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Let's talk minimum wage. Currently it's $12/hr in CT as of 9/1/20 and goes up $1 every 11 months until it reaches $15.
Every $1 increase costs us about $150,000/year in added payroll expense. We don't have that laying around so it has to be created via price increases.
Every $1 increase costs us about $150,000/year in added payroll expense. We don't have that laying around so it has to be created via price increases.
To generate $150k in gross profit (what we have left after paying our cost of goods) at a 30% margin, we have to increase prices enough to generate $500,000 in sales.
Basically, every $1 increase in minimum wage is a forced 1% price inflation in the grocery industry.
Basically, every $1 increase in minimum wage is a forced 1% price inflation in the grocery industry.
Each time this happens the average consumer pays 1% more for groceries but the minimum wage worker who went from $11 to $12 per hour received a 9% pay increase.
In reality it's probably higher because this doesn't factor in rate changes for those who were already close to the new minimum.
If the business doesn't raise prices they have to reduce hours. If we were to do this we would have to cut 262 hours per week which would mean eliminating 6 full time positions and 1 part time position. Not really an option.
National chains with unionized workforces are typically already paying more than minimum wage for entry level jobs. They can also distribute increased overhead across many locations.
This means that minimum wage increases impact the big guys minimally but have a large impact on smaller independent operators who are forced to raise prices to cover the cost.
The thing is the little guys are already more expensive than the big guys so they price themselves out of the market even more. Sales may increase in the short term but over the long run they lose customers and risk going out of business.
This isn't a guaranteed scenario as every market and operator is different but a trend that will likely continue.
If you're going to be in an industry that relies on low cost labor you better have a plan to account for these increased expenses that are out of your control!
If you're going to be in an industry that relies on low cost labor you better have a plan to account for these increased expenses that are out of your control!
No judgement here. There are pros and cons on both sides. I do believe a free market would sort this out but that's not in the cards.
Great operators with superior service and product offering will continue to thrive no matter what the labor market is.
Great operators with superior service and product offering will continue to thrive no matter what the labor market is.
