Food retailers opposed to pay mandates can take comfort from a new report out of Los Angeles. The new analysis predicts higher costs, more closed stores, and delayed retail expansion efforts from such laws, which are spreading along the West Coast.
The report, from L.A. Chief Legislative Analyst Sharon Tso, isn’t totally tilted in favor of food retailers, however.
It says that laws requiring more pandemic pay for grocery and drug store employees — deemed essential during the COVID-19 outbreak — could also bring wider economic rewards and help spark local retail revivals in the short term.
The proposed Los Angeles mandate of $5 per hour, for instance, would give workers a “temporary earnings boost and more spending power, which could trigger a temporary increase in the demand for goods. This extra demand for goods could result in more business activity in the city, benefiting other city businesses. Employees could also use the higher wages to pay down debt or increase their savings rate. The pay increase will be temporary, lasting for 120 days, unless the ordinance is extended.”
But the report also maps out negative impacts — some of them already in play as cities large and small mandate more pay for those workers until the pandemic emergency eases. One immediate consequence includes significantly higher labor costs.
According to the report, an increase of the base wage rate by $5 will increase the labor costs as a percentage of sales from 4% to 5% to between 17% of sales for publicly traded companies and 24% of sales for independent companies.
“Companies would be required to take action to reduce costs or increase revenue as the labor increase will eliminate all current profit margin,” the report states. Already, the Kroger Co. is blaming mandates for upcoming store closings in California and Washington State (where Seattle has passed a pay mandate), and this new report gives reason to expect more such moves.
HIGHER PRICES — FOR THE MOST PART
That’s not the only way that pay mandates could hurt consumers, according to this new report.
“Affected companies could raise prices to counteract the additional wage cost. Economic analysis from the California Grocers Association (which analyzed data from the Bureau of Labor) shows that if grocers pass on the entirety of the hazard pay labor cost to consumers, a typical family of four could see grocery prices increase by $33 per month, for a total of $132 in extra costs over the 120 days the ordinance would be in effect,” the report states.
But that’s the worst-case scenario, according to the research from the L.A. chief legislative analyst.
“Based on our limited discussions with grocers, there is a lower likelihood that grocers would pass on 100% of the labor costs to consumers,” the report said. “Shoppers are extremely price conscious, particularly in chains that serve low-income communities. However, prices could increase on average to a lesser degree.”
Even so, any price increases brought upon by pay mandates — at least in Los Angeles — could hurt lower-income shoppers more than other consumers, the report added.
ARRESTED RETAIL DEVELOPMENT
As for food retailers, other problems brought upon by pay mandates — the report’s scope covers L.A. but its points are widely applicable — included “potentially delayed store openings, renovations and wage increases (and) promotions,” with the latter more likely with non-union stores.
As is usually the case when it comes to profit margins and regulations, independent grocers face more existential pressure from pay mandates than do large publicly-traded food retailers — a point recently reinforced in Seattle via the experiences of PCC Community Markets, one of the country’s most innovative independent grocers. In the last few weeks, the company has complained about how pay mandates could ruin margins before finding a way to make peace with the new Seattle law and organized labor that supports it.
NEW LEGAL TERRITORY?
As the report notes, pay mandates now face numerous legal challenges in federal court, a situation that shows no signs of abating. The cases could set some interesting precedent eventually, at least according to some early analysis of these pay mandate lawsuits — case law that could impact not only food retail but other forms of commerce and their relations to labor.
Bloomberg Law offers a recent example of that point.
“The lawsuits raise novel legal arguments, attorneys say, about whether the new laws related to the pandemic unfairly burden large retail chains and interfere with federal labor law’s power to govern union and company negotiations,” the legal information source reports.
The pandemic has brought many changes to food retail — including the spectacular rise of e-commerce and associated services such as contactless delivery — and you can bet that labor relations and pay also will look at least a bit different once the outbreak subsides.