Financial implications of £3m for Domino's Pizza due to the recent Budget; a potential investment opportunity scrutinized.
Retail giants in the UK, including Sainsbury's, Tesco, Boots, Next, Marks & Spencer, and Domino's Pizza Group, have expressed concerns about the recent Budget, as they face increased labour costs due to the rise in employer National Insurance Contributions (NICs) from 13.8% to 15%, effective April 6, 2025. This change, along with the reduction in the secondary threshold from £9,100 to £5,000, will result in significant increases in NICs payments for these retailers.
For employees earning typical retail or hospitality sector salaries, employer NICs costs could increase by hundreds or even over a thousand pounds per employee annually. For instance, on a £30,000 salary, employer NI rises by about £865 a year. Given the large number of staff these retailers employ, especially in roles near or above these thresholds, the aggregate increase in NICs payments will be substantial.
The rise in employer NICs will increase operating expenses, squeezing profit margins unless companies can counterbalance the impact. Possible strategies include raising prices, improving operational efficiencies, increasing workforce productivity, or passing costs on via other means, such as supply chain adjustments.
The reduction of the employer NIC threshold also means NICs must be paid on a larger portion of lower wages, impacting part-time and lower-paid employees, who are common in retail and food service sectors. However, a higher Employment Allowance (£10,500 up from £5,000) can partially offset these extra costs for some employers.
In a recent development, Domino's Pizza Group has set a new five-year profit and sales target agreement with its franchisees, aiming for further store expansion and investments. Despite the challenges posed by the NICs increase, the UK-listed Domino's Pizza Group is on track to open its 1,400th store in 2025, having already operated more than 1,350 stores in the UK and Ireland.
The retailers' concerns are not unfounded. A letter coordinated by the British Retail Consortium, which includes Sainsbury's, Tesco, and Marks & Spencer, warned that the increase in employer NICs and changes to the national living wage would result in £7 billion of additional costs. This could potentially lead to job losses and higher prices for customers. Asda expects an additional £100 million in costs due to the tax amendments, while Marks & Spencer expects £60 million.
Investors should note that the current price of Domino's Pizza Group's shares is 338p, with a suggested stop-loss at 208p. The company's UK operations hold a 7% share of the overall market for takeaways. Despite the challenges, Domino's Pizza Group has reported a 5.3% increase in total orders during the first nine weeks of its fourth quarter.
In conclusion, the 2025 employer NICs rise is a direct increase in labour costs that likely lowers short-term profitability for retail companies such as Domino's Pizza Group, Tesco, Sainsbury's, and Marks and Spencer, especially when combined with other inflationary pressures and minimum wage increases announced alongside NIC changes. How they manage these costs will determine the ultimate impact on their financial performance.
[1] Source: British Retail Consortium [2] Source: Financial Times [3] Source: Retail Week [4] Source: The Guardian [5] Source: BBC News
- For individuals keen on personal-finance management, understanding the implications of increased employer National Insurance Contributions (NICs) on businesses like Domino's Pizza Group, Tesco, Sainsbury's, and Marks & Spencer could be vital, as higher costs might potentially lead to increased prices.
- In the context of business finance, companies such as those mentioned above, which face significant increases in employer NICs and other cost factors, may need to explore various investment strategies to mitigate these expenses, such as improving operational efficiencies, increasing workforce productivity, or passing costs on via supply chain adjustments.
