From 1 July 2018, a 3.5% increase to the minimum wage came into effect across Australia.
For many businesses in the retail and hospitality space, labour expenses make up an average of 25% to 35% of sales revenue. McGrathNicol Advisory has observed that rising wages are forcing these businesses to make a crucial decision: increase prices and risk losing a customer; or, absorb the pricing and its impact to the bottom line.
An effective pricing model that allows management to increase prices without losing customers is the powerhouse of business success. For those businesses already under financial pressure or focussing on turnaround initiatives, the pricing decision is even more relevant. In a market where banks are beginning to tighten lending and there continues to be inflation pressures on other costs, it is important more than ever for businesses to have timely financial information, dashboards and forecast models that allow real-time reporting and quick decision making backed by a robust strategic plan.
Over in the US, McDonalds recently responded to higher labour costs by increasing food prices and it would appear that it has not scared off Big Mac or Quarter Pounder fans. It has been reported that McDonald’s beat expectations for its June-quarter earnings and revenue, thanks in part to price increases. So, if you operate an employing entity and have not already considered the “minimum wage increase dilemma” on your pricing model, now is the right time to do so!