.
Simon Chaplin, head of restaurants at Christie + Co, said: "Whilst the news of the NLW was greeted with some disquiet by the restaurants industry, it does not seem to have affected the appetite for deals so far, with a number of larger branded operators changing hands and receiving investment for expansion since July 2015. Of course the full impact of the NLW has yet to be seen on the bottom line but most are preparing for it or have started to introduce it in readiness.
"Over the coming year, we may well see a levelling off in values in the independent market as the minimum wage and other costs, such as rent, rise. The forthcoming business rate revaluation will also hit the bottom line and there is little doubt that some businesses will fail as a consequence. With central London seeing around 180 new restaurants open every year, yet 35% closing down, it remains a Sword of Damocles for many."
"The reality is that for most operators the National Living Wage is another cost burden on businesses that have already seen margins squeezed, mainly through increased property costs with rents soaring to record levels in the traditional prime restaurant locations."
Quoted in the report, entitled Is the National Living Wage creating National Living Rage?,
"People forget that a lot of staff in the hospitality industry earn far more than the basic minimum wage via a share of service charge and tips - the real issue is perhaps that the Living Wage means an employee's total pay is inflated beyond the value of some roles and to a level where for example a waiter is earning significantly more than a junior manager, which then has a knock-on effect with wage demands further up the ladder. Restaurants provide great employment opportunities but to create more jobs through further expansion, restaurants need to be able to make sense of labour costs which work for the business as a whole and allow reasonable returns."
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