By Sylvain Charlebois on June 2, 2020
The economics of pay increases in the retail sector are always weak, especially in food retailing, which has low margins
‘Hero pay’ is quietly fading away in grocery stores and food distribution centres. That’s quite the reversal from 10 weeks ago.
The American-based Kroger supermarket chain, among others, even asked employees to return the extra money they received. It has since backed off.
It appears higher salaries in grocery stores were short-lived. It’s not overly surprising, given the high-volume, low-margin nature of the business.
But it will likely create a rift between employees and companies.
American retailers like Target, Walmart, Whole Foods, Costco, Sprouts and Kroger implemented hero pay early on in the COVID-19 pandemic.
In Canada, Sobeys, Quebec-based Metro, Vancouver-based Save-On-Foods and Loblaws did the same. Sobeys every employee $50 and an extra $2 an hour for staff working more than 20 hours a week. Loblaws is giving all its staff an additional $2 an hour.
Most of these programs will likely end in soon. Some grocers, like Sobeys, have announced they plan to reassess the program. Calgary Co-op eliminated its COVID-19 wage stipend for front-line employees on May 30.
More than a dozen grocers in the United States have announced they won’t renew their pledge to workers.
The idea of offering some sort of danger pay to front-line food industry workers is clearly losing steam. Chances are these stipends won’t survive the summer and perhaps won’t even be resurrected during a possible second COVID-19 wave.
The economics of pay increases in the retail sector are always weak, especially in food retailing. With such low margins, these stipends were offered simply to keep enough staff around and not have operations affected by higher absenteeism rates.
But COVID-19 fears are slowly fading and so is the need to create incentives to get employees to show up for work.
The money will instead be spent on personal protective equipment and shields, which are likely to remain in place for a while.
This is disappointing for employees but not surprising.
The average salary in Canadian grocery stores is less than $30,000, or $15 per hour. Employees start at around $13 an hour. The highest paid employees earn almost $50,000 a year, tops. Hero pay represents a 10 to 15 per cent increase in pay.
Given that the average Canadian grocery store has about 80 full-time employees and that payroll represents roughly 30 per cent of operating costs, hero pay made the average store almost unprofitable.
At the beginning of the pandemic, sales increases came out of nowhere, so salaries weren’t an issue. But lower sales numbers now mean the initiative isn’t sustainable.
The only way to sustain the extra pay is to increase food prices. Food inflation could push food prices higher for a while but there may not be enough room for higher wages.
Grocers also need to think about e-commerce as we manoeuvre thought the COVID-19 era. That will bring its own load of extra costs.
COVID-19 made us realize that many people whose jobs are too important to halt are the ones making the least money. And many are in public-facing jobs with higher risks of contracting diseases.
These employees are mostly women, students and seniors. And in many cases these people need to hold more than one job.
For the first time ever, grocery clerks and front-line workers in food distribution were considered heroes. They were praised constantly.
Higher wages over time would have redefined many of these roles and allowed grocers to attract a different crop of talent, not just those simply looking for a job.
Also, labelling it hero pay was never going to end well. As businesses get back to normal, grocers must get their expenses, including pay, back to normal as well. But normal will not be the same coming out of COVID-19.
The grocery landscape will probably change, with fewer stores and less stock variety, due to higher distribution costs.
Grocers could afford to pay employees more to support a different business model, focused on analytics and omni channels. To support such bold ambitions, hiring talent would make sense – but that always comes at a cost.
So ending stipends in grocery stores may be a missed opportunity.
Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.