The latest UK budget measures will be taking effect from April 2025. The changes proposed have drawn criticism from all corners of the Hospitality industry. With operators already under pressure from growing input costs and soft consumer demand – the budget creates unprecedented challenges for restaurants and bars across the UK.
The pending cost hikes will strip nearly 25% off the average restaurant’s bottom line. For a typical venue turning over £700,000 annually, the combined impact of increased National Living Wage, National Insurance changes, and reduced business rates relief threatens to reduce EBITDA from £105,000 to £78,960 – equivalent to writing off a full quarter of profits.
If you have experience in the Hospitality industry, you’ll know well that there isn’t anywhere close to 25% worth of fat on net margins to give up, this is where much of the criticism and dissent relating to the budget comes from.
In this article we break down the P&L impact of the budget and provide practical ways that Nory can help operators to protect their profitability and offset the impact of announced changes before they take effect in 2025.
Breaking down the P&L impact
Let’s break it down – using a restaurant with £700k in annual revenue as an example. Before you guide your 2025 financial plan it’s critical to understand the impacts now, so you can make the required operational or technological changes ahead of next year.
The cumulative impact for a high performing restaurant that regularly hits a 15% EBITDA (£105,000), these changes will reduce their profit to £78,960 – a staggering 24.8% reduction. That’s equivalent to losing nearly three months’ worth of 2025’s profit overnight. The biggest contributor being the labour cost increase from an average 32% to nearly 36% – this does not make for happy reading.
(Below is a summary version of a P&L to illustrate the key changes – whilst actual P&Ls contain many more line items, we’ve focused on those most directly impacted by the budget)
The major P&L changes:
- Labour Costs
This budget introduces an unsustainable increase in labour costs through a combination of National Living Wage increases and National Insurance changes. The Living Wage will rise by 6.7% to £12.21 per hour for workers aged 21 and over, whilst employer National Insurance contributions will increase from 13.8% to 15%.
For our £700k revenue restaurant with 30 employees, this creates a compound effect:
- Current labour costs: £250,000 (32% of revenue)
- Additional Living Wage cost: £21,952
- Additional NI cost: £4,088
- New labour costs: £281,200 (35.7% of revenue)
- Business Rates
The reduction in business rates relief from 75% to 40% creates another significant pressure on the P&L. For our example restaurant, this means:
- Current rates bill (with 75% relief): £5,051
- Future rates bill (with 40% relief): £12,122
- Additional annual cost: £7,071
Taking back your margin with Nory
While these numbers paint a challenging picture, Nory has built a system that is purpose built to increase efficiency and profitability for Hospitality businesses. Here’s how:
Better Labour Deployment
Getting labour deployment right is the most critical part of any restaurant business. Nory’s AI analyses historical sales and scheduling patterns in each venue and suggests optimal staffing levels based on future sales forecasts.These labour deployment recommendations drive revenue in peak periods and protect margins in quiet periods.
Impact: Our partners regularly achieve 10-15% reductions in labour costs (£25,004 saving).
Roasting Plant Coffee has revolutionised its workforce management with Nory, cutting labour costs by 18% within two months. These results highlight the role AI can play in transforming operational efficiency and helping businesses to achieve significant cost savings.
Increased Sales
Better labour deployment doesn’t just drive cost controlling behaviours it empowers businesses to maximise their sales during peak trading periods. Nory’s AI demand forecasting models:
- Predict sales and covers for every hour of every day with 90-95% accuracy
- Identify profitable and unprofitable trading periods
- Recommend optimal staffing for each period of the day to increase throughput / SPLH
Impact: 3% increase in revenue (£21,000 additional revenue)
GP% controls and waste reduction
AI offers an opportunity to increase margin by driving consistent GP% each day and making waste an afterthought. Here’s how we do it:
- AI inventory planning – using AI to predict stock usage, create automated supplier orders and daily prep lists
- Real time GP%/COGs tracking – AI that highlights issues in the moment for front-line teams to resolve
Since partnering with Nory, CUPP has successfully reduced its total food waste by 60%, lowering it from 3-5% to just 0.5-2% across the business. This achievement is the result of closely monitoring food waste at both the CPU and site levels, enabling the team to quickly identify areas for improvement.
Impact: Gross Profit increases for our customers regularly come in at 2% of revenue (£4,200 saving)
How the numbers stack up post implementation
As Warren Buffet says – Compounding is the 8th wonder of the world and it’s the same for your P&L.
Taking action today to optimise 3 lines of your P&L will not only negate the upcoming budget changes but will increase your overall profitability.
Take a look at the compounded impact of the 3 changes we mentioned below:
This represents not just protection against the budget impacts, but an actual improvement to a 17.91% EBITDA margin.
Taking action now
The budget changes present significant challenges, but they also create an opportunity to build a more resilient and profitable operating model. The key is using data and technology to make smarter operational decisions. Those who take action and start preparing now will be best positioned to not just weather these changes, but to thrive despite them.
Book a meeting today to see how Nory’s AI-powered operations tools can protect your business and your margins from the April budget changes.
