CSP Magazine

The American Worker Stages a Comeback

After years of stagnating wages, the economic outlook is improving for Joe Six-Pack. Here’s what it means for convenience operators and the VIPs on both sides of the counter.

Bubba is finally getting a raise.

The landscapers, construction workers and blue-collar “Joe Six-Packs” that make up the core of the c-store customer base—as well as the sales associates staffing each c-store’s counter—have been keeping busy. According to an analysis by the Economic Policy Institute (EPI), the productivity of private-sector production/nonsupervisory workers—a group that makes up 80% of private payroll employment—rose 72.2% from 1973 to 2014. However, wages grew only 9.2%.

Americans in the upper-income brackets, meanwhile, saw a healthy boost. Wages for the top 1% of households has leapt 138% since 1979, according to EPI, while the bottom 90% saw only a 15% increase in wages.

Jeffrey Wenger, a senior policy researcher for RAND Corp., Santa Monica, Calif., says increased demand has led to a wage spike for technical occupations and workers with college degrees. But the story for “middle of the road,” non-college-educated workers has been gloomy.

“The median wage is going down,” he says. “Households are actually worse off when adjusting for inflation than five to 10 years ago.”

But change is coming. The U.S. Census Bureau recently announced that median household income in 2015 rose 5.2% from the prior year. This is the biggest increase since before the Great Recession, although it is still 1.6% below pre-recession 2007 levels. The percentage of households living in poverty, meanwhile, fell 1.2 percentage points.

And change is coming from the bottom up. A recent analysis by Bank of America Merrill Lynch found that the lowest-paying industries in the United States have boosted salaries faster in the past year than in higher-paying sectors. Wages for the bottom 20% of industries have risen 3.4% year over year in 2016, compared to a 2.4% increase for the top 80% of the wage market.

And gas stations are a key player in this bottom 20%, with wages up 3.9%.

The economists behind the study cite a couple of possible causes: a spate of increases in state minimum wages over the past year, as well as a smaller reservoir of young workers without a college degree.

Meanwhile, the pool of workers with at least some college education is growing. This has real implications for the c-store’s future workforce and costs.

“You might see a higher share of more educated workers—low-wage employees with bachelor’s degrees or higher—going into these sectors,” says Lisa Berlin, U.S. economist for New York-based Bank of America Merrill Lynch. “And that could be a cause of additional wage pressure.”

C-store retailers are feeling it. In a CSP survey, nearly 40% of retailers said they were raising their starting wage to be more attractive to potential recruits. Reading, Pa.-based Redner’s Markets is one of them. The retailer began raising wages in 2015 after heavy competition for workers from big-box chains.

“We began to feel some of the effects of the competition moving their rates,” says Bob McDonough, Redner’s vice president of human resources. “Our concern was that we were not likely to improve by doing nothing.”

Redner’s is not alone. The c-store industry is having to react to the changing fortunes of American workers, and salary is just one component. Their pocketbooks are a bit fatter, their well-being is increasingly the center of social-justice activists and organizers, and their disenchantment with the political system has shot a populist streak through all parties, major and minor.

In everything from wages to sales, crime and, soon, the 2016 presidential election, Bubba is truly back.

Table of Contents

Retailers Wager on Raises

Quality Over Quantity

Consumers' Economic Twofer

Criminal Matters

Vote for Prosperity

Economic Data Points

Retailers Wager on Raises

By summer 2015, Redner’s Markets faced a serious problem.

The company was having problems staffing its 44 supermarkets and 13 Quick Shoppe c-stores. Wal-Mart, a giant competitor on the hiring front, had increased base wages first to $9 in 2015, and later to $10 in 2016. Other retailers such as Target were following suit.

So Redner’s made a move. In June 2015, the chain began raising wages. But rather than take a one-size-fits-all approach, Redner’s took a tailored one, beginning with an increase in its starting rates to make it competitive with big boxes, and then evaluating each existing associate and assigning a new pay rate that reflected his or her performance.

It focused increases on key positions for which turnover was greater, such as the third shift in its c-stores. For that shift, the average rate rose from $8.75 to $10 per hour.

“We had to make adjustments for our existing employees and honor their service time,” says McDonough. “But we did that … by evaluating their skill level, attendance and overall performance.” Redner’s also gave store managers the ability to adjust wages for employees whom they felt were underpaid.

Better-performing employees got a boost to a higher rate, while lower performers’ rates stayed the same. Redner’s also has a bonus program that pays out to employees at the end of each year based on store performance.

“We didn’t really do anything across the board. We did it store by store or region by region,” says McDonough. For some stores, rates were already competitive, so they did not change much. Others, because of the competition and cost of living in their markets, got a boost.

Redner’s spent more than $2 million on the wage increases, absorbing them without cutting its workforce, raising prices or taking other benefits away from its employees.

The investment, says McDonough, is paying for itself in retention. Turnover has dropped 1% for the entire company.

“It doesn’t seem like a lot,” he says, “but if you can reduce turnover in our size company by 1%, that’s a meaningful change.”

The decreased turnover adds up to the equivalent of 77 employees over a 12-month period, for a total estimated cost savings of $185,000.

An added bonus: Improved retention sparked better service at Quick Shoppe stores, which have enjoyed a 3% increase in sales since the wage increases took effect.

Continued: Quality Over Quantity

Quality Over Quantity

An hour away in York, Pa., Rutter’s Farm Stores raised starting wages to $10 an hour in November 2015, ahead of wage inflation in its markets. It faces heavy competition for workers from warehouse distribution centers in the area, which offer premium wages.

“They were starting wages up in the $12- to $14-an-hour range,” says Scott Hartman, president and CEO of the chain of more than 60 stores. “People like retail and really want to work retail, but once the gap gets too large, then they take the job they really don’t want … because of the wage.”

All Rutter’s employees received raises at the same time, although not necessarily in the same proportion. The wage increases, which included store managers and employees at headquarters, cost about $1 million annually. And the move is already drawing more applicants to the chain.

“The number of applications has gone up quite a bit, and when we enter new markets it’s always a good number,” says Hartman. The quality of the applicant is also good or even better than before. Rutter’s hires only a slim percentage of the people who apply “so we have to make sure that our applicant pool is as good as we can get.”

Nearly nine out of 10 respondents in a retailer survey by CSP said they were raising starting salaries or improving benefits to increase their attractiveness as an employer.

It’s a step that chains across the country, including operators such as RaceTrac, Enmarket,

Ricker’s Oil and Cumberland Farms, have made over the past year.

Sheetz Inc., Altoona, Pa., boosted starting pay in January 2016 to an average of $10 an hour. According to Bill Young, director of total rewards, talent acquisition and risk  management for the chain of more than 500 sites, the pressures were numerous.

“A lot of retailers were starting to bump wages,” says Young. This includes fellow Pennsylvania-based retailer Wawa, which engaged in a small wage war with Sheetz. “There was always continuous movement and discussions on the federal minimum

wage. We just felt for us to really attract and retain the top-quality employees that we want, we needed to make sure we were positioned in that 90th percentile of the market.”

The chain based its wages off the salesperson position and conducted surveys in the six states where it operates to target the right number. Sheetz also introduced a six-month increase in wages, which joined one-, two- and three-year increases.

It also evaluated and adjusted wages for shift supervisor, assistant manager and store manager positions, again based on survey data to keep them in the 90th percentile for those positions in those markets.

Sheetz also benchmarked wages against its biggest competition for workers: upscale fast-feeders such as Panera Bread and Chik-fil-A, as well as retailers such as Target and Kohl’s “because that’s really the employee we are going after,” says Young.

The retailer’s head count has grown about 8% per year, although this has fallen recently as the company transitions more of its workers from part time to full time. The preference of one full-time employee over two part-timers delivers significant rewards for the employer, says Young: Full-time positions enjoy one-quarter to one-third lower turnover than part-time positions.

In CSP’s survey, nearly 38% of retailers said their turnover has been higher in 2016 compared to 2015.

The price tag for Sheetz’s wage increases: $15 million. And, like Redner’s, it paid for the increase without cutting back on hours for full-time employees. For now, the retailer is absorbing the cost.

Continued: Wages Rise; Gas Prices Fall

Consumers' Economic Twofer

The American consumer has some money to burn, thanks to higher wages and lower gas prices.

“Average hourly wages in July were up 2.6% from one year ago. That’s still below the long-term average but well above inflation, delivering real gains to Americans’ paychecks,” says Jessica Jaffe, community expert for Glassdoor, a Sausalito, Calif.-based employer review website. “This suggests a tightening labor market.”

As the country moves into another 12 months of positive employment growth, wage pressure will continue to build.

“Since the late 1990s, so many young workers haven’t had an opportunity to enter a labor market where wages are growing,” says Wenger of RAND Corp. “We’re finally getting back to that point after the brutal recession.

“I’m pretty bullish on the labor market in general.”

According to 2016 research from Technomic, 38% of consumers expect the economy to improve in the coming year, with millennials the most optimistic at 44%.

Beyond wage increases, consumers also have extra money in their pockets from low gasoline prices. In an analysis of spending by Chase credit and debit-card customers in 23 states, JPMorgan Chase Institute found that middle-income households saved about $480 in gasoline costs in 2015 compared to 2014—a year that saw low gas prices, too.

For 60% of households—those in the bottom three income quintiles—this represented a 1% increase in their annual income, or the equivalent of half of a mortgage or rent payment.

Where are they spending these savings? According to the JPMorgan Chase Institute analysis, 24% of it went to more gasoline, while 45% of it went to other goods and services, in particular restaurant meals and retail purchases.

“People in the [c-store] industry are reporting some good increases in nonfuel sales; definitely the customer has more money in their pocket than they otherwise would have,” says David Nelson, professor of economics at Western Washington University and president of Study Groups, Bellingham, Wash. Thirty percent of consumers in Technomic’s survey said they were spending more at c-stores in the past year because of lower gas prices. For superheavy c-store customers, 62% said their spending increased in the channel.

And according to a CSP retailer survey, nearly two-thirds of respondents said low gas prices have affected their sales, with nearly 43% enjoying higher in-store sales. More than a third reported higher fuel sales.

But the positive effects of low gasoline prices will not linger much longer, so the industry should make the most of these heady days while it can.

“Retailers have gotten the big benefit of a huge drop in gas prices and huge margins—that’s over,” says Nelson, citing the overall forecast for fuel prices and demand in 2017. While he anticipates it will be a “solid” year, “I don’t think this will be a record year like 2014 and 2015.”

Continued: Criminal Matters

Criminal Matters

For the second consecutive year, shoplifting outpaced employee theft as the leading cause of losses at retail outlets across the United States.

According to the National Retail Federation’s (NRF) 2016 National Retail Security Survey, shoplifting accounted for 39% of inventory loss, while employee theft made up nearly 36%. It’s a trend echoed by convenience retailers who are members of the Loss Prevention Network (LPN), a group open to all loss prevention, security and safety professionals in the convenience-store industry.

“Historically, it’s always been employee theft accounting for about 80% of losses,” says Bill Ritter, president and CEO of Ritter & Associates Loss Prevention, Toledo, Ohio.

Ritter conducted a recent survey of LPN members for CSP and found signs of improved industry labor practices in the results.

Better training and hiring practices, higher wages and benefits, and advances in technology have led to some improvement in industry turnover, which shows up in the decrease in employee theft, Ritter says.

“I’ve always felt that losses and turnover go hand in hand,” Ritter says. “We as an industry did a lot to combat that [turnover]. As turnover rises again, it generally leads to higher losses as well.”

And with the economy improving, that turnover is beginning to inch up as employees have access to more jobs. When the economic downturn started in 2008, it wasn’t uncommon to have 150% turnover in the industry, Ritter says. After a period of decline, the metric is again creeping up. The NACS State of the Industry Survey of 2015 Data reported employee turnover was 88.9% in 2015, compared with 77.3% in 2014—an increase of nearly 12 percentage points.

Double the Crime

The rise in shoplifting may be at least partially attributable to another type of crime affecting convenience stores: drug abuse. According to the United Nations, the number of heroin users in the United States has hit a 20-year high, while deaths have quintupled since 2000.

“With an increase in addictions, many have a need to steal to support the habit,” Ritter says. An accompanying craving for sweets also could lead to shoplifting, he says.

One LPN member—a c-store retailer with stores in the Northeast and Midwest who requested anonymity—says heroin is a significant problem, especially in New York.

“We find evidence of drug use (needles) in the restrooms and around the parking lot and behind the stores,” the retailer says.

Another retailer in the Southeast said drugs are a constant problem and heroin now is “the drug of choice.”

About half of the retailers responding to the LPN survey cited a growing problem with finding drug paraphernalia, especially discarded needles, in store restrooms and parking lots. Respondents attributed the problem to customers, citing they have pre-employment drug testing, as well drug testing after any incident in which an employee is injured.

With shoplifting and shrink on the upswing, retailers are feeling the pinch. NRF says almost half of retailers surveyed across all channels reported increases in overall inventory losses. At the same time, loss-prevention budgets remained flat as a percentage of sales.

Regardless of whether economic conditions are an indicator of crime rates, inventory losses create a drag on the overall U.S. retail economy—to the tune of $45.2 billion in 2015.

Continued: Weighing the Presidential Election

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