Retailers are being swamped by rising costs and red tape. But the smaller chains are the hardest-hit, says Gaelle Walker

The government has now launched a consultation process on a new deregulation bill to lessen the regulatory burdens for business. But will it be too little, too late?

Unfortunately, there is only so much small businesses themselves can do to tackle the problem. Reducing the number of hours that staff work is one way to reduce costs. However, points out Mills, if it starts to impact on customer service, it is cutting off your nose to spite your face. “Services such as cash and lottery machines can be added to the product mix as a way of allaying costs, but there will come a day when this is no longer effective.”

Most independents agree that the only long-term solution is government intervention. The Better Regulation Bill, now under consultation, could do much to improve the outlook for small businesses.

The Bill is intended to speed up the government’s better regulation agenda by enabling it to implement measures to remove burdens more quickly and efficiently. It implements the recommendations set out in the recent Hampton Review, which mapped out a radical agenda for better regulation, streamlining the enforcement regime by merging 35 regulators into nine and stipulating they adopt a risk-based approach.

There is cause for optimism, according to an ACS spokesman: “If properly managed, this could provide some respite for retailers struggling under the weight of regulation.”

He adds: “It is worth remembering that some regulations have been thwarted. However, other burdens are looming, such as managing new tobacco regulations and complying with food safety law.”

John Hutton, who is responsible for leading the better regulation agenda, has called on businesses to get involved in the consultation by “feeding in practical ideas and telling us how we can lighten their load while protecting standards”.

It would be all too easy for the likes of Head, Mills, and all the other independent retailers who are struggling to keep their heads above water, to dismiss this as empty rhetoric. But it could be the best chance yet to finally slash through the red tape. If that happens - and it is a big if - small businesses might finally be able to regain the control that many fear is being lost.

The national minimum wage, licensing, rents, business rates: there is only one way business costs have been heading over the past decade and that has been inexorably upwards. “The environment has become incredibly tough for independent retailers,” admits Peter Head, co-owner and MD of 22-strong chain Anglian Convenience Stores, which is still trading under the Budgens fascia as well as its new HeadS fascia. “Sometimes it feels as if I don’t own my own business any more. We are treading water all the time.”
Unfortunately, Anglian Convenience Stores is not the only retailer struggling to cope with the mounting costs. In The Grocer’s latest Top 50 reader panel, independent retailers reveal that costs have gone up a staggering 40% to 50% in the past ten years - unlike sales. One attests: “The minimum wage has really hit us hard in the past two years. Utility bills are double what they were ten years ago and there has been a massive hike in rents.”
That the move has been prompted by the government’s failure to reduce red tape since the 2001 Regulatory Reform Act is hardly reassuring. But there does seem to be wider acknowledgement of the scale of the problem for small businesses. And the number one concern, agrees Adair Turner, chairman of the Low Pay Commission, is the national minimum wage: “We are aware that some businesses have found the significant increase of 2004 a challenge, particularly because of the consequences for pay differentials, and the full impact of the upratings may not yet be clear in the macroeconomic data.”
This is small comfort to Head, who says that on top of the national minimum wage, the cost of the new alcohol licence is going to drive his business close to the edge.
“Last year we paid around £35 per store for alcohol licensing, which came to around £800. This year costs have spiralled to such a horrendous degree. I have had to pay over £15,000. That’s an increase of over £14,000. Where am I going to get that from?
That is just the half of it, says Nigel Mills, who owns 82-strong c-store chain Mills Group: “Among other costs, this year I have had to pay an extra £400 a store for asbestos reports, I have had to install disability ramps that have cost £2,000 a store, and waste packaging regulations have rocketed to £20,000.
“The government has to realise that the inexorable increase in costs and regulation is driving us under and it cannot continue,” says Mills.
And there is more to come. The minimum wage is poised to increase again in October, to £5.05, and to £5.35 in October 2006. On top of April’s hike in business rates, in which some small businesses were slammed by increases of 80% (The Grocer, April 2, p6), this year’s Colliers CRE midsummer retail report shows that high-street shop rents have on average risen a further 4% over the last 12 months - faster than any other time this decade.
Russell Francis, director at Colliers CRE, says: “We anticipate that the next 12 months will be a very difficult time for a number of retailers as they are squeezed by lower consumer expenditure and growth, and higher costs. The strong will use it as an opportunity, but there will be casualties.”
why profit is leaking
n From October, the minimum wage will be £5.05. This represents an increase in eight years of 51%. In cash terms this amounts to an additional £340 a week on average or £17,680 a year.
Source: ACS
n The cost of licensing is likely to increase by up to £800 per store every three years, representing a 26-fold increase, or an average additional cost of £256 a year.
Source: ACS
n The total cost of the major regulations to business approved since 1998 is now £38.9bn.
Source: Chamber of Commerce The cost of running both these businesses has rocketed by 50% in the past five years... ...and they are not the only ones suffering