Jun 10, 2016

Delivering What Workers Want


“Give the lady what she wants” in-creasingly is being accompanied by “give your workers what they want” in the grocery indus-try, and experts say the trend could continue over the next 12 months at least.

The two are intertwined. A retailer’s success rests largely with its people. New regulations, such as the Labor Department’s revised overtime rule published in May, and higher state minimum wage laws are fueling wage increases. New ways to automate schedules can improve staffing levels and offer flexibility. Pressure on margins and ongoing consoli-dation present new labor challenges.

“It’s a very competitive landscape, finding hourly workers,” says Steven Kramer, CEO of WorkJam in Montreal, noting Uber, Lyft and other contract-labor businesses are drawing talent away from retailers. “Wages are increasing; companies have announced they are voluntarily increasing minimum wage even before laws go into effect. For grocery, it’s putting them in a fairly difficult position because of the competitive situation.”

But higher labor costs also could spur additional M&A ac-tivity, as retailers look for opportunities to shave costs through economies of scale. Every merger brings with it uncertainty for workers and a renewed focus on employee relations and company culture for managers.

At the same time, consumers increasingly are expecting grocery retailers to cater to their desire for convenience, spurring retailers and brands to rethink their labor requirements to expand their capabilities.

“Retailers used to have a vast labor pool. When they had a problem, they could throw labor at it,” says Tyler Owen, senior director of global solutions strategy at JDA Solutions, which in April published a Voice of the Sales Associate survey of more than 250 store managers. About 40 percent of retailers who responded to the survey said they were too understaffed to provide adequate customer service at least part of the time, and more than 50 percent said they use on-call scheduling to address immediate staffing issues, despite growing controversy over the practice.


Contributing to the labor challenges is the rise of omnichannel shopping, with a growing number of grocery retailers offering click-and-collect or home delivery. About 45 percent of grocery retailers now offer one or more omnichannel services, according to the JDA survey. Expanded services often require additional workers, and competition for technically skilled workers is expected to intensify.

About three-quarters of retailers surveyed by BDO cited risks related to attracting and retaining key management personnel, particularly those with technical know-how. Meanwhile, digitally savvy millennial workers are encouraging employers to offer more flexibility, recognition and empowerment.

“In 2020, over 50 percent of the workforce will be millennials,” Owen says. His research indicates they rank company culture ahead of wages. “They want to know, ‘Am I appreciated? Am I recognized? Am I rewarded?’” he says.

Those same questions often arise during mergers, which carry with them an element of uncertainty for workers. Experts advise managers to over-communicate to reassure workers and encourage them to adapt to the new corporate culture.“

Keep a positive attitude. If I’ve heard this is going to be bad, what motivation do I have to do anything but slide through?” says Laura MacLeod, CEO and founder of From the Inside Out Project, who coaches companies on com-munication and management.


During a merger, employees typically aren’t consulted when decisions are made. “The hourly employees are ne-glected in terms of having a voice,” she says. “There’s little done to really get them to buy in.”

At Walgreens Boots Alliance, a focus on communication has meant regular trans-Atlantic travel for CEO Stefano Pessina and other executives since Walgreen Co. merged with Alliance Boots in 2014. Pessina believes face time is important when blending workforces.

Pessina has been sending U.S. executives overseas to learn Boots’ best practices in beauty and other front-of-store categories, and bringing Boots managers to the U.S. to learn Walgreens’ best practices. “This is a big process, which cannot be done overnight. There’s reluctance naturally,” Pessina said while speaking at a recent Executives Club event. “After one year, the integration has been moving very well.”

From the small and large mergers Pessina has been involved with in Italy and the UK, he says he has learned how to combine companies effectively. “If you want to impose one culture, the merger almost certainly fails,” he says. “If you want to pick the best people, most of the time you can from either company, and you will have a mixed, merged company.”

Pessina was attracted to Walgreens because the company’s history and values were similar to that of Boots and to his own family business. He values the “combined vision” partnerships allow, he said, because more can be gained by working with other companies than going it alone.

He also has embraced a spirit of entrepreneurship and innovation, and Walgreens workers are quickly learning to expect growth. Shortly after Pessina was named CEO, he began negotiating to purchase Rite Aid.

“You have to be ready to change and change and change again,” he said. “We have really created a culture in this sense. You must have a vision. If you have a fantastic vision and don’t go forward, at the end of the day, you will not be able to crystalize the vision. On the other hand, if you go forward but you don’t have vision, in the end you will go around in circles without achieving anything.” Pessina’s ambition is to create a global health care company, and his enthusiasm likely helps morale.


Still, many workers are probably more concerned about work-life balance. Besides communicating a corporate vision, offering flexibility can go a long way toward motivating millennials, Kramer says. A workforce management system allowing workers and managers to access schedules and request days off from their mobile phones can boost retention and result in savings.

Kroger has been introducing advance notice schedules for associates, to help them balance family, school and other responsibilities, chairman and CEO Rodney McMullen said during a March 3 conference call with equities analysts.

”This means associates will have their work schedule fur-ther in advance every time,” he says. “We worked closely with our union locals to introduce this. So far, feedback from our associates has been very positive.”Technology to manage staffing could take on new importance as more retail workers become nonexempt in December, due to the U.S. Department of Labor’s new overtime rule published May 18.

The rule raises the minimum annual salary threshold for the Fair Labor Standards Act’s exemption for managers and professional full-time workers to $47,476 a year or $913 a week as of Dec. 1, from $23,660 a year or $455 a week cur-rently. About 4.2 million workers could be entitled to time-and-a-half pay when they work over 40 hours per week as a result of the new rule, the Labor Department says.

“There’s no question there are going to be individuals who see a pay increase as a result of this rule,” says attorney Alexander Passantino, partner at Seyfarth Shaw, and former acting administrator of the Department of Labor’s Wage and Hour Division. But any increases could be short-lived. “If an employer has to pay you at a certain level to keep you happy this year, you can expect next year your increase is not going to be as large.”


While the Labor Department promoted the new overtime rule as a means to boost the earnings of many middle-class workers, experts say it’s more likely to result in new part-time positions. By making more workers nonexempt, it can become more expensive for employers to ask employees to put in more than 40 hours per week.

“They instead elect to spread the work around to more employees,” says Donna Bernardi Paul, senior director of business services and outsourcing, human capital management at BDO. Bernardi Paul suggests spreading hours to more workers was the original intent of the Fair Labor Standards Act, which became law in 1939 during the Depression.

The new overtime rule will encourage employers to limit more workers to 40 hours per week. For managers whose an-nual earnings are close to the $47,476 threshold, employers might give them a salary increase to push them back into exempt status, which would allow retailers to avoid paying overtime. But that could hurt morale among workers who don’t get a raise.

“If you raise some and not others, you are going to create internal dissension,” Passantino says. “Now you know the exempt worker makes at least $47,000.”

Employers also could cut the hourly wage of workers who have been working more than 40 hours a week, essentially calculating the lower hourly wage required to maintain their annual earnings when time-and-a-half is factored into a portion of their weekly hours. “We’re counseling that there are ways to accomplish compli-ance without increasing your la-bor budget,” says attorney Susan Eisenberg, a member of Cozen O’Connor’s labor and employ-ment department and a member of the Wage and Hour Defense Institute in Miami.


Over the longer term, the new overtime rule will likely encourage retailers to split full-time hourly positions into two part-time jobs, which would avoid overtime in most cases. In this situation, workers will end up working less and will have more free time, says attorney Susan Eisen-berg, a member of Cozen O’Connor’s labor and employment department and a member of the Wage and Hour Defense Institute in Miami. The new rules also could lead employers to reduce the amount of bonus pay they offer to workers below the threshold, because any bonus pay would require a recalculation of overtime pay to reflect the higher earnings, she says.

“I don’t see the workers getting rich off of it, from what I’m hearing,” Eisenberg says. “The government’s rhetoric, ‘You’re going to make more,’ isn’t correct.”

To keep morale up, employers have to carefully craft their messaging.

“The PR on this is going to be extraordinarily difficult,” Eisenberg says. “But you can’t expect retailers to spend more on labor. Employers have a budget that is set for labor. They’re going to do whatever they can to come in as close to that new budget as they can.”

Summer 2016 / Ann Meyer / Retail Leader

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