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CGA Press Release: New Study Finds Extra Pay Grocery Mandates Will Raise Grocery Prices $400 Annually for a Typical Family of Four

Contact: Nate Rose, Senior Director of Communications, CA Grocers Association, [email protected]

Proposals in various cities of up to $5/hour would raise grocer labor costs by up to 28 percent and have negative impacts on customers and employees

Sacramento – A new study released today found that extra pay mandates of up to $5.00/hour for grocery workers, which are being considered in various localities in the state, could raise consumer grocery prices by about $400 annually for the typical family of four. Alternatively, if grocers were forced to find offsetting savings in operational costs, it would mean a 22 percent across-the-board reduction in work hours, hurting the very workers these proposals aim to help. 

“Extra pay mandates will have severe unintended consequences on not only grocers, but on their workers and their customers,” said Ron Fong, president & CEO, California Grocers Association which commissioned the study. “A 28 percent increase in labor costs is huge. Grocers will not be able to absorb those costs and negative repercussions are unavoidable.”

Fong continued, “These types of ordinances cause real economic harm for many grocers and could lead to store closures. If that happens, the grocers would have legal claims against Long Beach and other cities that pass similar ordinances.”

The study was conducted by Mike Genest, the former Director of the California Department of Finance and Brad Williams, one of the state’s leading economists and the former chief economist for the California State Legislative Analyst’s Office. The study evaluated how extra pay proposals in the cities of Long Beach (passed) and Los Angeles (pending) would impact grocers, workers and their customers. The Los Angeles $5/hour extra pay mandate would raise grocers’ labor costs by about 28 percent and would be twice the size of the of the 2020 industry profit margin and three times historical grocery profit margins.

If the Los Angeles ordinance were implemented city wide and grocers passed through 100 percent of the cost, residents there would pay $450 million more annually for groceries. If the $5/hour mandate were implemented statewide it would cost consumers $4.5 billion in additional grocery costs. The conclusions reached in this study can be broadly applied to all grocers in cities where similar ordinances are being discussed.

“Proposals would result in higher costs for groceries and increased food insecurity that disproportionately hurts low-income families, seniors and disadvantaged communities already struggling financially,” said Fong. These proposals could also harm grocery workers themselves if stores are forced to reduce jobs or hours for employees due to higher costs.”

Recently, the LA Times editorialized against the Long Beach and similar mandates pending in Los Angeles City and County, Santa Monica and Santa Ana, noting, Government shouldn’t be picking winners and losers, or who deserves ‘hero pay’ and who doesn’t. The hazard pay proposals are not fair to all essential workers, and they may not be legal.”

A coalition of grocers, small businesses, and community groups also opposed the Long Beach Ordinance in a letter submitted to the Long Beach City Council last week. The coalition letter similarly concludes that “these ordinances are rushed and not adequately researched” and that “extra pay mandates will not make grocery workers any safer.”

“It doesn’t make sense to single out grocery stores for these extra pay proposals when there are many other professions and industries similarly providing essential services,” concluded Fong. “Firefighters, police, health care workers, transportation, sanitation, restaurant workers and many others are essential, yet grocers are the only businesses being targeted for extra pay mandates. Why are they singling out just one industry?”

Study highlights:

  • Contrary to what supporters are saying, average profits in the industry were 1.4% in 2019, with a significant number of stores operating with net losses. While profits increased temporarily to 2.2% during early to mid 2020, quarterly data indicates that profit margins were subsiding to historical levels as 2020 drew to a close.
  • Wage-related labor expenses account for about 16 percent of total sales in the grocery industry. As a result, a 28 percent increase in wages would boost overall costs 4.5 percent under the City of Los Angeles proposal of $5.00 per hour. This increase would be twice the size of the 2020 industry profit margin and three times historical grocery profit margins.
  • In order to survive such an increase, grocers would need to raise prices to consumers and/or find substantial offsetting cuts to their controllable operating expenses, which would mean workforce reductions. As an illustration of the potential magnitude of each of these impacts, we considered two extremes:

1) All of the higher wage costs (assuming the $5.00/hour proposal) are passed through to consumers in the form of higher retail prices:

  • This would result in a $400 per year increase in grocery costs for a typical family of four, an increase of 4.5 percent.
  • If implemented in the City of Los Angeles, its residents would pay $450 million more for groceries.
  • The increase would hit low- and moderate-income families hard, particularly those struggling with job losses and income reductions due to COVID-19.
  • If implemented statewide, additional grocery costs would be $4.5 billion in California.

2) Prices are not passed to consumers and all the additional costs are offset through a reduction of jobs or hours worked:

  • Given that labor costs are by far the largest controllable expense for stores, it is highly likely that the wage mandates will translate into fewer store hours, fewer employee hours, and fewer jobs.
    • For a store with 50 full-time equivalent employees, it would take a reduction of 11 employees to offset the increased wage costs, or a 22% decrease in staff.
    • If the mandate were imposed statewide at $5.00 per hour, the job loss would be 66,000 workers.
    • If imposed in the City of Los Angeles, the job loss would be 7,000 workers.
    • And in the City of Long Beach, the job impact of its $4.00 per hour mandate would be 775 jobs.
  • Stores could alternatively avoid job reductions by cutting hours worked by 22 percent.
  • For the significant share of stores already operating with net losses, a massive government-mandated wage increase would likely result in store closures, thereby expanding the number of “food deserts” (i.e. communities with no fresh-food options).

BACKGROUND:

Since the start of the COVID-19 pandemic, grocery store employees have served on the frontlines as essential workers to ensure customers have safe access to food and daily living essentials. In recognition of these uncertain times, grocery stores have invested significantly in equipment and protocols to protect workers and shoppers, as well as provide extra pay and benefits for grocery workers. Now, 9 months into the pandemic, some California city and county politicians are proposing mandates that either duplicate or significantly expand upon already augmented extra pay and benefits. These proposals would drive up grocery costs for families, and harm community grocery stores and their employees at the worst possible time. A vote on these knee-jerk proposals is premature. Local communities must take the time to carefully study the potential negative impacts that come with such decisions.

Grocery stores have made significant investments to make stores safer for workers and customers.

  • Grocery store workers are indeed frontline heroes, making sure Californians have access to safe, reliable food and supplies throughout the pandemic.
  • Grocers have taken significant steps to protect workers from the pandemic including providing masks and other personal protective equipment, instituting daily wellness and temperature checks, installing plexiglass dividers, enhancing sanitation and cleaning protocols, limiting store capacity, enhancing online orders and curbside pickups, and increasing spacing and social distancing requirements.
  • Extra pay mandates will not make grocery workers any safer.

Grocery stores have provided extra pay and benefit enhancements to support grocery workers.

  • Since March, California grocers have added tens of thousands of bridge jobs at a time when millions of Californians needed reliable good-paying work.
  • To support workers during these difficult times, grocers have provided extra pay and benefit boosts such as:
    • Increased hourly pay by an average of an extra $2-3 per hour.
    • Spot bonuses.
    • Complimentary groceries, gas and other necessities.
    • Increased paid time off, including an extra two weeks paid-sick leave for many workers who are ill, need to care for ill family members or need to quarantine.
    • Benefit plans that cover testing, treatment, and care.

Extra pay mandates could significantly increase food and grocery costs for California families at the worst possible time. 

  • Grocers are committed to paying fair wages and providing the benefits that were collectively bargained by grocery workers’ unions.
  • Higher grocery costs would hurt Californians at a time they are already struggling to put food on the table – and would be especially harmful to low-income, people of color, seniors and disadvantaged communities.
    • 8.2% of Californians are currently unemployed.
    • According to a November 2020 Covered California study, 62% of Californians report having their work hours or income reduced, including 71% of Latinos and 72% of lower-income families. Nearly half (47%) of Californians have had trouble paying some kind of bill as a result of COVID-19.
    • According to a December 2020 Public Policy Institute of California (PPIC) report, at least one in five Californians report cutting back on food including 18% of seniors. Sixteen percent (16%) of seniors 55+, 32% of Latinos and 28% of African Americans indicated needing to receive food from a food bank.

Extra pay mandates would likely lead to increased food insecurity issues that are more abundant for low-income and disadvantaged communities.

  • City and county politicians should be thinking about ways to support grocers to remain open in minority neighborhoods – not create mandates that restrict them.
  • Driving up costs and pushing grocers to close would cause low-income consumers to travel greater distances to purchase groceries while incurring additional costs.
  • Research from Wichita State University has shown that increased costs/taxes drive shoppers across county or city lines. As a result, increased food prices in Los Angeles and/or Long Beach will cause consumers to travel to neighboring cities to purchase groceries.

Extra pay mandates could limit access to grocery stores for consumers and eliminate jobs and hours for grocery workers.

  • In addition to higher food costs, these proposals could cause significant harm to grocers, especially small and ethnic markets and their employees by making it difficult for them to stay afloat. Grocers operate with razor thin margins, even during the pandemic.
  • Mandated higher costs could also force grocers to reduce the number of workers or reduce worker hours to avoid store closures.

Localities need to carefully study the potential harmful impacts on consumers, workers and our communities before rushing to make a decision.

  • Communities should acknowledge the significant steps that grocers have taken to protect workers, and boost their pay and benefits before implementing rigid, duplicative pay mandates.
  • These proposals also ignore the total compensation package provided to many grocery workers, which includes strong health care coverage and reliable pension plans.
  • Some localities are rushing to implement these proposals in just a few short weeks without a complete analysis of their costs, impact to families and communities, and input from businesses.
  • Communities must take the time to do research and understand potential impacts before rushing to a decision that could do far more harm than good.