S4labour release labour percentages since lockdown ended
Industry Labour ratios increase by 10% in first month of trading as operators get a handle on new ways of operating and lower sales levels. Analysis from S4labour has shown that the labour ratio in July (from the 4th to the 31st) was 41.1% as compared with 30.9% in 2019. Richard Hartley, Chief Product Officer of S4labour commented “For the hospitality industry the last 10-20% of sales produces all of the profit, and so with the sales levels in July it will be hard for operators to make money. The added increases in labour will make that even harder. The change in consumer behaviour may well be with us for some time and those who adjust their labour model quickly and smartly will win the confidence of the customer, and therefore grow sales, and also enable them to manage costs appropriately through this very challenging time.”
S4labour, the labour management experts, have conducted a full review of labour costs for July since the industry re-opened on 4th July. This data only includes sites for days that were open from July 4.
In the first 7 days after lockdown the industry was running at an average labour cost of 65.9%. Sales were low and staff were starting back to work, getting used to new ways of working and doing their best to give customers reassurance that they were operating in a safe manner. This will have left nearly every operator making losses.
As the weeks have progressed this ratio has improved. Week two ran at 53.8% and week three 43.1% , with the final week in July running at 41.1%. This labour ratio compares with a ratio of 30.9% for the same period last year and therefore reduces industry profitability by a full 10% pts against the same period last year.
There are several causes for this:
1 – Lower sales
The lower sales levels have caused an increase in the labour ratio of a massive 6% points. This shows how vital incremental sales are to the industry and over time operators will need to rebase their rotas if sales remain at a lower level.
2 – A less productive business
Business have become less productive because of more outside service, more at seat service and Covid measures on cleaning and staff distancing, all of which have led to a decrease in productivity which S4 estimates to be 10-15%. And therefore accounts for a 3% pt increase in labour ratio
3 – VAT
Operators have taken different approaches with how to treat the reduction in VAT. For any that have chosen to not pass on the price reduction to customers this will have helped them to offset some of the other challenges. This will see an increase in productivity, as measured by sales per labour hour, of circa 10%.
4 – Sales uncertainty and volatility
When sales are uncertain and more volatile then typically more team are scheduled to cover sales that might not materialise. Slack, a measure of non-productive hours as measured by S4labour, has increased by 5%.
5 – Staff getting back up to speed and training
The industry has faced the double challenge of having both to re-train and re-energise staff as well as train new staff, and this will have undoubtedly contributed to the additional cost in July. While the government have offered to pay for training through furlough, less than 50% of businesses are using this facility. This is in part due to the challenge of determining what is, and what is not, training in the way we run our industry.
To summarise therefore the increase in labour ratio is driven as follows:
Sales decline +6%
Productivity decline +3%
VAT change -2%
Sales uncertainty + 1.5%
Staff training + 1.5%
Richard Hartley, Chief Product Officer of S4labour commented
“For the hospitality industry the last 10-20% of sales produces all of the profit, and so with the sales levels in July it will be hard for operators to make money. The added increases in labour will make that even harder. The change in consumer behaviour may well be with us for some time and those who adjust their labour model quickly and smartly will win the confidence of the customer, and therefore grow sales, and also enable them to manage costs appropriately through this very challenging time.”
For further information on this story please contact Richard Hartley, Chief Product Officer
Last month we spoke to Brian Hannon from Super 8 restaurants about how he transformed an outdoor space into Brat, in just a few weeks…
Last week we reported that like-for-like sales were down 33.6% year-on-year in first weekend of trading since regulations eased, this week we can report that the week that followed so called Super Saturday, were down 29.8% compared to the same week in 2019.
The research uncovers a split in the performance of sales of drinks and sales of food. Sales of drinks were down 21.3% while sales of food down 40.0% compared to the same week in 2019. While the figures had very little deviation when comparing sites that were inside and outside of London, the capital performed slightly worse on sales of food, down 43.0% (compared to 40% down nationally) while sales of drinks inside London, while still down, were only down 18.7% (compared to the national decline of 21.3%).
July the 4th 2020, the day the hospitality industry was allowed to reopen their doors to customers in England after been forced to close as a result of the Covid-19 pandemic. Not every operator decided to reopen and those that did, did so to mixed pubic press on the rights and wrongs of them doing so, a raft of new government guidelines and an unknown level of public appetite to return to eating and drinking out. Anecdotally, operators had relatively low sales expectations from the opening weekend and many would have been encouraged by sales that were up 13.3% in comparison with the weekend before lock-down (14th
and 15th of March), albeit down 33.6% year-on-year.
The most notable trend from the following week including the weekend was the continued decline of food sales. S4labour Chief Customer Officer Sam Wignell said: “In these very early days of reopening, it is clear that social distancing is going to prevent food led business from serving the same number of guests they previously would have, explaining some of the reason why food sales have declined more severely than drinks. S4labour Chief Product Officer Richard Hartley said: Huge efforts have been made to make eating and drinking out safe, this has inevitably had an effect on capacity. We are also seeing some degree of people dipping their toe back in the water with a drink out, perhaps holding off for a period before going out for a meal.
Richard Hartley, chief operating officer of S4labour, the online labour-scheduling management system from Catton Hospitality, has suggested operators should consider holiday for furloughed staff – potentially saving the industry a £4bn bill “it can ill-afford”. Hartley said: “The total cost of holiday to the industry is likely to be in the region of £5bn for furloughed hospitality staff up to the end of July. The government has confirmed you are able to request staff take holiday during the furlough period but employees need to be paid their full wage for time they are on holiday. While there is an immediate cash flow challenge to this, and no one has much spare at the moment, there is the advantage the furlough scheme will pay for 80% of this, or a proportion for higher earners. This potentially saves the industry a £4bn bill it can ill-afford.” Hartley also pointed out the scheme could further support the refresher training “needed for a workforce that hasn’t been active for more than four months” as well as for the numerous new measures that will need to be in place before reopening. Hartley said: “Employees are able to train while on furlough, as long as they are being paid the relevant National Minimum Wage/National Living Wage, effectively meaning government will support the wage bill to get our teams trained to where they need to be.”
S4labour is a Propel BeatTheVirus campaign member
Following a number of updates from the government on the Coronavirus Job Retention Scheme (CJRS) we have updated our advice and want to highlight a few of these points and explain what they mean for operators.
Following a meeting of the parliamentary select committee, existing guidelines have been updated and will be published shortly. The government is aiming to open the portal on 20 April. It will take four to six days following submission for the money to be paid. Employers will be able to submit claims up to 14 days in advance. Claims may be made before the monthly payroll is run in April, which is great news for operators.
Employees can be asked to complete training while on furlough as long as it doesn’t involve them providing services to, or generating revenue for or on behalf of their organisation. However, when they are doing this training they are entitled to National Minimum Wage (NMW)/National Living Wage (NLW). This means employers would be required to top up an employees’ pay, over what is being support by the CJRS, to ensure for the hours they spend training they are paid NMW/NLW.
This is also the case for apprenticeship programmes (although it is likely you will be topping up to the Apprentice Minimum Wage). It is also worth noting employees are still required to pay the levy and this is not covered by the CJRS.
We are in need of clarity from government on the treatment of holiday for furloughed workers.
UKHospitality has stated holiday does not have to accrue throughout the furlough period, if this is part of the furlough agreement with the employee. The Chartered Institute of Personnel and Development (CIPD) argues only contractual holiday (anything above the statutory 28 days) can be varied by agreement and the 28 days that employees are entitled to under Working Time Regulations continue to accrue.
There is also an un-answered question as to whether employees can take holiday when furloughed. Current advice from CIPD is they can but they would be entitled to their full pay so the employer would need to top up to this level. This could be a useful way of employers reducing their liability albeit it presents a current cash challenge.
For salaried staff this should be their salary on 28 February.
For variable pay staff this should be the higher of their average monthly earnings over the past 12 months or their pay from the comparable month last year. For those employees with less than a year’s service it should be the average monthly earnings while they have been employed with you.
The challenge for many is variable pay workers that are not paid monthly as you will need to interpret the above to give a reasonable assessment of which is the higher. At S4labour we have developed a furlough pay type that will do the calculation on behalf of our customers.
If anyone would like support in calculating furlough pay for their teams then please contact me at Richard@s4labour.co.uk
Richard Hartley is chief product officer at S4Labour
S4labour is a Propel BeatTheVirus campaign member