Moody's warns grocery sector of threat from rising minimum wage

By Mathew Lyons

Published: 03 August, 2015

UK retailers will struggle with the government's recently announced hike in the living wage, according to credit rating agency Moody's.

UK retailers will struggle with the government's recently announced hike in the living wage, according to credit rating agency Moody's. Food retailers will be particularly vulnerable because their margins are typically very low and they accordingly make very little profit per employee.

In his Emergency Budget of 8 July, Chancellor of the Exchequer, George Osborne, set out plans to increase the living wage from £6.50 to £9.00 by 2020, a rise of 38%.

The warning came in a report, released today, entitled 'Retail - UK: Introduction of Living Wage Is A Challenge To UK Retail Sector'.

Morrisons

The report's author, vice president and senior analyst Sven Reinke, said: "The plan to increase the UK living wage has the potential to erode retailers' profits, if they are unable to adapt their operating systems and cost structures."

A 5% increase in labour costs at Tesco by 2017, for instance, would lower its EBITDA by some 7%. At Morrisons, the damage would be even greater, with EBITDA slashed by 10%.

Moody's is not expecting the issue to damage retailers' credit ratings in the short term. But it is looking to the grocery sector to improve staff efficiency, increase automation and reduce staffing levels to offset the rise in employee costs.

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