Wholesalers will struggle to absorb National Living Wage rises

Wholesale distribution will be among the UK business sectors worst hit by the introduction of the National Living Wage, with wholesalers’ profitability severely threatened if proposed rises go ahead over the next four years.

In a report published today, Capital Economics reveals that 30% of food and drink wholesalers’ staff will be directly affected by NLW, adding 0.7% to employers’ wage bills when the £7.20 rate for over 25s comes in in April. Proposals to increase the rate to £9.35 by 2020 would see wages rise by between 2.6% and 3.7%,  adding up to £59m to the sector’s costs, equivalent to 2,600 jobs. Wholesalers surveyed in the report say they will also need to raise pay brackets for those above the NLW in order to maintain differentials, and will consider matching the rate for under 25 in equivalent jobs.

Speaking at the report’s Parliamentary launch last week, Glyn Chambers of Capital Economics said that competition and deflation in the grocery market meant wholesalers surveyed were reluctant to pass on the increased cost to their retail customers. “They also do not want to reduce their workforce,  so we see profitability and investment being affected in the short term, with the potential for job losses and lower job growth if subsequent rises go ahead,” he said. Non-statutory forms of remuneration such as bonuses and employee discounts would also be affected.

Martin Williams, chairman of the Federation of Wholesale Distributors and MD of Landmark Wholesale, said that the cost burden over four years would wipe out some wholesalers’ current net profit. “Wholesalers run lean, efficient businesses on very low margins, and don’t want to put their prices up in a competitive market. While we have always supported the minimum wage, we can’t absorb bottom-line cost increases of the size and frequency that the Government is proposing.”

Association of Convenience Stores’ Chief Executive James Lowman added that the retailers who make up a significant proportion of FWD members’ customer base would be hit by a collective bill of £167m under the new proposals. This would result in some store closures, with other retailers stopping investment in their businesses, cutting staff hours, and not replacing staff as they leave.

FWD Chief Executive James Bielby said the Federation was working with trade associations representing similarly-affected businesses. “We are assessing the cumulative impact of NLW across a wide range of sectors, and will demonstrate to the Chancellor that his ambitions for the speed and scale of NLW rises will lead to job losses and business closures. We believe the rate of increase must be slowed, with the target of 60% of median earnings pushed back into the next parliament, or mitigated by other measures.”

The report, Delivering Employment, reveals that the food and drink wholesale sector employs 70,000 people, with a high proportion of young people, women and ethnic minorities among the workforce. Wholesalers create £2.9bn of gross added value annually, pay £480m in taxation to the Exchequer each year and are big regional employers with 17,000 employees in the north and 17,500 in the devolved nations.

The report can be downloaded here, and there’s more on the NLW in the Fwebruary issue of Wholesale News, out this week!

Report download: Capital Report Deliverying Employment

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