In April 2019, the minimum wage in New Zealand rose by $1.20 (the largest increase ever) and is now $17.70 per hour.  This massive change isn’t just going to affect companies that employ minimum wage labour – operating prices across the board can be expected to rise, and there's a good chance other employees will negotiate raises proportional to the minimum wage increase.   

Retailers, supermarkets, banks, entertainment companies, fast food companies and more are feeling the pressure of this drastically increased cost of labour, and the natural next question is, ‘How do we maintain profitability in the face of these labour cost increases?’  If you’re struggling to cope with the minimum wage raise, have a look at these three areas you can optimise in order to keep steady growth and profitability.

 
1.  Optimise your pricing structurePrice Tag

One of the first steps you can take to mitigate rising labour or production costs is to examine your pricing structure.  By understanding which products you should raise prices on (and which ones you definitely shouldn’t), you can try to recapture the money you’re losing from increased costs.  You can approach price optimisation through analytics, whether through using your data to evaluate price sensitivity as a one-off project or through creating a pricing and scenario model that will allow you to test out various pricing strategies on an ongoing basis.

 
2.  Optimise your HR spend

The immediate reaction businesses have to rising operations costs is often to cut spending.  In reality, what you need to do is understand the relationship between where you’re allocating labour and the impact it has on your bottom line.  Do you have Communitythe right labour in the right place at the right time to give you the best results?  Sometimes this might mean increasing labour spend in certain locations at certain times, and sometimes it might mean decreasing it.  Ultimately what you really want is to get the most bang for your buck.

In order to fully optimise your HR labour spend, you need to be able to both look backward on historic activity and forward to predicting what resource you’ll need.

  • Looking backward: You need to understand whether or not you’ve had a fair labour allocation in the past (when and where you’ve been either over or under-resourced).  You’ll want to have the data in place to be able to know what labour is where at all times, as well as attributes about the allocated employees - for example, their tenure, qualifications and knowledge areas.  This will help you match the people doing certain activities with the specific demands those activities require.  Finally, you’ll also need to be able to compare and benchmark your store locations accurately and not just at surface level.  For example, two sites that seem about the same size may have very different labour needs depending on the activities unique to each - therefore it’s important to dig into the data of different stores before applying the same labour rules to seemingly similar outlets.
  • Looking forward: If you want to proactively manage labour spend, you need to use that historic data to forecast what mix of people, skills and activities will give you optimal results for different locations and times.  Ideally, you’d want to create a predictive model that could give you these forecasts at any point in the future on an ongoing basis, allowing you to put HR resource where you know it will best serve your customers’ needs and cost you the least.
 
 
3.  Optimise your use of low cost channelsMobile 2

The final way to stay competitive with rising costs is to see if you can increase the usage of your low cost channels without harming the business.  For example, banks that are worried about the costs of having staff in different branches might consider promoting the use of their app so that demand for in-person assistance is reduced.  For retailers, this might be a big push for online transactions rather than advertising more for bricks and mortar shopping.  The caveat to this is that it has to be done in a way that’s attractive to consumers, otherwise you risk damaging your brand and profitability. 

 

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Rising labour costs are an inevitable obstacle that businesses must face with changing wage legislation, but the above suggestions should hopefully help you take a data-driven approach to labour cost optimisation.  If you’re keen to get help with improving your approach to pricing, labour scheduling or channel use, get in touch with us above.