Time for a different tune?

It was a bad summer for convenience stores. While the thermometer was struggling to get anywhere near the levels you would hope for in July, Chancellor George Osborne sent a chill through the sector with his post-election Budget announcement of a 10.7% increase in the adult rate of the National Minimum Wage to £7.20 from April this year.

And it got worse. As part of the Chancellor’s usurpation of the National Living Wage, he gave it a target rate of £9 per hour by 2020, meaning a hike in the rate every year for the next five years regardless of economic conditions. At the same time, other workplace costs such as compulsory pension enrolment mean that every retailer’s business will be stretched and re-shaped from 2016 onwards.

As one leading independent retailer tells me: “It just feels like it’s relentless. There’s legislation over tobacco and so forth, but then there’s also the minimum wage, and pensions. And it’s not just one hit. Once you’ve worked out a plan for this year, the costs will go up again the following year, so you have to find more again.”

The retailer, who has more than one store, didn’t wish to be named as he was considering downsizing his business and hadn’t yet discussed the plan with staff. But he knows that he isn’t the only store owner in the same situation, and predicts that some independent retailers will choose to “give up the game” altogether.

With running costs rising as retail competition is increasing and food prices are being deflated, the threshold for running a profitable store is raised, unless you significantly change the approach in some way. Shutting a store down, or exiting the business altogether, are obviously extreme options, so what other courses of action are available?

The first area to be looked at will be staffing. A survey commissioned by Convenience Store shows that 30% of retailers will be forced to make “significant changes” to their business as a result of the hike in the National Minimum Wage. Of those making a change, 20% will be reducing staff numbers, while the others will all be reducing staff hours, so the obvious conclusion to draw is that retailers will be doing a lot more of the hands-on, nitty-gritty work of retailing themselves.

Premier retailer Dan Cocks, from Holsworthy in Devon, believes he will be spending more time in the shop himself this year, but also points out that staffing as a whole is a tricky issue for store owners.

“There are big challenges for small businesses with pensions and the living wage: I’m sure it will lead to less employment,” he says. “I’ll probably do more shifts myself, but I find I can’t really employ more staff anyway as it’s too costly and too much work to take on more people. Margins are tight and labour is a big overhead, but the hardest thing at the moment is finding good staff.”

Productivity is key

Multi award-winning retailer Paul Stone has a successful and growing Spar retail business in Manchester, but even he admits that staff issues are his “biggest nightmare”.

“People are the hardest thing to get right,” he told C-Store. “You can take someone on and their performance can be great to start with, but then it might dip. Now the government has said it will be £9 an hour, we need to ensure we get the best possible performance from people working for us. We need good productivity.”

Paul’s solution is centred on staff empowerment. “We want all the people who work for us to understand the business. In all my stores there are five people in the management team and they are bonused on results. Two of my managers have invested in their own stores, and I couldn’t tell you just how many staff I have who want to own their own Spar store!”

The National Living Wage applies only to staff over 25, so the impact can be lessened by employing a higher mix of younger staff - easily achievable if your trade has natural peaks and troughs with the seasons.

Charles Brady of Vic’s Stores in Nettlestone, Isle of Wight, has already seen the benefits of the greater flexibility that a younger workforce can bring.

“We employed more students for the summer this year, rather than employing the same staff and giving them more hours,” he reveals. “Students are young, free and single and can do whatever hours we like. They naturally leave at the end of the season.”

Charles already pays close to the new National Living Wage rate, so April’s increase will not hit the business as much as some other costs. “It’s still another £30 or £40 a week extra, but we worked out that it should pan out okay. Pensions kicking in will mean a huge amount of paperwork, though, even if the staff member opts out after four weeks. As a retailer, it’s a lot more work to do.”

So is it just a case of being forced to work harder, or is there an opportunity to work smarter instead? Retailer Harj Dhasee from Mickleton, Gloucestershire, thinks so.

“We’ll have to improve our IT operations to relieve my manager of time in the back office,” he explains to C-Store. “I’ve always preferred to have human interaction rather than automated ordering. It’ll make us lazy, but we don’t have a choice.”

Knock-on effect

Harj has calculated that the wage hike will cost his business £30,000, as everyone’s wages will have to be pushed upwards. “If someone standing on the till is earning £9.20, then managers will want something more in their rate. A family-run operation won’t have the same overheads so they’ll be competitive, but stores my size (1,800sq ft) will suffer. We’ll have to gear down staff over the next few years. Someone who did eight hours a week left last year and we’ve not replaced them.”

Harj is a Nisa member, but can see how franchise models such as One Stop could gain traction in the new cost environment.

“The public sector is restricted to a 1% increase, but we’ve just had a 10-15% increase. By 2020 the mid-sized c-stores will disappear - they’ll sell up or go to franchise.

“The One Stop franchise is the one to watch - they’ve taken the man hours out of it for managers. Planograms are sent, prices are done. There’s no need to have a store manager. My manager spends six to seven hours in the office doing ordering. I could put him on the shop floor and take one person out of the equation. Where we have a manager and two members of staff, it will go down to one manager and one staff member.”

So whether the future is one of fewer staff, younger staff, more empowered staff or more technology-based store management systems, the convenience store industry is undoubtedly going to be changed for ever by Osborne’s summer announcement.