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‘It’s unsustainable’: hotels brace for the minimum wage rise

The hospitality sector is facing further pressure from the near 10 per cent rise in the minimum wage to £11.44 this month


Naveed Khan and Clare Anna of London Rock Partners, an asset management firm specialising in hotels. They say the ripple effect of the unprecedented increase is a cause for concern.

BEN STEVENS FOR THE TIMES


by Caroline Bullock | Thetimes.co.uk


Despite high occupancy rates and a six-figure turnover at both his four-star hotels in Derbyshire, profit is set to remain a challenge for the entrepreneur Steve Perez.


In a sector reeling from the collective impact of Brexit, Covid and the cost of living crisis, the hotelier says margins will be further squeezed after the near 10 per cent rise in the minimum wage to £11.44 this month, pushing up prices and stoking inflation.


“Everyone wants to pay people a fair wage, but this rise is unsustainable at the moment,” said Perez, who owns the Casa Hotel and the Peak Edge Hotel near the Peak District.


“The sirloin steak on our menus has gone up from £32 to £40 in recent months since we have to pass on these costs to the customer. We have no choice if we are to stay in business; people will have to accept that eating out is going to cost more.”


Set by the government, the national minimum wage is now at its highest ever level in real terms. In a common industry refrain, Perez is calling for a reduction in VAT to offset its impact. The current 20 per cent rate, he says, puts UK hospitality at a disadvantage compared with the Continent, and dissuades staycations. He said the VAT relief during the Covid pandemic, which brought the rate down to five per cent, enabled him to turn a profit even during the crisis.


In the meantime, Perez is keeping his full-time team to a minimum and swapping staff between his two hotels depending on seasonal and labour demands while contending with a 30 per cent staff turnover. It is a rate in line with the industry average and one that is double that of the UK average for all workers.


“Getting British people to make a career out of hospitality is an ongoing challenge. Does the minimum wage help us with recruitment? Not really — we’re just paying more and still losing out to competition from Aldi and Tesco.”


According to a study from the hotel booking platform Profitroom, nearly 70 per cent of 1,000 hoteliers asked have considered leaving their role due to the pressure of inflation, high interest rates and the ongoing staff crisis that has snowballed in the last couple of years. And while the hospitality sector employs more than three million people and contributes more than £93 billion to the economy annually, it has struggled to shake off its stop-gap employment status and convey the benefits of a long-term career in the sector.



London Rock Partners is also facing disruption from the increased cost of hiring foreign staff, which came into effect this month.

BEN STEVENS FOR THE TIMES


Naveed Khan, the co-founder of London Rock Partners, an asset management firm specialising in hotels, believes the industry simply got left behind in a competitive job market after the pandemic, when entry-level workers were poached by the retail and distribution sectors.


Tasked with turning around struggling venues, with a portfolio spanning Snowdonia to London, the business has always prioritised paying above the minimum wage, but admits the “unheard of” increase of 9.8 per cent and its “ripple effect” is a cause for concern.


“Obviously, there’s an expectation to make pay adjustments across the scale; the supervisor on the next level also needs to be incentivised; all of which means hotels could see payroll accounting for as much as 44 per cent of turnover,” Khan said.


In a business that relies heavily on overseas kitchen talent from India, Dubai and thePhilippines, the issue is compounded by the increased costs of hiring foreign staff, a change which also came into effect this month. Those seeking visas to work in the UK will now need to be paid a minimum of £38,700 — rising from the current £26,200 threshold. These are extra costs the business has no choice but to absorb if it is to secure the skills which have elevated and diversified its food offering.


“We’ll have to curb capital expenditure on infrastructure but more broadly the industry will need to become savvier with technology — specifically artificial intelligence,” said Clare Anna, Khan’s co-founder at London Rock Partners. She says the sector has lagged behind retail and banking in digitising both the employee and customer experience.


“Obviously we’re in the business of hospitality; technology is never going to replace people, but it can take the pressure off the front desk. Some of our London hotels are using Chat GPT to respond to guest queries, an easy and effective solution.”


Indeed, for many the industry is at a critical point with technology increasingly touted as a silver bullet to combat spiralling costs and enable thinly stretched teams to meet the rising expectations of guests. In a recent interview with Times Enterprise Network, Jane O’Riordan, an industry veteran who leads the innovation working group within the government’s Hospitality Sector Council, said: “We’ve got to get better at it or else we’re going to have even more companies falling by the wayside.”


AI software that automates the reservation process and enables guests to access their rooms via their smartphone are having an impact. Innovation from Like Magic, a Swiss-based tech firm, has reduced staff numbers by 80 per cent (excluding housekeeping) in the 168-room Zipper Hotel in Dusseldorf. Meanwhile, those behind the software Agilsys, used by the three-star Bisham Abbey hotel in Marlow, Buckinghamshire, claim digitising 70 per cent of the check-in and check-out processes could save the average 100-bed hotel in excess of £50,000 per year in staff costs.


“There will be no choice but to embrace technology to compensate for the extra employment costs,” agreed Lionel Benjamin of London-based AGO Hotels, the operator of ten Ibis hotels across the UK.


“As well as reducing front of house numbers, a major contributor to overhead costs, it will help to evolve roles and make jobs more attractive by moving away from repetition and admin to those that can focus on hosting and the guest experience.”


While conceding the national minimum wage uplift will have an impact, Benjamin is circumspect — viewing it as the payback for the both government support provided by the furlough scheme, which he credits with retaining 150 staff during the Covid crisis, and the retail, hospitality and leisure relief which offers a 75 per cent reduction in business rates up to a cap of £110,000 per business.


“There are no freebies in life; if we ask government for help, we have to pay it back in some form or another,” he said. “The idea of paying people fairly for what they do helps with retention and continuity — but as a sector we have to focus on training and development, it can’t just be a numbers game.”




-ENDS-



Friday April 12 2024, 9.50am, The Times


Media contact:

Clare Anna | Co-founder & Chief Commercial Officer

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