Independent grocers have experienced a rise in sales during the pandemic, but this increase doesn’t come without a cost.
[Last updated on September 30th, 2020]
How can an increase in minimum wage impact employers and employees? This is a question that we look to answer.
Though sales have remained above the 2019 baseline number, the uptick in sales doesn’t come without a cost. Independent retailers now face an increase in the minimum wage while dealing with the costs associated with COVID-19.
According to the 2020 Independent Grocers Financial Survey, five in six independent operators installed plexiglass shields at checkout to protect associates and customers, and nearly 85 percent of independents have seen changes in overtime expenses, predominantly from lack of associates. Three-quarters, 76 percent, expect this will impact their business costs.
Twenty-one states started the year with higher minimum wages. And with new laws being signed, additional changes are coming to other states.
In states like California, the minimum wage will increase to $15 per hour by January 1, 2022, for employers with 26 or more employees. Yet, for employers with 25 or fewer employees, the minimum wage will reach $15 per hour by January 1, 2023.
Employers, in states, were the minimum wages are rising, need to understand the impact of wage increases on their labor costs. They also need to take into account employer taxes (FICA, FUTA, SUTA) that might increase as well. Modeling the impact of these expenses and their strategies to maintain the bottom line will be crucial.
While grocers are enjoying the sales lift due to COVID-19, sales will normalize, and the ability to manage labor costs will become top of mind once again.
As with most things in life, there are pros and cons to every situation. While the minimum wage increase would be a welcomed change for employees, for employers, it could be an onerous financial burden to overcome. This is especially true for a small family and mid-sized businesses trying to compete with large corporations.
Some supermarket chains may have profit margins or cash reserves to raise the minimum wage. However, small, independent grocers could be affected, especially those located in low-income and rural areas. The increase might also discourage independent grocers from potentially hiring younger workers because of their lack of experience, limited skill set, and short-term job commitment.
Even though minimum wage laws are different for each state, independent grocers need to start crunching their numbers. It is time to reconcile their books to determine their current cash flow, identify ways to cut back, and more so reevaluate their pricing strategy to navigate potential increases in labor costs across the board.