With the eating and drinking out sector facing a war for talent over the coming years, the national living wage is an added hurdle to overcome. But how far does the sector have to go and does the announcement undermine efforts to build a broader platform of benefits for those seeking a career in hospitality? Also, what does the exit by the Tolley family from Harris + Hoole mean for Tesco’s other investments in dining out?

The National Living Wage was the rabbit pulled out of the Chancellor’s hat on Budget day but now his promise to the nation has to be made reality by employers across the country.

In the eating and drinking out sector the current average hourly wage is £6.75, according to recent research by Fourth Hospitality. To reach the £7.20 target by next April will require a 6.6% increase with a similar annual increase to arrive at the figure of £9 by 2020.

Research by Deutsche Bank shows a fairly even split across the sector between those over and under the age of 25, with Greene King and Marston’s both at 50/50; JD Wetherspoon at 40% under-25 and 60% over; Mitchells & Butlers at 35/65 and Whitbread at 43/57. However, there is a clear disparity in the pay gap between the current situation and the NLW across those companies. While JDW currently pays 60% of over-25s more than £7.20, the figure is 30% for Whitbread; 20% for Greene King and Marston’s and only 10% at M&B. Deutsche Bank analyst Geof Collyer expressed surprise at the fact that 60% of M&B staff over the age of 25 are on minimum wage but said this is likely to have something to do with the group’s geographic exposure.

JD Wetherspoon has long been one of the sector’s cheerleaders in terms of investing in its staff, and plans an 8% hike in starting wages from next month, in addition to the increase last year. However, Tim Martin has received criticism from analysts for his relentless focus on this to the detriment of margins.

Speaking last week on the impact of the National Living Wage, Martin said it would “add considerable uncertainty to future financial projections in the pub industry” but insisted the tax disparity between pubs and supermarkets was still a much greater threat to the sector.

Kate Nicholls, chief executive of the Association of Licensed Multiple Retailers, says the Government needs to ensure it takes into account the innovative range of benefits available to employees in the hospitality sector.

She said: “We need a thoughtful approach that will take into account the amount our workers take home, their total earnings and benefits such as pensions not just the headline hourly rate. We also need some sensitivity surrounding the timetable for introduction, with wage rounds currently planned around April.

“We need to reduce the red tape surrounding apprenticeships and putting employers in the driving seat and rewarding those who invest in training through the PAYE regime is good news and something we have been campaigning on for some time.”

TGI Friday’s was this year named as the Best Big Company to Work For in the Sunday Times. At TGI, while many starting positions pay the minimum wage, employees get to keep 100% of the tips they earn along with other benefits. The company also invests heavily in training staff to move up to higher-paid positions.

The package is clearly competitive, as the company recently received 2,000 applicants for just 80 jobs at its opening in Leicester.

At another award-winning employer, Oakman Inns, staff are encouraged to take part in its bespoke training course, dubbed Oakmanology. Those who complete the first few stages are rewarded with an hourly wage of £7.85 or more.

Chief executive Peter Borg-Neal has no time for employers moaning about the target.

He said: “Certainly, it will be a potential own goal, in image terms, if the industry responds with dreary negativity about these changes at a time when people like Keith Knowles and his Perceptions Group are trying to lift our image as an attractive place to work in.

“This rebadging of the minimum wage will have no cost impact on us. Furthermore, the Living Wage in combination with the rise in the lower tax threshold means that younger workers across the country will have a little more disposal income – which it is great news for our sector.”

At the afore-mentioned Keith Knowles’ Beds & bars, there are further incentives for staff, including the announcement that this year all staff will be given an extra day off to either spend time with their families ordo something for charity.

Peach Pubs co-founder Hamish Stoddart meanwhile says that the company was “founded with the vision of being a shared ownership experience, with every member of the team sharing in the company’s success”.

These are just a few examples of the ways in which the hospitality sector has recognised the importance of its people to its long-term success. The industry is already on the right trajectory. It needs a helping hand from the Government, but it remains to be seen what effect the shove given by George Osborne this month will have.

Sticking its neck out

So what now for Giraffe? Last week, we revealed that the Tolley family, were to step back from the Harris + Hoole coffee shop chain they set up in a joint venture with Tesco. In just three years, the brand had grown to 46 sites and a team of 500, but had struggled to generate sales.

Tesco was keen to point out that the shareholding in the joint venture, of which it owns 49%, remains the same “at this point in time”, but as with other investment Euphorium Bakery earlier this year, it is thought that the retailer will look to acquire the remaining stake in the chain before assessing its options further.

The supermarket operator has been quietly going about tidying up its hospitality division over the last year. Last month, it closed its trial concession with In FARM We Trust and sold its stake in the Paul Goodale-led Fred’s Food Construction.

Late last year, it acquired its c260-strong in-store cafes and has been focusing on upgrading these over the rollout of the in-house developed Decks concept, which has remained on 13 sites for the last few months.

Which leaves its most significant investment in the sector, Giraffe, which it acquired in March 2013 for c£50m. The brand, which is chaired by Adam Fowle, who is chief executive of Tesco’s hospitality division, currently operates 63 sites, including c15 either inside or next to a Tesco Extra. Although it has been consolidating its London estate, the group says it is experiencing strong like-for-like sales.

A spokesman said: “We continue to expand and invest in the brand and will look to open between five and 10 more restaurants in shopping centres, Tesco stores and high street locations this year.”

At the same time, Tesco has beefed up its sector expertise with the appointment last year of Tom Crowley, former retail director at M&B’s Premium Country Dining division, and earlier this year, Adam Martin, formerly marketing and strategy director at M&B, as the new commercial and marketing director of its hospitality division. In April, it also hired Brandie Deignan, formerly of Whitbread, as its new head of restaurant operations.

The more recent appointments of Martin and Deignan, against the departure of Michael Holmes, who oversaw the creation and development of Tesco’s family dining division, as it was initially called, suggested that the company still believed that Giraffe had a role to play as part of its overall business. However, could Tesco be looking at the current high level of M&A activity in the sector and edging toward a management buyout is an attractive option for the brand.

Fowle, Martin and Crowley, coupled with Giraffe managing director and co-founder Andrew Jacobs present a strong management team for a brand that has proven it can work in a number of different locations including transport hubs and shopping centres across the UK; still has 13 sites in London; a fledgling Middle East estate; and ticks that all important for many, all-day dining box.

It could be time for Tesco to test the water to see what interest the brand would generate.