Costa Coffee prices to rise because of the National Living Wage, says owner Whitbread

Whitbread has not yet decided which prices might be raised

Costa Coffee has warned that the National Living Wage could be forced up the price of a coffee when it comes into force in April next year.

Andy Harrison, chief executive of the company, which also owns Premier Inn, said there would be "selective price increases" among other measures to deal with the extra £15 million to £20 million that he expects the living wage to cost his business.

"I cannot rule out price increases," said Harrison. "People are our biggest single cost. We are supportive of a steady increase in the national living wage, but this is quite a big one which came out of the blue in the summer Budget."

He added that the group had not yet decided which prices might be raised and would reveal details with its first-half results next month.

Out of Whitbread’s total hourly paid staff of 42,000, around 34,000 are currently paid £7.20 or less — and of those 16,000 are over 25 and so will benefit from the living wage. The company also owns the Beefeater, Brewers Fayre, Table Table and Taybarns restaurant chains.

Harrison said: “We shall mitigate this substantial price increase over time with a combination of productivity improvements boosted by investments in systems and training and efficiency improvements. At least it is much easier to absorb something like this in a fast-growing business which is set to create around 3,000 jobs this year.”

But he highlighted the knock-on effect of the national living wage, saying: “We are also looking at our differentials — because if the minimum wage goes up, so too do those of more senior employees. We like to see pay increases based on experience and expertise and to reward people for making progress.”

Whitbread shares fell 168p, or 3.6 per cent, to 4,543p as it said second-quarter like-for-like sales growth had slowed to 3.3 per cent from 4.3 per cent in the first quarter and 6.8 per cent in the same quarter last year. Including new openings, Costa sales were up 16.2 per cent and Premier Inn 11.6 per cent.

Harrison said that a sluggish August had been entirely responsible for the slowdown and that the group was still well on track to hit full-year forecasts. The chief executive explained: “We were up against very strong comparatives and it looks as though, at the same time, more Brits decided to holiday overseas than last year.”