Contact: Nate Rose, Senior Director of Communications, CA Grocers Association, [email protected]
Sacramento – Today it was announced that a Ralph’s store and a Food 4 Less store, both in Long Beach, would be closing due to the Long Beach City Council vote in January to mandate an extra $4/hour for grocery workers in the city.
The statement below can be attributed to Ron Fong, president & CEO, California Grocers Association, which represents grocery stores statewide.
“This is truly unfortunate for the Long Beach community, its grocery workers and consumers, but not surprising given the magnitude of the Council’s actions. The Long Beach City Council rushed to enact the misguided extra pay mandate without any meaningful dialogue with grocers in their community. We repeatedly warned that a $4/hour increase would have major unintended consequences – including potential store closures, the reduction of work for employees, and higher grocery costs for customers.
“A $4/hour increase represents about a 28 percent increase in labor costs for grocers. There’s no way grocers can absorb that big of a cost increase without an offset somewhere else, considering grocers operate with razor thin margins and many stores already operate in the red.
“The Long Beach City Council put politics ahead of families and jobs in the middle of a pandemic. This was entirely avoidable. We are hopeful that Long Beach and other cities reconsider these misguided proposals that do far more harm than good.”
A new study examined the impacts of extra pay mandates in California. Highlights:
- Contrary to what extra pay 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).