SACRAMENTO, Calif. — What do you think about a national $15 minimum wage? I asked this question in February 2020 to a convenience-retailer share group I run made up of decision-makers. Many were struggling with rising wages at the time.
Unbeknownst to us then, the COVID-19 pandemic, which would soon render the 2008 Great Recession from a once-in-a-generation earthquake into a cautionary tremor, was about to change our lives as we knew them.
If only we could return to February 2020.
Wage Warfare
Job-listing company Indeed recently released a report that raises the question: Is $20 the new baseline to attract talent?
No surprise to retailers, wages are swelling more than 5% year-over-year. More troubling is frontline turnover in service-sector jobs like convenience continue to top 100%.
But this is not the story that most concerns me right now. This reflects a market economy sorting itself after a once-in-a-century pandemic, followed by unsated, pent-up consumer demand and an exaggerated pendulum swing of a necessary market correction that appears to finally be heading in the right direction.
There’s something far more nefarious. It’s happening in California—and you’re partially to blame.
Politically faster than storm clouds assembling on a previously blue-sky day, the California legislature passed and Gov. Gavin Newsom signed into law the FAST Act, formally the Fast Food Accountability and Standards Recovery Act.
Nice words: accountability, standards, recovery.
But the story is not so nice for restaurateurs or c-store retailers.
The law empowers a new 10-member Fast Food Council to impose a special minimum hourly wage of up to $22 in 2023 for workers at fast-food chains with at least 100 units nationwide—think Chipotle, Starbucks, McDonald’s and Subway. After this dramatic pay boost, the council will enact annual hikes of 3.5% or the change in the federal consumer price index, whichever is lower.
And here’s the kicker: California already enforces a statewide minimum wage of $15 an hour. I don’t recall seeing a state government ever mandating a special wage for one sector of the economy.
How clever. What looks narrowly focused is quite sweeping. If your local Starbucks is forced to offer $22 an hour, you, Mr. and Mrs. C-Store, will have little choice but to match that if you’re to compete. Otherwise, why would somebody work for you at $15 or even $17 an hour when that person could make 40% to 50% more across the street?
Unions at Work
The idea was hatched roughly two years ago by the California Service Employees International Union (SEIU) and the Fight for $15 organization. But the measure looked dead when it failed last year to gain traction in the state assembly.
It was revived earlier this year and, like high-speed rail, blazed through the assembly, followed by the State Senate in August and signed by Gov. Newsom on Labor Day.
“The SEIU are the smartest guys as far as being effective,” Tom Robinson, founder and chairman of Robinson Oil and its Rotten Robbie c-store network in northern California, told me. “They’ve seen how difficult it is to unionize lower-paying jobs. … So instead of doing the hard work on the ground, they attempted to legislate their agenda. And the business community was caught off guard.”
Interestingly, Newsom’s own Department of Finance issued an analysis in June opposing the measure, saying it would create “significant ongoing costs” and a “fragmented regulatory and legal environment” for employers.
No matter, Newsom put ink to paper, saying the law “gives hardworking fast-food workers a stronger voice and seat at the table to set fair wages and critical health and safety standards across the industry.”
What Newsom did not say is that QSR franchises scraping by will either shutter some stores, lay off workers or most likely, pass the costs onto the customers.
And that’s exactly what c-store operators in the Golden State are expecting as they will feel pressure to elevate store-level salaries.
“We have already been raising pay at a fast clip, and this will be something we will need to budget for,” said Pervez Pir, president of retail at Loop Neighborhood Marketplace, based in the Bay area. “It is certain that all retailers will increase retail [prices] to make up for the increase in pay. We have to be cognizant not to move up too fast and still be competitive.”
Robinson shared a certain irony: that a state mandate aimed at helping lower-income workers will predominantly hurt working-class folks.
“The consumer who pays the most are the lower income. They shop at c-stores, fast-food restaurants and the like,” he said. “In the end, the consumer is going to pay for everything. So, it’s really a regressive tax.”
As for his business, Robinson currently pays store associates between $19 and $20.50 an hour depending on the location. “If and when $22 becomes the baseline for fast-food workers, we’ll need to be at $24 an hour to keep our turnover as low as it’s been.”
Proactive Response
Robinson and other operators I spoke to agree that the business community must be more proactive. It must lay out a compelling case that embraces job creation, is sensitive to a growing economic disparity between the haves and have-nots, and details in eviscerating language how populistic measures like the FAST Act will almost certainly cost jobs.
Two days after Newsom’s signature, opponents filed to force the issue onto a voter referendum with hopes of blocking the law. If they collect enough signatures, the referendum will go on the 2024 ballot and delay the law from taking effect.
But the damage has been done; the precedent set. Unless the business community gets its act together and demonstrates an integrated pro-job, pro-worker commitment, the die has been cast. And not in retailers’ favor.