When the 2021 Spring Budget came around, a vaccination roll-out was well and truly underway – putting the path out of lockdown in fresh focus too.
This prompted two noteworthy announcements from the Chancellor, both directly impacting the hospitality industry: the extension of furlough and a National Living Wage increase. In addition, the great reopening spurred the notion to scrap service charges. And while there are many positives to take from these changes – especially for your staff – it’s absolutely crucial to keep an eye on your profit margins.
Here, we’ll take a closer look at these three areas, how they can affect you financially, and how you can plan for post-pandemic hospitality.
1. Anticipate the end of furlough
Back in March 2021, the Coronavirus Job Retention Scheme (widely known as furlough) was extended for a further five months to 30th September 2021. The 80% wage offering to employees affected by the pandemic allowed bars and restaurants to retain staff through periods of closure. But with the scheme coming to a close, you may find it hard to adapt to a life without this financial safety blanket.
As staff members return, you can protect your profit margins by keeping them happy and making them feel valued in the workplace. High staff turnover is a major contributor to soaring labour costs, so the more employees you can retain the better. It may also be worth ensuring you have a watertight system in place to prevent overpaying staff for unworked hours – also a common drain on costs.
2. Prepare for the National Living Wage increase
One of the biggest announcements from the Budget was the National Living Wage increase. Annual rises aren’t uncommon, but with the economic turmoil caused by the pandemic, a 2.2% increase caught some people by surprise. More notably, however, the age threshold for the maximum rate was lowered from 25 to 23 years old. This results in a much larger proportion of hospitality staff now on higher wages, directly impacting labour costs.
To deal with a widespread wage increase, you may find that a widespread understanding of all outgoings helps protect your profit margins. This could include inventory analysis, employee contract reviews, and keeping a close eye on all of your overheads – from toilet supplies to rent. The intuitive monitoring of these areas can provide a bird’s-eye view of where everything is at and what can potentially change.
3. Make plans for the scrapping of service charges
The post-lockdown reopening of the hospitality sector has prompted the scrapping of the customary service charge. This change in business model aims to respect the labour of staff by working the extra charge into menu prices, guaranteeing these funds instead of laying them at the discretion of the paying public. Naturally, this will create a shift in costs and could test the loyalty of customers.
To protect your margins amidst an altered business model, a studious review of your pricing structure can help ensure you’re ready for the change. With higher prices on the menu, it’s important that this doesn’t act as a deterrent for customers. There are many ways to try and prevent this, including by upselling the menu items that provide the biggest financial return. Ultimately, this could see you reap the rewards from higher pricing.
At Nabarro Poole, we offer year-round management accounting services to help you weather the changes of post-pandemic hospitality. To find out more about how our support can cause your business to thrive in dynamic times, simply get in touch with our team.