Just as the off-course betting industry thought things could not possibly get worse, Chancellor George Osborne announced his proposals for a National Living Wage. Betting shops by their very nature are labour intensive, now open all hours, servicing few customers (very often I see more staff in the evenings than customers), so the extra expense will hurt profitability and the viability of some shops.
The living wage of £9 per hour by 2020 is 34% above the 2015 minimum wage of £6.70 per hour. From April 2016 the new National Living Wage will be set at £7.20, a rise of 70p, or 10.8% relative to the current Minimum Wage, and 50p or 7.5% above the Minimum Wage coming into effect in October 2015.
We did predict in the GBGC newsletter some time ago that the minimum wage would rise and forecast a rate of £8. We did not count on progressive introduction which is much better than what would have been a single jump to £9.
Nevertheless, this is going to hit the off-course betting industry. Wages represent something like 15% of sales, it is one of the biggest expenses and a rise in wage costs at a rate seven times higher than inflation in the first year will cause management to consider its options.
They could reduce staffing levels by moving to self-service betting terminals, convert a higher proportion of sales to Internet, or reduce bonuses. Reality suggests there is very little they can do. The high street is ultra competitive and customer care is the main plank in supporting the brand.
The internet side of the business will largely be unaffected as wages are higher than the proposed National Living Wage. Betfair and Bet365 escape, Paddy Power is hit to a lesser extent with about 320 shops in the UK and a substantial business internet business in diverse locations such as Australia, UK and Ireland.
But Ladbrokes, Betfred, Coral and, to a lesser extent, William Hill because of its Internet presence will be hit. Ladbrokes will hurt the most in our view with a possible 10% hit on net profits.
The new National Minimum Wage, however, will apply to all workers over 25 years old in the UK, many of which are the traditional betting shop customer. Customers spend what they have in their pockets and those that frequent the local bookie will have a few more pounds to spend.
This is also very good news for national lottery operator Camelot whose employees are all paid above the minimum wage. Tickets are sold either online or with retail agents who derive a commission for their trouble. With a significant percentage of Camelot’s customers receiving higher pay increases year on year, the lottery will be the main beneficiary of the National Living Wage (not to mention the government which receives 12% of sales in duty).
By Warwick Bartlett