While a recent mandate by the Los Angeles City Council requires grocery stores to pay workers $5 an hour extra in “hero pay," business experts predict it will lead to grocery store consolidation.
Just last week, Ralph’s and Food 4 Less announced it is closing three stores in Los Angeles. They include Ralphs on 9616 West Pico Blvd and 3300 West Slauson Ave as well as Food 4 Less at 5420 West Sunset Blvd.
“When looking at which stores are profitable, owners are having to make decisions on a case by case basis,” said Stuart Waldman, president of the Valley Industry and Commerce Association (VICA). “In talking to my members, their businesses throughout Los Angeles have had some success in renegotiating leases with their landlords but, in other cases, landlords wouldn't budge. Some had to move out of their locations. I expect that will have a dire effect as well.”
Also known as premium or hazard pay, hero pay is a temporary boost in wages provided to those who have worked on the front lines since the coronavirus emerged arguably because they are at greater risk for infection on the job.
“There's a lot that goes into supermarkets,” Waldman told Southern California Record. “Whether an individual grocery store is profitable or not depends on leases, thefts, the type of food that's purchased, and the profit margin on each item.”
The increase approved by the Los Angeles City Council became effective on Feb. 26 and will continue for 120 days.
“There should have been more of a focus by the city council on getting people vaccinated and keeping them safe,” Waldman said. “The arguments have been that grocery stores have made a profit and that they should give their profit to workers, which when you look at the percentage of the profits, most grocery stores aren't making money right now because of all the increased costs based around the pandemic.”
The profit margin for grocery stores has increased from 1.6% to 2.2%, according to VICA data.
But Waldman said a few good months is not enough of a profit to support hazard pay.
“It’s the worst thing that the city council could have done,” he said. “It is just distribution of wealth and it’s ridiculous that the city council is cutting the pay of LA city employees who are actually going into work every day while also asking grocery stores to give a $5 raise to their employees.”
Although the city council approved hero pay as temporary, Waldman foresees the United Food and Commercial Workers (UFCW) union promoting the mandated pay as permanent.
“They will want to increase from there but unfortunately the profit margins for grocery stores are so thin that we're probably going to see store consolidation,” he said. “For member grocery stores, it's a frustration that they were targeted by the grocery worker’s union who are doing this to set up negotiations for the next contract, which is coming up.”