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Wages of labour hurt US malls
New York, Aug 30: Supermarkets in the US are in a funk. Looking at their lacklustre sales and profits, one would wonder if Americans were perhaps going without food. Although grocers have historically been regarded as one of the most resilient sectors in retail, the past two years have seen them losing more customers to drugstores, warehouse clubs, and even dollar stores.
New York, Aug 30: Supermarkets in the US are in a funk. Looking at their lacklustre sales and profits, one would wonder if Americans were perhaps going without food. Although grocers have historically been regarded as one of the most resilient sectors in retail, the past two years have seen them losing more customers to drugstores, warehouse clubs, and even dollar stores.
It’s not only tough competition that’s affecting supermarkets, but also rising staff benefits and wage costs, which stem from the industry’s staunchly unionised past.
As a result, firms like Kroger Co, Safeway and Albertsons are scrambling to keep costs down to compete with their non-union rivals, particularly Wal-Mart Stores. Even with an aggressive growth program, Wal-Mart — the largest private sector employer — has steered clear of costly union contracts, a step that has, however, made it a big target for unions seeking to organise on its floor.
There are about 38 labour-related lawsuits in 30 states filed against Wal-Mart, but that is not stopping the discounter from taking more market turf. For the first time in its history, Wal-Mart’s super-centres with full-line grocery stores will outnumber the company’s traditional discount stores by the end of this year, heaping even more pressure on mainstream grocery chains.
“Grocers have to try to close the gap between their labour costs per hour and those of non-union competitors like Wal-Mart,” said Mark Husson, a Merrill Lynch supermarket industry analyst. “They’ve got to get their cost down,” he added.
Wal-Mart, besides being the world’s largest company, has expanded to become the biggest player in the fiercely competitive $680bn US grocery industry it joined only a decade ago. Size allows Wal-Mart to extract better terms from suppliers, allowing it to buy and sell goods cheaper than the competition. But causing more headaches for supermarket executives is the prospect that the discounter, as well as smaller less-unionised chains, could gain more ground amid any failure to win labour concessions on costs.
According to the Food Marketing Institute (FMI), the supermarket business remains one of the most labour-intensive industries, employing 3.5m workers in the US alone. The FMI estimates that last year, 15.7% of the average supermarket’s sales and more than half of gross margin went to pay employee costs.
Bureau Report
As a result, firms like Kroger Co, Safeway and Albertsons are scrambling to keep costs down to compete with their non-union rivals, particularly Wal-Mart Stores. Even with an aggressive growth program, Wal-Mart — the largest private sector employer — has steered clear of costly union contracts, a step that has, however, made it a big target for unions seeking to organise on its floor.
There are about 38 labour-related lawsuits in 30 states filed against Wal-Mart, but that is not stopping the discounter from taking more market turf. For the first time in its history, Wal-Mart’s super-centres with full-line grocery stores will outnumber the company’s traditional discount stores by the end of this year, heaping even more pressure on mainstream grocery chains.
“Grocers have to try to close the gap between their labour costs per hour and those of non-union competitors like Wal-Mart,” said Mark Husson, a Merrill Lynch supermarket industry analyst. “They’ve got to get their cost down,” he added.
Wal-Mart, besides being the world’s largest company, has expanded to become the biggest player in the fiercely competitive $680bn US grocery industry it joined only a decade ago. Size allows Wal-Mart to extract better terms from suppliers, allowing it to buy and sell goods cheaper than the competition. But causing more headaches for supermarket executives is the prospect that the discounter, as well as smaller less-unionised chains, could gain more ground amid any failure to win labour concessions on costs.
According to the Food Marketing Institute (FMI), the supermarket business remains one of the most labour-intensive industries, employing 3.5m workers in the US alone. The FMI estimates that last year, 15.7% of the average supermarket’s sales and more than half of gross margin went to pay employee costs.
Bureau Report