S4labour release labour percentages since lockdown ended
Short story
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.”
Full article
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%
Total +10%
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.”
