Harlow & Fen: paying for retention in a zero-hours bakery chain
Harlow & Fen is a family-owned bakery chain with 14 stores and 210 employees in the north of England. Labour turnover is 38% a year against a regional bakery average of 22%; 82 employees left last year. The HR manager estimates each leaver costs £2,400 in recruitment, induction and lost output, and exit interviews show 46% cite unpredictable hours, 28% pay and 19% lack of progression. About 62% of staff are on zero-hours contracts averaging 26 hours a week. Sales per employee are £41,000, compared with a benchmark of £46,000 for similar chains. The statutory wage floor rises from £10.40 to £11.44 an hour in April, adding an estimated £150,000 to annual costs, while the training budget was cut from £90,000 to £40,000 last year. The board is considering two proposals. Proposal A: guaranteed 16-hour contracts for all staff, costing about £250,000 a year. Proposal B: a £120,000 team-leader apprenticeship programme plus £30,000 of scheduling software that would publish shifts four weeks ahead.
1. Calculate the annual cost of labour turnover and assess how far it accounts for Harlow & Fen's productivity gap.
Read the worked answer
Turnover cost. 82 leavers × £2,400 = £196,800 a year.
Productivity gap. £46,000 − £41,000 = £5,000 per employee × 210 employees = £1,050,000 a year of lost sales, if the benchmark is genuinely achievable in these stores.
Comparison. £196,800 ÷ £1,050,000 ≈ 19%. Direct replacement costs explain less than a fifth of the gap, so roughly £850,000 of the shortfall must come from elsewhere.
Why the £196,800 understates the damage. A new starter is not productive on day one; in bakery work, full output may take 6–10 weeks. With 82 leavers, the equivalent of several full-time posts is permanently in training. Cutting training from £90,000 to £40,000 compounds this: staff learn less, make more product and service errors, and rely on supervisors. Zero-hours scheduling also absorbs management time that could go into selling.
But do not over-claim. The benchmark may reflect store location, shop size or product mix rather than workforce quality; a town-centre store with high footfall will always beat a suburban one. Turnover is partly a symptom of low pay and unpredictable hours, not an independent cause of poor productivity.
Judgement. Turnover is a material but partial explanation. The chain should measure sales per hour worked and absence by store before assuming that retention alone will close a £1.05m gap. Each 1% improvement in sales per employee is worth about £86,100, so even modest gains from better scheduling are financially significant.
2. Evaluate whether Proposal A or Proposal B is the better response to Harlow & Fen's retention problem.
Read the worked answer
Proposal A (£250,000) attacks the largest stated reason for leaving: 46% cite unpredictable hours. If turnover fell from 38% to 24%, leavers would drop to about 50, saving 32 × £2,400 = £76,800. Net cost would still be about £173,000, which requires roughly a 2% productivity gain to justify. A also removes the ethical and reputational criticism of zero-hours contracts and makes recruitment easier. The drawback is that guaranteed hours reduce flexibility: on quiet days staff are paid to stand idle, and some employees on zero-hours may actively prefer variable hours.
Proposal B (£150,000) addresses two causes at once. The scheduling software tackles the 46% hours complaint by giving predictability without guaranteeing a minimum, and the apprenticeship creates the progression that 19% of leavers say they lack. It is £100,000 cheaper and builds skills that support productivity. Its weakness is that software does not pay the rent: if pay and hours security are the real problem, B may not stop leavers. Apprentices may also be poached once trained.
Theory check. Herzberg would classify pay and hours as hygiene factors - fixing them prevents dissatisfaction but does not motivate. Progression and responsibility are motivators. That favours B, but only if hygiene factors are adequate.
Judgement. B is better value per pound and targets motivation, but it is unlikely to work alone while 62% of staff have no guaranteed hours. A phased approach is strongest: implement B now, and offer guaranteed 16-hour contracts only to staff with 12 months' service, which would cost far less than £250,000. Set a 12-month review against turnover, sales per hour and absence.
3. Discuss the likely impact of the wage-floor increase on Harlow & Fen's competitive position.
Read the worked answer
The rise from £10.40 to £11.44 is a 10% increase in the basic rate and adds about £150,000 to annual costs. Against sales of about £8.61m (210 × £41,000), that is under 2% of revenue, but bakery operating margins are thin, so it may absorb most of the profit.
Options and consequences.
- Pass on costs: a 1.75% price rise would recover £150,000. Demand for everyday bakery items is fairly price-elastic where supermarkets and local competitors are nearby, so volume could fall. A 1.75% rise causing more than about 1.75% volume loss would make the chain worse off.
- Cut hours or headcount: reduces cost but worsens the turnover and productivity problems already identified.
- Improve productivity: scheduling software, better training and reduced waste. This is the only route that does not damage either customers or staff.
- Reduce the pay differential: if the floor compresses differentials, team leaders may demand more, widening the cost beyond £150,000.
Judgement. The wage floor is a cost shock that Harlow & Fen cannot avoid, but it is also a chance to redesign the cost base. The weakest response is a blanket price rise; the strongest is to combine Proposal B's scheduling and training with a small price rise on less price-sensitive premium lines. The chain should also check whether its zero-hours model is now a recruitment disadvantage, since competitors offering guaranteed hours at the same legal minimum will attract better applicants.