Pub owner and brewer Greene King put out a generally positive half-year report on Wednesday, but there was a nugget buried in the update that will worry investors.
Britain’s new National Living Wage is going to cost the pub chain £2 million ($3 million) next year and an extra £6 million ($9 million) annually by 2018/19.
In July, UK Chancellor George Osborne said the government would scrap the National Minimum Wage — £6.50 ($9.79) an hour for workers — for a new National Living Wage of £7.20 ($10.85) an hour for workers over the age of 25. It comes into force next April and by 2020, the National Living Wage should rise to £9 ($13.56).
Greene King employs 42,000 people across the UK, many of them low-paid pub staff who will be in line for a rise thanks to the new Living Wage.
Half of Greene King’s 42,000 staff are under 25, which is why the cost of the living wage to the company will ramp up so quickly. In 3 years time, many of those staff who are under 25 now will have crossed that threshold and qualify for the higher wage.
Greene King isn’t the only pub chain to have sounded off about the pay rise — JD Wetherspoons said in September: “By pushing up the cost of wages by a large factor, the government is inevitably putting financial pressure on pubs, many of which have already closed.”
But other than rising staffing costs, Greene King looks in rude health. The company recently completed a merger with rival pub group Spirit and the fruits of that deal can be seen in the update:
- Revenue up 49.2% to £917.7 million ($1.38 billion);
- Pre-tax profit up 46.9% to £121.3 million ($182.7 million);
- Targeted cost savings from the merger raised to £35 million ($52.7 million);
- Integration ahead of plan.
Greene King shares are up almost 8% at 8.50 a.m. GMT (3.50 a.m. ET) in London.