More than 20 Local Chambers Join CalChamber Letter Opposing Mandated Payroll Increases

Over strong objections from California’s grocers, retailers, restaurants, and chambers of commerce, at least sixteen cities and counties have either passed or are considering ordinances to mandate increases in pay of up to an additional $5.00 an hour for all workers in many industries.  While many of the proposed ordinances only apply to grocery stores, some local entities, including the City of Los Angeles and Santa Clara County, are considering expanding that mandated pay increase to other industries such as restaurants, pharmacies, and healthcare. CalChamber and more than 20 local chambers submitted letters to these local entities respectfully requesting they reconsider these proposals given the costs businesses are facing as a result of the COVID-19 pandemic.

Even proponents of this increase do not deny that the grocery industry operates on razor-thin margins. According to a recent study on this issue, average profit margins for the grocery industry were approximately 1.4% in 2019, far below the average profit margins of other industries. The industry saw a slight increase in those margins to about 2-3% in early to mid-2020, but those profit margins have since fallen to pre-pandemic rates. Profits are also inconsistent between stores. It is estimated that up to one third of all stores incur net losses and are propped up by other stores that do profit, which is why so many large grocery stores are part of larger conglomerates. Though many ordinances claim to only affect large publicly traded corporations because they apply to grocery stores with 300 or more employees nationwide, some council members have pointed out that the ordinance would therefore still apply to smaller, independent grocers in the area that are a part of the larger corporation. In the case of San Jose, the city council passed the ordinance over concerns about this and rejected a proposed alternative that would have carved out those smaller grocery chains.

Grocery stores and retailers have done a lot to show appreciation for employees in 2020. Many provided temporary $2-3.00 hourly rate increases and bonuses. Unfortunately, the brief increase in sales that made those increases possible have since declined. These prior voluntary wage increases are now being used against stores to say that if the stores provided these increases once before, they can do it again at double the hourly rate increase. With sales falling back to pre-COVID-19 numbers, it is extraordinarily difficult for grocery stores to sustain such a sharp payroll increase. An across-the-board increase as proposed by these ordinances would increase labor costs approximately 28% for grocery stores and increase the amount of sales needed to pay for labor costs from about 16% to about 19-20.5%. This 3-4.5% increase in sales needed to cover those costs exceeds grocery stores’ profit margins.

It is crucial to also view this issue in light of all of the costs that businesses have faced throughout COVID and are still facing. All California businesses have incurred significant costs to keep their employees and customers safe and to comply with constantly changing guidance from local public health departments and the California Occupational Safety and Health Administration (CalOSHA). Those costs include:

  • Providing employees with personal protective equipment
  • Increasing sanitation and cleaning protocols
  • Installing protective equipment, including plastic barriers, and social distancing markers
  • Providing supplemental paid leave
  • Providing uncapped paid leave under the CalOSHA Emergency Temporary Standard (ETS) for all employees who are diagnosed with COVID-19 or may have been exposed
  • Hiring and training workers or paying overtime wages to existing workers who fill in for those out on paid leave or who are excluded under the ETS
  • Paying for biweekly or weekly COVID-19 testing under the ETS

Many companies have spent millions or billions of dollars on these protections and that cost will keep growing as the vaccine rollout remains slow. Grocery stores’ efforts to protect employees are proving effective. According to CWCI’s workers’ compensation claims tracker, less than 1% of COVID-19 workers’ compensation claims in California have been filed by grocery store employees.

While mandating such significant pay increases to all grocery workers may directly benefit those workers, it will have negative impacts to the industry as a whole and reduce the ability for the stores to hire back more employees, or maintain existing levels of other wages or benefits for employees in the industry.  It is also likely to result in higher food costs of approximately $400.00 annually per household of four, which many Californians can simply not afford.

As a result of the Long Beach ordinance that took effect several weeks ago, mandating a $4.00 per hour increase for grocery workers, the Kroger Company announced that it was forced to close two of its struggling stores in the city. The company reported that it has spent approximately $1.3 billion on additional pay to associates and COVID-19 related safety measures. That $1.3 billion cost does not include paid leave offered to employees due to the pandemic. Store closures in other cities are likely if companies are no longer able to prop up their failing stores.

It is crucial that cities and counties take the time to research the economic effects these proposals will have on businesses, the workforce, and the cost of goods in their local community.

Ashley Hoffman, Policy Advocate