In a letter sent to staff the company said that the National Living Wage changes mean that they would have to cut costs in other areas.
The letter - partially reproduced on Buzzfeed - says the National Living Wage "will have a significant financial impact on the business" and that Caffe Nero is looking to make "some operational changes". The wage changes, which were imposed on businesses this month, require all workers over 25 to get at least £7.20 an hour.
The changes at Caffe Nero will come into effect on April 11 and mean workers will not get free food, but will receive a 65 per cent discount on food instead, and a 75 per cent discount on packaged drinks.
The staff will still be able to drink as much Nero coffee as they want, and get a discount on Nero products when they are not working.
A spokesperson for Caffe Nero said: "The introduction of a new National Living Wage is a huge potential cost to the business, but also a great opportunity to review pay, and reward employees for their investment in Caffe Nero.
"Pay and benefits is a hugely emotional subject, and so an in-depth internal feedback programme was run by the business over a six month period."
Employees who are paid more than the National Living Wage at Caffe Nero also had a pay review, and the majority will receive a pay increase, the spokesperson said.