Coronavirus

Grocery Store Owners Say That Pandemic Hazard Pay Laws Are Putting Them Out of Business

City-level requirements that grocery stores pay wage premiums during the pandemic could prompt layoffs, price hikes.

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Hazard pay ordinances mandating wage premiums for grocery store workers during the pandemic are spreading across the West Coast. Following them are store closures and complaints from owners that these new laws will soon put them out of business.

On Tuesday, Quality Food Centers (QFC), a Kroger-owned supermarket chain, announced it would be closing two of its Seattle locations. The decision, the company says, was "accelerated" by the city's new mandate that large grocery stores pay their employees an additional $4 per hour.

"When you factor in increased costs of operating during the COVID-19, coupled with consistent financial losses at these two locations, and this extra new pay mandate, it becomes impossible to operate a financially sustainable business," said the company in a press release.

That ordinance was passed unanimously by the Seattle City Council in late January and went into effect earlier this month. It is set to last as long as the city's declared COVID-19 emergency is in effect. It applies to all grocery stores that are larger than 10,000 square feet and are operated by companies with more than 500 employees globally.

Kroger's store closures in Seattle mirror its actions in Long Beach, California, where the company also closed two poorly-performing stores following the city's passage of a near-identical $4-an-hour "hero pay" law for grocery store workers.

Those aren't the only stores that could be on the chopping block. Everywhere pandemic hazard pay policies have passed, store operators are warning they'll soon be out of business too.

In court filings in a federal lawsuit challenging Seattle's hazard pay ordinance, two owners of Grocery Outlet stores, a discount grocery chain, said the city's mandated $4-per-hour wage premium is forcing them to operate at a loss.

Steve Mullen, an owner of a Grocery Outlet in Seattle's Madrona neighborhood, said that the hazard pay law is costing him an additional $20,000 in labor costs each month.

"The store does not make that much on a monthly basis and [the hazard pay ordinance] will push the store into a significant deficit," said Mullen in court filings tweeted  out by independent Seattle journalist Kevin Schofield. "I cannot continue to operate a store that is consistently unprofitable. If losses occur as predicted, I will likely be forced to close the Madrona Grocery Outlet store."

It's the same story for Michael Sandberg, the owner of a Grocery Outlet in Seattle's Lake City area, who said the city's new law will increase his costs of employing his current 22 employees by about $10,000 a month.

"The store does not make nearly that much" per month, wrote Sandberg in a court filing for the same lawsuit. "Paying the mandatory hazard pay will cause the Lake City Grocery Outlet store to go into the red."

Mullen and Sandberg's declarations are part of a lawsuit being brought by the Northwest Grocery Association and the Washington Food Industry Association, two trade groups representing grocers, against the city of Seattle in the U.S. District Court for the Western District of Washington.

Their complaint alleges that the city's hazard pay ordinance is preempted by the federal National Labor Relations Act (NLRA), which the grocers argue leaves it to companies and unions, not local or state governments, to hash out compensation agreements.

The two groups' complaint also says the city's hazard pay ordinance violates the Equal Protection Clause of the U.S. Constitution's 14th Amendment and the Washington Constitution by arbitrarily requiring only grocery stores to pay out these wage premiums.

The California Grocers Association (CGA) is making identical arguments in six separate federal lawsuits it's brought against cities in that state which have passed their own hazard pay ordinances for grocery store workers.

Those lawsuits have also sparked identical claims of hardship from grocery store owners and operators.

John Franklin, chief financial officer for Northgate Gonzalez Markets, a Southern California grocery chain, declared in court filings in the CGA's lawsuit against the city of Long Beach that had the pay ordinance been in effect during all of 2020, its three Long Beach locations would have lost between $47,000 and $74,000 each month.

Defenders of hazard pay for grocery store workers, sometimes called "hero pay," say that grocery chains are using store closures as a scare tactic to discredit these policies and avoid pay increases they can easily cover with their record pandemic profits.

United Food and Commercial Workers (UFCW) 21—the union representing grocery store workers in Washington—called the latest QFC store closures "a transparent attempt to intimidate other local governments" from passing similar laws. The union notes that Kroger ended its voluntary $2-an-hour hero pay bonus in May 2020, even as the company's profits "soared."

Teresa Mosqueda, a Seattle City Council member, said in her own statement attacking the QFC closures that one of the company's stores was already slated for redevelopment.

The city of Long Beach has a made similar argument when defending its hazard pay ordinance from the CGA's lawsuit. Included in one of the city's court filings were links to news articles reporting that Kroger's net earnings doubled year-over-year during the first three quarters of 2020.

The grocery industry has countered that its increased profitability still leaves it with razor-thin profit margins that would be more than erased by these hazard pay policies.

A report from economic consultancy firm Capitol Matrix Consulting, prepared for the CGA as part of their lawsuits, found that a $5-per-hour hazard pay premium—which was passed in Oakland and is being considered in Los Angeles—could increase stores' average labor costs by 28 percent and overall costs by 4.5 percent. That's about three times the normal profit margin for grocery stores, and twice the profit margin grocers were making at the height of the pandemic.

Were a $5-per-hour hazard pay law to be applied to the entire state of California, grocery stores would have to cover those costs either with a collective $4.5 billion increase in prices or shed 66,000 jobs, the report says.

Viewed in this light, hazard pay laws look less like a free reward provided to grocery store workers and more like a massive transfer program from consumers to workers, or from some grocery store workers to others.

Of course, companies aren't limited to just raising prices or cutting staff positions. More likely, they'd do some mix of both, making other cost savings and maybe accepting slimmer profit margins.

Even when it comes to grocery store regulations, there's no free lunch.

NEXT: Ted Cruz's Jaunt to Cancun Validates Everyone's Priors

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  1. maybe accepting slimmer profit margins.”

    why should they have to do that. when you are not appreciated you get the heck out of town. they are just as likely to get burned down and lose more than profits, f’m and leave. And people wonder why certain neighborhoods have a lack of good grocery access, this is why. Christian do you do work for less than you are worth?

    1. They already voluntarily accepted slimmer margins to help out during the pandemic. The hero tax just drives them over the edge.

      1. If The People want them to have hazard pay because The People musr have food during this period, then The People should pay the difference.

        Life is so easy when you command others’ money so cavalierly. Or so royally, to be more accurate.

    2. Christian, I assume, gets paid to write here – so he’s working for FAR more than he’s worth

    3. grocery supermarket margins are very low compared to, for example, IT. Maybe the Seattle City Council can pass a law saying that Microsoft should give a portion of their profits to the supermarkets

    4. That’s a weird thing to end an article where it’s pointed out *in the article* that the wage premium comes out to twice their profit margin.

      Unless ‘slimmer profits’ is supposed to include *negative profits* – or, losing money.

  2. This is nothing more than moral preening by politicians. In this case, they are forcing businesses to increase the pay of their union supporters and using “hero pay” as a fig leaf covering their real motivation. More money to the union employees means more money to the Dems from their union supporters.

    1. not only that but once the pandemic is over most will say see you can afford to pay more so now keep paying that forever.

      Many have not notice that prices of everything at stores have gone through the roof

      1. Have these politicians in Washington state taken a “voluntary” whopping 5% pay cut, like the heroes in my state did? Of course, no actual fear of job loss, either. As with their pensions, it’s all heaved onto your grandchildren’s wallets.

  3. This is why free markets are wrong and capitalists are evil. How dare they use numbers and math to “justify” greedy business decisions!

    Once the People are in charge, supermarkets will pay staff more, charge customers less, and celebrate the eternal success of the working man/woman/womyn/indeterminant gender thing!

    1. Math is racist too.

    2. Math is racist oppression. Ask yourself, how is it we know how many the Nazis murdered? Math! How many did Stalin and Mao murder? No one knows! It’s all just guesswork! Math is a right wing conspiracy of racist oppression!

    3. San Fransisco opened some “employee owned” grocers. Their prices were too high so they didn’t get much business. Most of the traffic was from co-op members buying at employee discount prices. Then with no profits to support the stores they eventually went under. The few that still exist are basically buying clubs with inventory in cheap backstreet warehouses.

      They’re basically Amway but with for Marxists.

    4. The difference between capitalism and communism.

      Under communism, people wait in grocery stores for bread.

      Under capitalism, bread waits in grocery stores for people.

      California, and Washington want people to wait in grocery stores for bread.

      1. Could you please post this on Twitter where the concensus is that profit means taking candy from babies and government edicts mean justice and victory over the 1%.

        Well, except for the “chosen few”. They’re just so special. Like the Kardashians. Or Soros.

      2. You are way off base here about communism
        No one in any communist nation has ever had to wait the slightest amount of time for bread – they know there isn’t any.

  4. CHAZ can now feed the folks in neighborhoods where grocery chains refuse to lose money to operate.

  5. What we need are some state owned grocery stores. Grocery Joe’s?

    1. Standing in long lines? In a pandemic? YOU MONSTER!

      1. Just proves Bernie’s point, that The People really like Grocery Joe’s groceries more than the capitalist variety.

      2. No, you do like Venezuela – ban standing in line.

        1. Or eat zoo animals

    2. I’ll get popcorn. I really want to see how that comes out. “State owned”, that’s a good one.

    3. But people love the online reservation system that allows you to reserve a slot to shop six months in advance.

      1. It helps ensure that the potato you want to buy will be on the shelf that day.

        1. The one potato for a family of four. And it will be another six month wait before they can buy another potato.

          1. In between, cabbage!

          2. Your allotment of potatoes has been increased from two a week to four a month.

    4. Actually, shopping in Moscow in the 1980s was just that. Low cost food with no choices and often no food either. And the lines where it was rumored to have something good!
      Oh, the days of socialist brotherhood.

  6. It applies to all grocery stores that are larger than 10,000 square feet and are operated by companies with more than 500 employees globally.

    You know, I think there might be some ulterior motive behind this…

    1. Yeah. Maryland did that about 15 years ago with a law that only affected Walmart. Shockingly, its Supreme Court overturned it. Iirc it required employers above a certain number if employees to either offer full health insurance, sick and vacation leave or a combination.

  7. Defenders of hazard pay for grocery store workers, sometimes called “hero pay,” say that grocery chains are using store closures as a scare tactic

    They are. And they should. And they should be open about it.

    1. I wonder how sales of Ayn Rand books are doing since the inauguration.

      1. Reality has outdone her.

        1. I know! I was thinking the same thing. It’s almost as though a lot of these progressive types are completely unfamiliar with her work.

      2. Sales of the book to go up during Democrat administrations.

        1. Guns sales, too. I wonder if there’s a correlation.

  8. An important question to look at is why are these stores not making even $10,000 per month. It could be that they just have very slim profit margins. Or it could be that they pay a sizable chunk of money up to corporate as a “fee” (above reasonable management expenses) and only count what is left over as profit. That is a very common accounting trick. So it is hard to evaluate their claims without more information.

    1. Profit margins for grocery stores average 2.2%. “Hero pay” will eat that up and then some.

    2. Most grocery stores, as with most stores in general, or not havens for the wealthy. Their margins are slim. I’ve worked in at least two places where my close to minimum wage earned me more than the store owner took home. Literally.

      The Leftard idea that these are all fatcat millionaires needed to be milked to further the neoracist Woke cause is bullshit. Don’t buy into it.

      1. I’ve worked in a couple restaurants where I made more than the owners.

        1. They shouldn’t be owners then…not capable.

          1. Yeah, why are there people in this thread defending and apologizing for people who obviously suck at running businesses? If your profit margins are so thin you have to steal labor from your employees by underpaying them, fuck your “business”

          2. If they’re brand new owners, with outstanding investment loans being paid off, it’s definitely a possibility.

    3. An important question to look at is why are these stores not making even $10,000 per month.

      An important question to look at is why that’s any of anyone’s fucking business. At least, that’s an important question if you’re a libertarian. If you’re a fucking socialist we’ll go back to yours.

      1. Because they are publicly claiming low profit as an argument against the hazard pay law. Since they are raising the issue it is fair for the public to ask if the argument is being made in good faith.

        1. No, it’s not.

          1. There is no level of corporate cronyism and outright malfeasance you won’t defend. Fuck your backwards, planet-destroying ideology

        2. If you know anything about grocery stores then you know the argument is being made in good faith. 2.2% profit margin means they make 2.2 cents for every dollar sold. That’s $220 for every $10,000 is sales. I don’t know how many man hours they require to generate those sales, but if it’s more than 55 then that “hero pay” just ate up all the profits.

          The math is pretty straight forward.

        3. Perhaps they shouldn’t feel forced into “making an argument against the hazard pay law” when a simple “fuck off, slaver” would be more appropriate.

    4. “Or it could be that they pay a sizable chunk of money up to corporate as a “fee” (above reasonable management expenses) and only count what is left over as profit. That is a very common accounting trick.”

      L
      O
      L

      1. Yeah that’s funny. I’ll give it a 6 for creativity, and a 8 for projection.

    5. No, that’s not an especially interesting question. For the purposes of closure, store profitability is calculated based on total profits. If the store were profitable but for the franchise fee, then the owners would want to keep it open regardless of that accounting “trick”. That accounting treatment can affect taxes and some third-party factors but it is irrelevant to the owners. Despite that, the store owners don’t want to keep the stores open. They are closing. The stores are unprofitable regardless of the size of the franchise fee.

    6. @MollyGodiva:

      You obviously have no accounting background. Such shenanigans are not allowed under GAAP nor IAS. It just doesn’t work that way.

    7. “Or it could be that they pay a sizable chunk of money up to corporate as a “fee” (above reasonable management expenses) and only count what is left over as profit. That is a very common accounting trick.”

      Yeah, that or they hide it in gold coins in the pool for evening dips; another common accounting trick!

    8. You can count on Reason dot com to uncritically repeat whatever greedy Capitalist shitheads are claiming in order to justify their theft.

      1. Do you know what profit margin is?

        Or are you just a parody that I should ignore?

        1. No. Or “theft”.

  9. Vote for fascists, get fascism.
    Well, damn. Whodathunkit?

    On a libertarian note; this is local government at work, a thing we all applaud, right?

    1. Watch how you use that word, “we”.

    2. When the fascists are confined to select urban areas, libertarians can freely move to another area with a sane (or less insane) local government. Some places can say, “If you like your grocer you can keep your grocer.”

    3. Local politicians are the worst of politicians. Everyone busy pointing fingers at Trump or Peloso, but the real evil lives in our neighborhoods.

      Remember that story yesterday about the school board members threatening to fuck up the dissenters? Yeah, those politicians aren’t from D.C., those politicians live in your neighborhood, and in all likelihood got your vote. It might not be your school board, but I guarantee you that your school board thinks the same way. Because all politicians think that way.

      1. @Brandybuck

        You are so right!

        I’ve railed about the national government focus of most of the Reason articles for several years. While local government is more a direct threat to our personal rights and freedoms most of the time.

        But most don’t seem to get that. I postulate that is because they haven’t had direct experience and, it’s easier to remain focused on the POTUS as the benevolent dictator meme.

        1. Reason has a lot of problems these days, but in this case, it could be they write about national issues in order to get the most reader engagement possible. Writing about local issues may be more meaningful, but it would be only meaningful to a smaller group of people.

    4. “On a libertarian note; this is local government at work, a thing we all applaud, right?”

      No. Minimize all government at all levels.

    5. As a general rule, local government is less bad than mandates from far away. But “less bad” does not equal “good”.

      1. @Rossami

        I’d argue that local government is more bad. Way more.

        Have you ever run afoul of a local ordinance? Enough so that you did some research on your own local ordinances? And found out that basically, you as a property owner have no real rights of use of that property?

        For instance: You can’t do an R&R on the brakes on your car in your own driveway? You can’t have anything taller than three feet in your front yard except for a tree and that the branches of said tree must be trimmed up to seven feet high or higher? That you can’t park an “RV, boat or trailer” anywhere on your property?

        I can show you all of those local ordinances in municipalities all across the U.S. They almost always start out with the preamble “We find these things to be a public nuisance”.

        Try it. It will open your eyes.

        The worst part is that when you look up actual court cases of the brave souls who have been willing to take the time and the money to go that far, the courts have sided with the municipality.

        It’s scary.

  10. Nothing Directive No. 10-289 can’t fix.

    1. Where are you when we need you, Wesley?

  11. The purpose of Hazard Pay ordinances are to explicitly drive the lower class stores out of business, so only the fancy stores like Whole Foods and Trader Joes survive. Because that’s there the Elite White Woke shop. A few mid range grocers will remain, for the middle class that still hasn’t fled the coasts, but they will all be large chains able to weather the taxes intended to eliminate the poor.

    My apologies, the correct name is not “Woke”, but “Neoracist”. They goal is the jackboot of the state on the neck of every Black person who refuses to swear fealty to their cause.

    1. “They goal”

      I see what you did there….ebonics!

  12. I went out to a grocery store during the pandemic, doesn’t that make me a hero? Where’s my hero pay?

    1. Unless you had two masks on and a swab up your ass, it makes you a criminal.

  13. Remember that story yesterday about the school board members threatening to fuck up the dissenters? Yeah, those politicians aren’t from D.C., those politicians live in your neighborhood, and in all likelihood got your vote. It might not be your school board, but I guarantee you that your school board thinks the same way. Because all politicians think that way.

    https://t.co/NkYOpuEptA?amp=1

  14. Couldn’t they just add a (say) 5% line item (similar to a tax) to everyone’s bill at checkout? Just post Big Signs all around saying this is due to the “ongoing” hazard and the Jurisdiction’s response. Granted people may stop coming to the store….

    1. So, the same result as closing the store.

    2. Who do you mean by “they”? If the legislature, yes the locality could jack up their local sales tax. They could not, however, limit that tax to just the “evil” big stores. Nor could they mandate that the store give that tax directly to their employees. The government would have to collect it, (take their cut) and send it back out to the employees in the form of some sort of subsidy payment.

      If by “they” you meant the stores, yes they could jack up their prices and post signs blaming it on the legislature* but customers aren’t stupid. They’ll just start shopping somewhere else.

      * I flag the store’s ability to post signs because while that should be protected by the First Amendment, several legislatures have passed gag rules prohibiting stores from posting true statements about government-imposed costs and regulations. While some of those gag rules have been litigated and overturned, others are still in force.

    3. They could just put out a tip jar. Like the drive through lanes at Starbucks. ;-(

      Actually, there are Starbucks kiosks in all of our local Safeway’s and they have tip jars. And, they’re union no less.

      How long before they have them in the check out lines?

      There is a reason I use those self service check outs. 🙂

  15. Who could’ve seen that coming; Using the threats of Gov-Guns to Steal from the Hand that Feeds you just might someday yield No-Food at all.

    The Lefty Cure? Use the threats of ‘FEDERAL’ Gov-Guns to Steal MORE from other Hands that feed.. Conquer and Consume mentality until there isn’t anything left to Steal!

  16. This and a lot of other increase in operation costs is raising the cost at grocery stores quite a bit. I don’t know about the rest of you, but I’ve noticed a fairly good sized increase in the cost of groceries as well as a lot of other things at many different kinds of stores. So, it makes me wonder if the higher costs will go down when Covid is over? Probably not. So does that mean that stores and other services that had to raise their prices during Covid will keep their current pricing structures in place? Probably.

    1. Why in God’s name would you wonder?

      Inflation is here and has been for a while. COVID was just an excuse to get off easy. Even my wife’s hairdresser is using that excuse for raising her prices, saying that most of her clients are not returning since leaving during the lockdown so, she has to raise her prices.

      Great logic there!

      1. You’re kidding, right? You understand that a business has certain expenses which are constant like rent and utilities and those costs need to be distributed to all of the customers when setting prices. Fewer customers means a larger price per customer to cover these fixed costs. If the higher prices are the cause of losing customers, the business is screwed.

    2. “…So, it makes me wonder if the higher costs will go down when Covid is over? Probably not. So does that mean that stores and other services that had to raise their prices during Covid will keep their current pricing structures in place? Probably.”

      Marx thought the economy was ‘run’ by capital, as does Haystack here.
      The economy is ‘run’ by the consumer and if the prices were driven by the lockdowns, the first grocery which cut prices would have them all in line in a week.

  17. Next stop: Government run grocery stores. Everybody line up and get your dollars ration cards ready for the chance to buy as many groceries as you want the government will allow you to purchase at below fair market prices while paying above fair market wages to whoever wants a job unionized political supporters!

  18. Is there any evidence that working in a grocery store is hazardous?

    1. It’s certainly less hazardous than delivering the groceries *to* the store…

  19. Oh, don’t worry. After the pandemic is under control, the hazard pay will just be eliminated.

    Sure. That’s it.

    1. Post covid, it will be renamed PTSD pay. Because the shelf stocking heroes will gave survivor’s guilt. They may add in mandatory 3 week vacation paid for by the grocer as well.

  20. Amazon may take over these vacant lots, deunionize the workforce, and then fire half of them in favor of automation. Even before the pandemic they’ve been reportedly testing some sort of contact free shopping in which the store just charges your card as you leave.

    So what’s the problem? Think of the lives of heroes that will be saved when Bezos spares them from working in these buildings. The savings of automation will benefit consumers. We win.

    “Oh but they have to pay them living wages and benefits” No, no they’re private businesses, they don’t have to do jack shit. If you don’t like it, build your own grocery stores and food production. People who hasn’t violated twitter rules can censored and all the heroes can lose their jobs. That’s the deal.

  21. Wasnt it always survival of the fittest and big fish eats small fish ?
    But this should be an opportunity & hard deal to emerge back from ashes.

    Regards,
    Promirage

  22. You would think that if grocery store workers were so important and appreciated then the local community would be willing to see their *tax money* going to a special entitlement for these workers – if not to pay them directly through tipping.

  23. Grocery stores operate on a slim margin when compared to other retail operations. Government mandates such as hero pay and minimum wages increase the expenses and reduce the ability to make a profit operating a store.

    Locations that are less profitable, will be underserved. This is typically poorer neighborhoods and affect minorities more than relatively wealthy suburbs.

  24. If other reports on this were correct – no doubt a big “if” – then only grocery stores had to pay “heroes”. Target, Walmart and others that sell groceries as just a part of their business did not need to pay up. So grocers had almost no chance to try and survive by raising prices. Hard enough to compete with big box stores to begin with and now add a forced pay differential. But, 6 months from now the pols can whine about food deserts.

  25. Here’s what’s actually going on: when a supermarket closes, there’s usually outrage in the community or pressure to bring back shopping options. Cities don’t care about supermarkets because they don’t bring in much sales tax revenue – but they take up a-lot of land. In Seattle and Long Beach, that is land ready for redevelopment – and it gets kickbacked to the city council members who created the pretext to close the supermarket.

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