CSP Magazine

Cover Story: Wage Rage

Amid minimum-wage debate, retailers look to balance the need to make a living with the need to provide for one

What is an hour of work worth? $7.25 an hour? $10? $15?

It’s a question that c-store retailers and other industries with a base of low-wage workers are grappling with against a national debate on whether it is time to raise the federal minimum wage, which has sat at $7.25 an hour since 2009.

In a recent CSP poll of more than 200 c-store retailers, nearly 60% opposed raising the federal minimum wage. “I will pay my employees according to their value, but I do not understand the minimum wage increasing to amounts above what some of my employees should be earning,” one retailer said. “Make a reasonable minimum wage and let me work with it.”

For those who supported an increase, most—42%—favored an increase to no more than $9 an hour, below the Obama administration’s proposal of a $10.10 wage. And nearly 40% believed there should be no federal minimum wage at all.

“I believe the market determines the wage; it shouldn’t be regulated by the government,” said one retailer. “The cost of living varies widely across the nation, so how can there be a federal minimum wage?”

Similarly, a 2014 CNNMoney-Manta survey of small-business owners found nearly one-half opposed to increasing the federal minimum wage. Meanwhile, poll after poll—from Gallup, Pew Research and others—show the public overwhelmingly supports an increase, especially as a discussion on the growing inequality gap occurs.

This dynamic has kept industry advocates relatively muted in their opposition. While the National Retail Federation, the U.S. Chamber of Commerce and other business advocacy groups are lobbying hard against an increase, NACS has chosen not to at the direction of its board of directors.

Even as efforts to increase the federal minimum wage hit Congressional quicksand, states and cities have taken the initiative, with 34 considering increases during their 2014 session, 10 passing them and four embracing the $10.10 minimum. Separately, several cities have passed even more aggressive wage increases, led by SeaTac, Wash. (the city surrounding Seattle-Tacoma International Airport), at $15; Seattle mulling a match; and Los Angeles and Chicago considering about $13 an hour.

Amid a tsunami of popular support, where do—and should—c-store retailers stand?

CONTINUED: Where Do C-Stores Stand?

“It is a complicated question,” says David Nelson, professor of economics at Western Washington University, Bellingham, Wash. “Most employers I know do care about employees and do want them to do well; at the same time, they are operating in a fiercely competitive environment.”

Just ask Mike Marcotte, owner of Jimmy Kwik, a c-store in Newport, Vt. The state recently approved a  stepped increase in its minimum wage from $8.73 to $10.50 an hour by 2018; it then indexes the rate to

inflation beginning in 2019. Marcotte has only seven employees, including himself and his wife. Meanwhile, he competes with four other c-stores for the business of his small, 4,200-population town. For him, it’s a question of survival—his own.

“When you’re competing against other big chains that can absorb some of these costs, and they’re purchasing products in bulk volume and getting a better discount on their soda, cigarettes, chips, it makes it really difficult for small mom-and-pops to compete,” he says. “Anything that continues to increase your costs comes off the bottom line for what you’re able to take home and survive on. “It’s not that people don’t deserve it,” he continues. “But if you’re trying to survive …”

Marcotte is perhaps more familiar with the issue than other retailers. He represents the town of Coventry in Vermont’s citizen legislature, and he serves as vice chairman of the Committee on Commerce and Community Development.

While he supported the $10.50 rate, he opposed indexing it because it makes changes tough to predict and react to, especially for small retailers like him.

“If things continue the way they are and more and more mandates are put on, I don’t know how much longer I can serve in the legislature,” he says. “I may have to quit to come home and work full time with my wife. We’ll have to cut back on labor and lay off people in order to survive.”

With momentum in favor of a wage increase—first on the city and state levels, and eventually the federal—retailers will need to come up with a game plan or risk having their hand forced. This year, employees at a Pilot Flying J truckstop in Bloomsbury, N.J., voted to join the Retail, Wholesale and Department Store Union (RWDSU), including cashiers, gas-pump attendants, maintenance employees and later the staff in its Subway restaurant.

Kathy Campbell, an organizer for the New York-based RWDSU, says employees were motivated primarily by one issue: pay. She said the Pilot Flying J employee who asked RWDSU for help in forming a union had been earning just above minimum wage since 2011. Most of the employees were making minimum wage, she says, while some who had been there for 12 years were earning $11 per hour.

“What happens now is we negotiate and try to make the workplace better, get a better starting salary,  understanding this is a retail truckstop,” says Campbell. “Workers are out there working day in and out, and deserve a living wage.”

CONTINUED: Pros and Cons

Pros and Cons

There is no official figure for the percentage of c-store hourly workers paid the federal minimum wage. According to NACS, the average wage for an hourly c-store worker was $10.51 per hour, with a median of $10.30 an hour, in 2013.

Compensation data provider PayScale Inc. shows an average range of $8.25 to $8.52 an hour for gas station attendant, cashier and customer service representatives (CSRs), with assistant managers earning $9.63 to $11.01 an hour.

“There’s no question that a whole lot of people in the c-store industry are paid less than $10.10, even if starting wages are currently above minimum wage,” says Nelson.

The Southeast, where most of the states have no minimum wage or a rate lower than the federal, has the greatest percentage of hourly workers paid at or below the federal minimum wage, led by Tennessee at 7.4% of hourly workers. The next four are Idaho, Alabama, Arkansas and Texas. The West has the lowest share, with fewer than 2% in Washington, California and Oregon—all of which have state minimums above the federal wage.

Of course, the cost of living in the Southeast is also lower than in other regions, some argue. “A federal minimum wage is a one-size-fits-all approach to lifting people out of poverty,” Nelson says. “What it takes to live in Seattle is very different than what it takes to live in a community in Mississippi.”

Nelson believes the answer to the question of whether to raise the federal minimum wage—or state or local wage, for that matter—depends on one’s personal philosophy. Is it meant to be a livable wage or simply a beginning wage for those new to the labor force?

The annual earnings of a full-time worker at minimum wage is $15,080, which is above poverty level for a single person, just under the level for a two-person household, and well below that for a three-person household—such as a parent with two kids.

“In the sense of thinking through the economic justice, you would say: Shouldn’t someone committed to working full time in this country earn enough money that they could live at some adequate level?” says Nelson. “In that sense, saying we ought to do more to raise the minimum makes sense.”

In the CSP survey, of those who supported an increase in the minimum wage, about 15% said it would help address the income inequality gap.

“As a taxpayer, I don’t believe I should subsidize employers who pay so little that their employees collect government [benefits],” said one retailer.

“Improve the quality of [the] workforce by addressing income inequality,” said another.

“[The minimum-wage increase] will enhance the quality of life of our employees and anything that does that I’m very supportive of—as long as it’s a level playing field,” says Peter Van Alyea, CEO of Redwood Oil Co., Rohnert Park, Calif., which has 22 sites in Northern California, most branded Redwood Markets.

The company’s starting pay is above the California minimum wage, which rose from $8 to $9 per hour in July and will rise to $10 per hour Jan. 1, 2016. To prepare for the coming increases, Redwood raised its starting pay (as well as the pay of its cashiers, who were also at starting pay) by 50 cents. It made other adjustments to wages on a case-by-case basis. While the retailer made no cuts to hours or price adjustments, it plans to in the future to recoup the increased costs.

“As long as there is a level playing field, this is not necessarily negative,” says Van Alyea. “We can’t absorb these increases, so we have to pass them on to our customer. At the same time, it increases the livelihood and well-being of our employees.”

In a recent earning call, Brian Hannasch, COO of Alimentation Couche-Tard, Laval, Quebec, supported an increase in the minimum wage because it would benefit employees and customers.

Couche-Tard has more than 3,000 Circle K corporate-owned sites in the United States. Citing that Couche-Tard typically already pays above minimum wage, Hannasch said, “Certainly if there is a federal, or we see sporadic state increases, that will increase the overall wage complex of our employment pool. It’s something we are anticipating, something quite honestly we feel needs to happen. Our core consumer is largely a part of the lower- to middle-income consumer base, and we need them to have more money in their pockets.”

On the flip side, detractors point to studies showing an increase would mean lost jobs. The nonpartisan Congressional Budget Office in February released an analysis finding that increasing the federal minimum wage in three steps to $10.10 per hour by 2016, as proposed by the Obama administration, would lift around 900,000 people out of poverty.

However, it could also result in the loss of employment for about 500,000 workers. A later analysis by the Department of Labor, however, showed states that have raised their minimum wages saw little change in their unemployment numbers.

In fact, 13 states that increased the minimum at the beginning of 2014 actually saw the number of jobs grow at an average rate of 0.85% during the first half of the year, compared to 0.61% in the other 37 states.

CONTINUED: The Issue's Rising Tide

A Rising Tide

While states are quickly approving increases to their minimum wages, cities are leading the most aggressive pushes because their costs of living are higher and legislation tends to pass more easily thanks to strong local support. SeaTac famously decided to raise its minimum wage to $15 per hour this year, and it was soon followed by Seattle. Chicago’s mayor is pushing for an increase of the city’s minimum wage from $8.25 to $13 per hour by 2018; New York City could boost it to $13.13; and a push is underway for a $15 minimum in Los Angeles.

As each city increase passes, it creates an uncertain and uneven playing field for businesses, opponents argue.

“When you start talking about $10, $15 an hour, you’re talking about a shock to the system,” says Steve Montgomery, president of b2b Solutions, a retail consultancy based in Lake Forest, Ill. Such large increases can also place retailers at a competitive disadvantage to those outside the wage increase’s boundaries, he argues, similar to when a tobacco tax increase in a city or state boosts tobacco sales for retailers nearby.

“We don’t like a patchwork of employment policies around the state,” says Shawn Miller, a lobbyist for the Northwest Grocery Association, Wilsonville, Ore., citing the Seattle increase in Washington. “That goes for minimum wage, sick leave and other employment policies. We have stores in all of these areas and we like to keep it consistent.”

At least one state is heading off these city-specific increases. After a petition to place a wage increase proposal before voters in Oklahoma City began to gain momentum, the state of Oklahoma—with the support of many in the business community—passed a law barring cities and towns from increasing their own minimum wage.

“Most retailers—and QuikTrip is not unique in this—like to have uniformity,” says Mike Thornbrugh, spokesperson for QuikTrip, Tulsa, Okla. “You have groups circulating petitions to raise minimum wage in specific cities. These attempts have not been successful so far, but this is something that would make it difficult to manage a business.”

Shifting Costs

With so much focus on increasing wages for workers earning the minimum, it is easy to underestimate the full impact on the retailer. That’s because raising the wage of that bottom employee typically means a raise for those further up the wage chain, too.

“To maintain the integrity of the salary structure, there will have to be a reevaluation of the whole wage scale for a certain spectrum of worker,” says Nelson.

“It frustrates employers in building a tiered compensation structure in which the newest employees receive the lowest compensation,” agrees Jay McKeeman, vice president of government relations and communications for the California Independent Oil Marketers Association (CIOMA), Sacramento, Calif. “It interferes with your abilities to build a structure of increased pay and benefits for motivated employees.”

Large chains that already pay above-average wages will be able to absorb much of the cost increases associated with a minimum-wage increase, to the point that it becomes a non-issue.

QuikTrip has been paying above minimum wage since Chester Cadieux founded the company in 1958, says Thornbrugh.

“We pay our people a livable wage, and beyond whatever their hourly wage is, store employees receive bonuses based on the company’s overall performance, their customer service, longevity with the company and attendance,” he says. “When you add all those [incentives] up, it comes to far above minimum wage, so this is really not an issue for us at all.” (See sidebar on p. 6.)

Bill Young, director of compensation, benefits and risk for Sheetz Inc., Altoona, Pa., says his chain has briefly discussed the potential impact.

“In the majority of our markets, we’re much higher than the federal rate now. So if the federal rate would increase, we wouldn’t need to make many immediate changes to our current wage structures,”

he says. “From the standpoint of where our wages are positioned today, we feel pretty comfortable. We try to position our starting wages to be in the 90th percentile of the markets where we operate.”

But with more than two-thirds of the c-store industry composed of small operators, such generosity tends to be the exception rather than the rule. Retailers such as QuikTrip and Sheetz have very high-volume stores, where the gross-profit dollars per labor dollar spent or per labor hour is huge compared to the industry average, Nelson says.

CONTINUED: Making the Tough Decisions

Tough Decisions

For the average operator, an increase in the minimum wage means making hard decisions about where to find the money to pay these additional costs. It could mean cutting back store hours and eliminating a position, for example.

Montgomery of b2b Solutions points out that the average fourth-quartile c-store suffered a $1,123 pretax loss in 2013, according to the NACS State of the Industry Report of 2013 Data.

“Twenty-five percent of the stores that reported in the survey already lost money,” he says. “An increase in their labor expense would likely increase their loss and perhaps force them to close.”

At Jimmy Kwik, Marcotte has cut back on the hours its nearby redemption center is open, which means fewer hours for his part-time employees. “We’re going to look at raising our prices,” he says. “But we’re going to have to see what other stores are going to do in the area so we can stay competitive.”

Some retailers have gotten creative, reportedly adding a line-item surcharge to in-store purchases to reflect the increased costs associated with local minimum-wage increases. (Considering the customer blowback restaurants have experienced because of similar moves, however, one can question the business case here.)

Others are taking a look at their mix of younger employees to better leverage looser pay requirements in some states for these workers. Take, for example, Vermont.

“In our case, unemployment is on the lower end of the range, and that forces employers, especially in the service business such as c-stores and restaurants, to really look at their offer, in terms of dollars and cents and also in terms of other offerings,” says Jim Harrison, president of the Vermont Retail & Grocers Association, Montpelier, Vt.

For example, while retailers may not have differentiated between high school and college-age students in the past, they are now as the minimum wage increases.

“They may hire high school students [who] could be exempt from Vermont minimum wage and would work for the federal minimum wage,” says Harrison.

Minnesota passed a staged increase of its minimum wage, with different size increases and minimums for small and large businesses. Jamie Pfuhl, president of the Minnesota Grocers Association, St. Paul, Minn., says his group was able to secure a provision in the new law that starts any employee who is under 18 at the more modest small-business wage, regardless of the size of company.

While it helps trim some of the employers’ cost increases—there are not many entry-level minimum-wage employees over 18, says Pfuhl—it won’t cushion them much from the brunt of it.

“You’re going to see some of these costs passed onto consumers, because business as usual can’t continue,” says Pfuhl. “We’re going to see more shifting of workers’ schedules. You’ll see fewer workers with higher compensation. And I think you’ll see higher prices with fewer service options.”

“You want to hire the most productive workers you can, for wages you need to pay,” says Nelson. “And you will have to look at the operating hours of your stores and make sure, at an hour-by-hour basis, the gross-profit dollars coming in are in excess of what are needed to keep them open.”

Small, family-operated businesses may also consider that The Fair Labor Standards Act’s (FLSA) minimum-age requirements do not apply to minors who are employed by their parents, or by a person acting as their guardian. “This might actually give them a competitive advantage in competing with other retailers who are utilizing non-family labor,” says Montgomery, citing that it is a common scenario for many independent c-stores run by new Americans, “where the only one drawing a check is Dad.”

Beyond these tactics, retailers may also consider technological solutions. One Los Angeles-area retailer surveyed by CSP said he may make a drastic leap if activists are able to get a $15 minimum wage approved by voters.

“We pay above even California’s minimum wage,” he said. “But if the $15 wage passes, I will replace at least one cashier with a self-service machine.”

Of course, no one—retailer, policy maker or minimum-wage earner—wants this to happen. Time will reveal the choices employers have made to meet their obligation while maintaining their livelihood.

“It’s a fine balance we have to take,” says Marcotte. “We can’t go too far on the labor side and injure businesses, and we can’t go too far on the business side to injure the working class, the employees. One can’t exist without the other.”

CONTINUED: QuikTrip: A Case Study

QuikTrip: A Case Study

Common wisdom says that a key way retailers can keep prices low is to keep wages low. But Zeynep Ton, an adjunct associate professor at the MIT Sloan School of Management, Cambridge, Mass., argues in her new book that this assumption is wrong—and she points to QuikTrip as an example.

Ton profiled Tulsa, Okla.-based QuikTrip—along with Costco, Trader Joe’s and Hispanic grocer Mercadona—in her January 2014 book “The Good Jobs Strategy.” Each is an example of a retailer that prices aggressively yet pays above-average wages, reaping better customer service and financial performance in return. They do it by embracing four key operational practices:

  • Minimize the number of SKUs and promotions to simplify employees’ jobs.
  • ­Cross-train employees so they can handle different responsibilities, which negates the need to change staffing levels by customer traffic.
  • Focus on running a lean operation, except for staffing.
  • Empower employees to make small decisions about store operations.

“The consistency in operational performance is really outstanding at QuikTrip compared to other places,” says Ton. “Part of that comes from their investment in people, and the other part comes from their ability to design the work in a way that brings the best out of people, makes employees really productive, that allows them to do jobs without making errors, or in a way that contributes to sales and profits.”

QuikTrip stores all have the same basic layout and sell the same basic assortment of high-demand products, regardless of the market. This standardization allows QuikTrip the flexibility to move employees between stores to meet changing staffing demands. Employees are also cross-trained on various responsibilities so they can shift their focus as store traffic varies, paying more attention to customer-centric tasks during busy times, and then shifting to other responsibilities during slow ones.

The other key QuikTrip choice, shared by the rest of the “Good Jobs” retailers: It sees labor as not a cost but an investment, and it pays well above the industry average. For a second assistant, the most common full-time employee at QuikTrip, the annual salary is about $45,000.

Mike Thornbrugh, spokesperson for QuikTrip, says the company has been well rewarded by the investment. Its sales per square foot average is $804 vs. the industry average of $522. “That’s why we’ve been fortunate to have very dedicated and loyal, happy employees, low turnover, and managers in the stores with 30 to 40 years [of experience],” says Thornbrugh.

“I think it changes the game for c-stores and retailers,” he continues. “The business model changes dramatically. And, selfishly, I hope it makes it more difficult to compete with us.”

CONINUED: The Minimum-Wage Worker (Infographic)

The Minimum-Wage Worker

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