Whitbread set to raise prices to pay wages

Costa coffee owner Whitbread warned it will have to hike prices as it faces a "substantial" hit from plans for a new national living wage.

Whitbread, which is one of the UK’s biggest employers with more than 45,000 staff, said it is working on plans to offset the cost of next year’s introduction of a £7.20 an hour national living wage.

The Government announced the pay increase in July, with the current £6.50 minimum wage set to rise to £7.20 for workers aged over 25 from next April.

Renamed the “living wage”, the rate will grow steadily over the following four years to around £9.35 an hour, a far greater increase than Whitbread and other businesses had expected.

Whitbread said it is developing plans to increase the productivity of its staff and systems and it will introduce selective price rises to offset the cost increase. Detailed plans will be given at its half year results on October 20.

Whitbread chief executive Andy Harrison said: “Whitbread has been a long standing supporter of a steady, sustained real increase in the national minimum wage.

“However the scale of the increase is bigger than we would have expected and clearly employment costs are our biggest single cost.”

Whitbread has a wage bill of £460m, around 18 per cent of group turnover. Around 34,000 staff are paid under £7.20 an hour.

Mr Harrison said the group has yet to decide where prices will be raised across its businesses, which also include restaurant brands Beefeater and Brewers Fayre, adding that its priority will be to improve productivity.

The firm has spent millions of pounds recently on staff training and new rota planning systems to boost efficiency.

Mr Harrison said that job losses will not be involved in the shake-up although the group expects to recruit fewer staff than normal over the next two years.

Whitbread is the latest in a line of major firms to warn over the impact of the living wage.

It will mean significant wage cost increases for a number of firms, including retailers, restaurant chains and pub groups.

Mr Harrison was speaking as the firm announced slowing sales growth over the summer and said trading was weaker than expected last month.

Comparable sales growth slowed to 3.3 per cent in the 11 weeks to August 13, down from 4.3 per cent in the previous three months.

“August is often affected by weather and holiday patterns and trading this August, across all our brands, was softer than expected against strong comparatives from an excellent month last year,” said Mr Harrison.

Whitbread said it is on track to meet market expectations for the full year, despite weaker summer trading.

It will stick to plans to add another 5,500 rooms to its budget Premier Inn hotel chain, open around 220 new Costa stores worldwide and to install 700 to 800 new Costa Express machines in this financial year.

Premier Inn like-for-like sales rose 4.3 per cent, while Costa saw a four per cent increase.