Almost a decade ago, we began working with the Scottish Grocers Federation on understanding the costs of doing business in the convenience sector. One aspect of this work has been the relationship between the headline figure for the National Living Wage (Minimum Wage) and the cost actually paid out by the local retailer. Through working with a sample of retailers we attempted to link the employment costs directly associated with the rate of the NLW and to build a picture of the true cost to the business of employment.

We have produced the results each year since and the latest version was published at the end of March to coincide with the April 2023 increase in the National Living Wage. The short report with the detailed figures can be downloaded below.

What follows is my commentary on the data:

“This has been a winter of labour discontent. Strikes have become commonplace across the economy. At the heart of these are demands for better pay (and conditions), contracts and fairer workloads in some sectors.  The full implications of Brexit, the recovery from Covid and the ongoing energy crisis arising from Russia’s invasion of Ukraine have combined with a decade of austerity in the UK. This has not been helped by the economic turmoil brought about by the revolving doors of Prime Minister and Chancellor in the latter part of 2022.  The outcome is the sharpest fall in living standards in decades and a 40 year high in inflation.  It is no wonder demands for pay increases have become so commonplace and vocal. 

This is seen as a cost-of-living crisis.  It is affecting many, though not all, in the economy. People feel worse off and their bills, whether energy, utilities, rent, rates, mortgages and so on are all increasing.  Inflation and especially the price of food in shops, has sky-rocketed and being so visible has added pressure on to pay demands.  Life has become harder and more of a struggle especially for those on lower incomes.  The contrast with their status as ‘key workers’ in the pandemic could not be more stark. 

The understandable reaction to this cost-of-living crisis is to demand pay increases to soothe the cost rises and, in some cases, catch-up lost wages from austerity. If inflation is running at 11% then why are workers expected to put up with a pay rise of 2%?

It is in this context of economic turmoil and a cost-of-living crisis beyond that of most living memories, that the April 2023 National Living Wage has been set.  In April 2023 the headline figure will rise by £0.92 to an hourly rate of £10.42 (i.e. an increase of 9.7%).  For those lowest paid in the economy this will be a welcome boost in these circumstances, and it is hard to argue against this.   

There is though, a second crisis at play here, and it is a cost of doing business crisis.  This affects all businesses (and indeed public sector and other organisations) but is perhaps more keenly felt in smaller operations.  Convenience store retailers for example have been affected by all the business cost increases in the economy, including energy.  The cost of doing business in this sector has accelerated rapidly, at a time of weak consumer demand in many places. 

This is the eighth year we have run an analysis of the direct relationship on other labour costs of the rise in the National Living Wage.  This year we have again tested our relationships with a sample of convenience retailers and find they still hold.  Raising the National Living Wage directly increases other costs for the retailer and drives up the cost of doing business.  Our figures in the table show that the £10.42 wages rate is in fact £14.00 for the retailer.  This true cost of doing business in terms of labour has to be paid for from somewhere.

For some, especially larger businesses, often operating in major urban areas there is an added problem; the lack of labour. Major retailers have provided their workers with multiple pay increases this year already, taking the rate above that of the National Living Wage (and the estimated Real Living Wage of £10.90).  This is due not only to a recognition of the cost-of-living crisis but the tightness of the labour market in some places.  By paying more they hope to keep and attract labour.  This is far less affordable for smaller retailers.

This true cost of labour is not the only cost of doing business of course.  Convenience retailers continue to be faced with high energy and property costs as well as administration and management costs beyond those associated with labour.  This helps explains in part the sector’s vocal concern over the associated costs for businesses of implementing new government schemes and proposed regulations and restrictions. Convenience retailers cannot face further cuts in profitability and have limited capacity to increase prices (which of course only re‑enforces the inflationary cycle).”

The report can be downloaded here: