Wage bills are spiralling out of control while retailers struggle to maintain pay differentials in the face of the minimum wage. Liz Hamson reports

John Bains used to believe that hard work and success went hand in hand. As a director of Top 50 c-store chain Bains, he took pride in the fact that he and brother Harvey, who runs the chain, could reward their 133 loyal staff with decent pay packages, annual outings and regular training programmes.
Not these days though. Now he wakes up anxiously pondering how the business will cope with a threat that has already forced it to sell two stores, stop hiring staff, cut back on training and staff outings and even make staff contribute to the cost of their uniforms. Like 69% of the independent retailers surveyed for our forthcoming report of The Grocer Top 50, Bains blames rising costs - and in particular the national minimum wage - for driving c-store operators like his close to the edge.
This October, the national minimum wage is set to rise from £4.50 to £4.85 for over-21s (and from £3.80 to £4.10 for 18 to 21s). Up 7.7% on last year and a massive 35% on 1999, when it was brought in, the latest hike will add £17,000 to the Birmingham-based chain’s wage bill overnight. But that is not all that Bains and thousands of other independent operators are worried about.
British Retail Consortium spokesman David Southwell warns: “It’s not about the level it’s set at, but about maintaining differentials in pay.”
The knock-on effect of the minimum wage, which is set by the Low Pay Commission, has been a “major disaster”, says Bains, who stresses he approves of a minimum wage in principle.
He blames the rising wage bill for last year’s slump in profits from £1.4m to £1.3m and says it was also directly responsible for the decision to sell two small stores with the loss of 14 staff. “We’re really struggling. We have to pay two sets of pay rises - the first to increase the minimum wage itself and the second to retain our good staff higher up the ladder,” he complains, admitting: “We’re dreading the next time it goes up.”
He is not the only one. In a survey of independent retailers conducted by the Association of Convenience Stores last October (see panel, bottom right) 44% claimed that as a direct result of successive above inflation increases to the national minimum wage they would soon no longer be able to replace staff who leave; 12% said
they would be forced to make redundancies to reduce the wage bill and the same percentage again that the rise would lead to store closures.
Bringing in net profits of 1% to 2%, independent retailers simply do not have the resources to cover such steep increases, says ACS spokesman James Lowman. “The proposed increase is well above inflation and the growth rate of the sector, which is 4.1%,” he points out. “It’s also above the 3% to 5% increases that senior management get.”
A significant proportion of the thousand c-stores that cease trading every year have gone out of business directly as a result of the national minimum wage, believes Lowman, and it is not only smaller independents that are being hit. “Until now, it has been small businesses that have really been feeling the effect but now larger businesses are.”
Even the multiples are privately expressing their concerns, with one source reporting that “there wasn’t a cigarette paper” between a senior employee at one of the top five multiples and the chairman of a leading symbol group at a recent high level meeting.
Lowman warns the situation is likely to deteriorate further if the proposed minimum wage for 16- and 17-year-olds comes in.
For Bains, it will almost certainly mean further cutbacks. The company has traditionally employed a large number of youngsters and since the minimum wage came into force it has been forced to reduce the number of staff at the lower end of the wage chain to counter the knock-on effect of the increases.
It recently stopped taking on anyone from 16 to 18 years old for its 97 morning and 114 evening paper rounds and plans to lay off those still on its books - none of which is good news for the remaining staff, who will have to cover the shortfall.
The business is now faced with the very real prospect of cutting into its core operation to find the resources to cover the forthcoming round of pay rises. “We’ve got to sort out the funding for it in July but we’re running out of areas to look,” says Bains, adding ominously: “The next cuts could be management.”
The irony, he says, is that at night it now finds it cheaper to bring in one security guard to cover the work that two staff used to be paid to do.
More and more retailers report similar tales of hardship, several admitting they have either laid off staff or passed on the cost to customers by raising prices. The question is: can anything be done to limit future pay rises?
In terms of this year’s increase, probably not. With a political agenda at work, says Spar managing director, Jerry Marwood, “the problem is that the minimum wage becomes an electioneering tool. When it is a government tool for getting re-elected it starts becoming dangerous.”
It is all to easy, lobbyists add, to cast retailers as heartless employers who see their employees as little more than cannon fodder in their battle for market share.
The good news is that the Low Pay Commission is currently considering a joint oral submission made by the BRC and ACS last November and the industry bodies are ramping up their lobbying efforts to stop future increases being so severe.
“We’ve conducted a number of store visits with the Low Pay Commission: we’re keeping the pressure on,” says Lowman. “It understands we’re not crying wolf.”
For now, the national minimum wage remains a vote winner and Marwood warns: “There seems to be a straight line towards the £5 an hour mark. That is a scary target when you multiply it across your entire estate.”
For Bains, already running the tightest of ships, very scary. He hopes the government takes notice before hundreds of businesses go under. And he has this message for those who say the impact has been exaggerated. “We are not saying we’re against the minimum wage and we’re not saying we want slave labour. What we are drawing attention to is the fact that the minimum wage does not work.”