Investment in the convenience sector fell by nearly 50% over the last quarter as retailers prepared for approaching cost increases relating to business rates and employment. 

According to the latest Association of Convenience Stores survey, convenience retailers invested £154m in their businesses between December and February, taking the total invested in the past 12 months to £846m. In the previous quarter investment levels hit a record high of £299m.

The average investment per store over the quarter was £3,068, with 78% of retailers funding investment through their own reserves. 

The report also identified that 16% of stores plan on investing in their stores over the next 12 months, while only 1% of retailers plan to buy stores.

James Lowman, ACS chief executive, said: “The latest investment figures show that while thousands of stores are making improvements in their business, there is hesitancy to invest at a time when business rates bills are going up for many and the new rates of the National Living Wage come into force in April. The vast majority of independent retailers fund investment through their own reserves, so it’s not surprising that investment plans are being delayed in an effort to prepare for increased costs in other areas of the business.” 

The National Living Wage is set to hit £7.50 an hour for workers aged 25 and over this April, and stores have reacted by cutting employment costs by reducing staff hours and delaying investment, according to ACS research. The business rates revaluation also comes into effect in April.

The ACS has been campaigning for changes to the business rates system which would incentivise retailers to invest rather than penalising them for doing so. The current system views any investment in a store as potentially increasing that properties’ value and therefore increasing their rates bills as a result. 

“The government has taken the short term measure of making discretionary relief available for the hardest hit businesses, but this does not fix the long term problem that retailers are put off improving their stores in fear of huge hikes in their rates bills. During the Budget, the chancellor committed to looking more closely at the way the rates system operates to make it fairer for all businesses, as part of any review he must consider ways to incentivise investment,” added James Lowman.