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Costa Coffee and Premier Inn owner Whitbread unveiled a hike in half-year profits but warned it will face up to an extra £20 million a year in staff costs from the new national living wage.

The group, which is one of the UK’s biggest employers with around 48,000 staff, said it had already increased pay for baristas in its Costa Coffee chain by around 10% this month to take pay above the incoming national living wage.

This will cost it around £5 million over the second half of its financial year, while wider wage hikes across the group to meet the new minimum pay rules and its own pay plans will add £15 million to £20 million a year to annual costs.

The group said it cannot rule out price rises as it looks to offset the higher wage bill, but stressed it hoped to make savings in other ways, such as through moves to improve productivity across the business, including better staff rostering.

Outgoing chief executive Andy Harrison insisted the group wants to maintain a “good value proposition”.

Its first-half results showed a 13.8% jump in underlying pre-tax profits to £291.3 million for the six months to August 27 after seeing robust sales growth across its Premier Inn hotel and Costa chains.

From next April, firms will have to pay all workers aged over 25 at least £7.20 an hour – up from the current national minimum wage of £6.50 – and this will rise to £9 an hour by 2020.

Whitbread said: “This increase is one of the inflationary factors which Whitbread manages every year. We can continue to mitigate this cost inflation over time through a combination of economies of scale as we grow, procurement benefits and investment in training and systems to deliver increases in productivity and efficiency, whilst offering our customers outstanding value for money.”

Shares in the firm lifted 2% after its profits haul beat market expectations.

Whitbread said its Costa chain saw like-for-like sales rise 4.4%, with a 5% hike in its Premier Inn business. Growth was less impressive in its restaurants arm, which includes brands such as Beefeater, Brewers Fayre, Table Table and Taybarns, with like-for-like sales edging 0.1% higher.

But Whitbread said this was “progress in a soft market”.

Richard Hunter, head of equities at Hargreaves Lansdown, said: “The latest set of numbers from Whitbread are another triumph, propelled by the ongoing expansion within its two flagship businesses in the form of Premier Inn and Costa.”

The figures come at the end of a successful tenure for Mr Harrison, who is handing over the reins to successor Alison Brittain in December.

The former Lloyds Banking Group’s retail chief joined as chief executive designate on September 28, becoming the group’s first female chief executive.

She takes up her full role on December 7.

Chairman Richard Baker praised Mr Harrison’s “outstanding contribution”.

He added: “Andy joined a good company five years ago and, when he leaves us in a few weeks, he will leave it an even better company, with excellent foundations for future profitable growth.”

 

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