10 (3)Public Comment
From: Tim James <tjames@CAGrocers.com>
Sent: Tuesday, May 11, 2021 12:36 PM
To: Harry Sidhu (Mayor); Stephen Faessel; Jose Diaz; Jordan Brandman; Jose Moreno;
Avelino Valencia; Trevor O'Neil
Cc: Public Comment; City Clerk
Subject: Grocery Worker Pay - 5-11 Agenda
Attachments: Anaheim Grocery Pay LTR 5-11-21.pdf, CGA - Letter to Anaheim City Council -
4485352.pdf, 2021- Extra- Pay- Mandates-Economic-Study.pdf
Councilmembers, please accept the attached letters and documents regarding the grocery pay worker. Please contact
me directly to discuss. Thank you for your consideration. Tim
Timothy James
Director, Local Government Relations
California Grocers Association
916-448-3545
May 11, 2021
The Honorable Harry Sidhu
Mayor, City of Anaheim
200 S Anaheim Blvd.
Anaheim, CA 92805
RE: Grocery Worker Pay
Dear Mayor Sidhu,
On behalf of Anaheim grocers, I write to ask the Council to not move forward with the proposed grocery worker premium pay
ordinance given the numerous negative consequences to grocery workers, neighborhoods and the grocery industry. Based on
the consequences experienced in other jurisdictions with similar ordinances, we must oppose the ordinance for both policy
and legal reasons.
We agree that grocery workers serve a vital and essential role during the pandemic. They have worked tirelessly to keep
stores open for consumers, allowing our communities to have uninterrupted access to food and medications. To protect our
employees, grocery stores were among the first to implement numerous safety protocols, including providing PPE and masks,
performing wellness checks, enhancing sanitation and cleaning, limiting store capacity, and instituting social distance
requirements, among other actions.
On top of increased safety measures, grocery employees have also received unprecedented amounts of supplemental paid
leave to care for themselves and their families in addition to already existing leave benefits. Grocers have also provided
employees additional pay and benefits throughout the pandemic in various forms, including hourly and bonus pay, along with
significant discounts and complimentary groceries. All of these safety efforts and additional benefits clearly demonstrate
grocers' dedication and appreciation for their employees. Most importantly the industry has been fierce advocates for grocery
workers to be prioritized for vaccinations.
Unfortunately, a Grocery Worker Pay ordinance would mandate grocery stores provide additional pay beyond what is feasible,
which would severely impact store viability and result in increased prices for groceries, limited operating hours, reduced hours
for workers, fewer workers per store, and most concerning, possible store closures. These negative impacts from the
ordinance would be felt most acutely by independent grocers, ethnic format stores, and stores serving low-income
neighborhoods. The Cities of Los Angeles, Long Beach and Seattle, who have passed a similar ordinance, have already suffered
the permanent loss of several full-service grocery stores as direct result.
We request the City of Anaheim perform an economic impact report to understand the true impacts of this policy. If you
choose not to understand specific impacts for Anaheim, then we refer you to the economic impact report from the City of Los
Angeles Legislative Analyst Office and the San Francisco Office of the Controller. These reports make it clear that the impact of
this policy will severely impact workers, consumers, and grocery stores.
In their own words the Los Angeles City Legislative Analyst clearly states that grocery "companies would be required to take
action to reduce costs or increase revenue as the labor increase will eliminate all current profit margin." The report recognizes
that "affected companies could raise prices to counteract the additional wage cost." This type of ordinance would put "more
pressure on struggling stores (especially independent grocers) which could lead to store closures" and that "the closure of
stores could lead to an increase in 'food deserts' that lack access to fresh groceries."
The San Francisco Controller's Office in their Economic Impact Report urges decision -makers to consider "the distributional
impact of having local consumers, including low-income households, pay for wage mandates that lead to higher labor costs
for business." The report identifies the ordinance will "possibly lead to reduced employment and higher consumer prices.
These costs would generate negative multiplier effects on other local industries and sectors of the local economy."
CALIFORNIA GROCERS ASSOCIATION 1 1005 12th Street, Suite 200, Sacramento, CA 95814
P: (916) 448-3545 1 F: (916) 448-2793 1 www.cagrocers.com
May 11, 2021
PAGE 2
It is important to recognize the current state of COVID. All grocery employees have been able to receive the vaccine since
February 28. Orange County will soon be entering the Minimal Risk Tier which is the lowest risk available to any California
community. As part of your current status Anaheim has chosen to reopen or decrease restrictions for a significant portion of
the economy including venues previously closed or limited such as bars, restaurants and entertainment venues. These
openings are a clear signal that throughout Anaheim both visitors and workers across all business activities are now
considered safe from COVID with proper precautions.
Specific to ordinance language, there are numerous policy and legal issues which unnecessarily single out the grocery industry
and create significant burdens. The ordinance fails to recognize the current efforts grocers are making to support their
employees and requires grocers add significant costs on to existing employee benefit programs.
Furthermore, passing this ordinance improperly inserts the city into employee -employer contractual relationships. The
ordinance also ignores other essential workers, including city employees, that have similar interaction with the public. Taken
in whole, this ordinance is clearly intended to impact only specific stores within a single industry and fails to recognize the
contributions of all essential workers. Based on language specifics, this ordinance misses a genuine effort to promote the
health, safety and welfare of the public.
Emergency passage of the ordinance also ignores any reasonable effort for compliance by impacted stores, as several grocery
stores will be operating at the time of passage. By implementing the ordinance immediately there is literally no time to
communicate to employees, post notices, adjust payroll processes, and other necessary steps as required by California law.
Grocery workers have demonstrated exemplary effort to keep grocery stores open for Anaheim. This why the grocery industry
has provided significant safety measures and historic levels of benefits that include additional pay and bonuses. It is also why
vaccinating grocery workers has been our first priority. Unfortunately, this ordinance is a significant overreach of policy and
jurisdictional control. This will result in negative consequences for workers and consumers that will only be compounded by
the pandemic.
We respectfully implore the Council to not move forward with the grocery worker pay ordinance at this time. We encourage
you to recognize and understand the impacts of this ordinance on workers and the community by accepting our invitation to
work cooperatively with Anaheim grocers. CGA is submitting additional information from our legal counsel for your
consideration.
Thank you for your consideration and we look forward to combating the pandemic in partnership with the City of Anaheim.
Sincerely,
TimotyJames
Y
California Groc s ssociation
CC: Members, Anaheim City Council
City Clerk, City of Anaheim
CALIFORNIA GROCERS ASSOCIATION 1 1005 12th Street, Suite 200, Sacramento, CA 95814
P: (916) 448-3545 1 F: (916) 448-2793 1 www.cagrocers.com
425 MARKET STREET
F Q E R S T E, R SAN FRANCISCO
CALIFORNIA 94105-2482
TELEPHONE: 415.268.7000
FAC SB1I LE: 415.268.7522
V"- Ixtiw'.i�I()F().(:)i�I
May 11, 2021
Via Email
The Honorable Harry S. Sidhu
City Hall Council Chambers
200 S. Anaheim Blvd.
First Floor
Anaheim, California 92805
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WTarantino@mofoxom
Re: Hazard Pay for Grocery, Retail, and Drug Store Workers Ordinance
Dear Council Members:
We write on behalf of our client, the California Grocers Association (the "CGA"), regarding
the proposal on the City Council's May 11, 2021 agenda to consider a "hazard pay"
ordinance for grocery workers in Anaheim. Any hazard pay ordinance will compel grocers
in Anaheim to spend less on worker and public health protections in order to avoid losses
that could lead to closures. In addition, an ordinance would interfere with the collective-
bargaining process protected by the National Labor Relations Act (the "NLRA"), and unduly
targets certain grocers in violation of their constitutional equal protection rights. We
respectfully request that the City Council take a careful and considered look at these issues
before making any decision on a hazard pay ordinance.
Hazard pay ordinances do not address frontline workers' health and safety. The purported
purpose of these ordinances are to protect the public health and safety, but these ordinances
as proposed in every city have been devoid of any requirements related to the health and
safety of frontline workers or the general public and instead imposes costly burdens on
certain grocers by requiring them to provide mandatory wage increases of up to $5.00 per
hour for all hours worked. A wage increase does not play any role in mitigating the risks of
exposure to COVID-19, nor is there any evidence that grocery store workers are exposed to
higher risks than other essential workers. If anything, an ordinance could increase those
risks, as it may divert funds that otherwise would have been available for grocers to continue
their investments in public health measures recognized to be effective: enhancing sanitation
and cleaning protocols, limiting store capacity, expanding online orders and curbside pickup
service, and increasing spacing and social distancing requirements.
sf-4485352
MORRISON I FOERSTER
These ordinances choose winners and losers among frontline workers in mandating wage
increases. Other retail and health care workers are ignored, despite the fact that those same
workers have been reporting to work since March.
Hazard pay ordinances are unconstitutional. By mandating hazard pay, the City would
improperly insert itself into the middle of the collective bargaining process protected by the
National Labor Relations Act. Grocers have continued to operate, providing food and
household items to protect public health and safety. In light of the widespread decrease in
economic activity, there is also no reason to believe that grocery workers are at any particular
risk of leaving their jobs, but even if there were such a risk, grocers would have every
incentive to increase the workers' compensation or otherwise bargain with them to improve
retention. A hazard pay ordinance would interfere with this process, which Congress
intended to be left to be controlled by the free -play of economic forces. Machinists v.
Wisconsin Employment Relations Comm'n, 427 U.S. 132 (1976).
For example, in Chamber of Commerce of U.S. v. Bragdon, the Ninth Circuit Court of
Appeals held as preempted an ordinance mandating employers to pay a predetermined wage
scale to employees on certain private industrial construction projects. 64 F.3d 497 (9th Cir.
1995). The ordinance's purported goals included "promot[ing] safety and higher quality of
construction in large industrial projects" and "maintain[ing] and improv[ing] the standard of
living of construction workers, and thereby improv[ing] the economy as a whole." Id. at
503. The Ninth Circuit recognized that this ordinance "differ[ed] from the [a locality's]
usual exercise of police power, which normally seeks to assure that a minimum wage is paid
to all employees within the county to avoid unduly imposing on public services such as
welfare or health services." Id. at 503. Instead, the ordinance was an "economic weapon"
meant to influence the terms of the employers' and their workers' contract. Id. at 501-04.
The Ninth Circuit explained that the ordinance would "redirect efforts of employees not to
bargain with employers, but instead, to seek to set specialized minimum wage and benefit
packages with political bodies," thereby substituting a "free -play of economic forces that was
intended by the NLRA" with a "free -play of political forces." Id. at 504.
While the City has the power to enact ordinances to further the health and safety of its
citizens, it is prohibited from interfering directly in employers' and their employees'
bargaining process by arbitrarily forcing grocers to provide wages that are unrelated to
minimum labor standards, or the health and safety of the workers and the general public.
While minimum labor standards that provide a mere backdrop for collective bargaining are
consistent with the NLRA, local laws such as a hazard pay ordinance, which effectively
dictate the outcome of the college bargaining process, are preempted. An ordinance such as
the one proposed here imposes unusually strict terms on a narrow band of businesses without
any allowance for further bargaining. By enacting an ordinance such as this, the City would
end any negotiations by rewriting contracts.
Hazard pay ordinances also violate the U.S. Constitution and California Constitution's Equal
Protection Clauses (the "Equal Protection Clauses"). The Equal Protection Clauses provide
sf-4485352
MORRISON I FOERSTER
for "equal protections of the laws." U.S. Const. amend. XIV, § l; Cal. Const. art I, § 7(a).
This guarantee is "essentially a direction that all persons similarly situated should be treated
alike" and "secure[s] every person within the State's jurisdiction against intentional and
arbitrary discrimination, whether occasioned by express terms of a statute or by its improper
execution through duly constituted agents." City of Cleburne v. Cleburne Living Center, 473
U.S. 432, 439 (1985); Village of Willowbrook v. Olech, 528 U.S. 562, 564 (2000). No law
may draw classifications that do not "rationally further a legitimate state interest."
Nordlinger v. Hahn, 505 U.S. 1, 10 (1992). By requiring that any classification "bear a
rational relationship to an independent and legitimate legislative end, [courts] ensure that
classifications are not drawn for the purpose of disadvantaging the group burdened by law."
Romer v. Evans, 517 U.S. 620, 633 (1996).
As discussed above, these ordinances unfairly target traditional grocery companies and
ignore other generic retailers and other businesses that employ frontline workers. See Fowler
Packing Co., Inc. v. Lanier, 844 F.3d 809, 815 (9th Cir. 2016) ("[L]egislatures may not draw
lines for the purpose of arbitrarily excluding individuals," even to "protect" those favored
groups' "expectations."); Hays v. Wood, 25 Cal. 3d 772, 786-87 (1979) ("[N]othing opens
the door to arbitrary action so effectively as to allow [state] officials to pick and choose only
a few to whom they will apply legislation and thus to escape the political retribution that
might be visited upon them if larger numbers were affected."). Moreover, as an ordinance
that would impinge on fundamental rights to be free of legislative impairment of existing
contractual agreements, this ordinance would be subject to heightened scrutiny by courts.
See, e.g., Plyler v. Doe, 457 U.S. 202, 216 (1982); Hydrick v. Hunter, 449 F.3d 978, 1002
(9th Cir. 2006); Long Beach City Employees Ass'n v. City of Long Beach, 41 Cal.3d 937, 948
(1986). The City's unilateral modification of contractual terms governing wages and hours
of grocery employees would go to the very heart of bargained -for agreements.
For the reasons discussed above, we respectfully request that the City Council reject any
proposal for a hazard pay ordinance.
Sincerely,
�V&_
William F. Tarantino
Cc: Anaheim City Council
Stephen Faessel
Jose Diaz
Jordan Brandman
Jose F. Moreno
sf-4485352
MORRISON I FOERSTER
Avelino Valencia
Trevor O'Neil
sf-4485352
onsumer and ommun ty Impacts1
Hazard Pay Mandates
,;,p i
Californiar Association
Prepared by:
Brad Williams, Chief Economis)
Michael C. Genest, Founder 1 Chairman
Capitol 1 g
C.'a sur it and C.'arnirnuirift Ilir 11 act f 111azair IIPay Mandates
The authors are partners with Capitol Matrix Consulting (CMC), a firm that provides consulting
services on a wide range of economic, taxation, and state -and -local government budget issues.
Together, they have over 80 years of combined experience in economic and public policy analysis.
Mike Genest founded Capitol Matrix Consulting (originally Genest Consulting) in 2010 after concluding
a 32 -year career in state government, which culminated as Director of the California Department of
Finance (DO F) under Governor Arnold Schwarzenegger. Prior to his four-year stint as the Governor's
chief fiscal policy advisor, Mr. Genest held top analytical and leadership positions in both the executive
and legislative branches of government These included Undersecretary of the Health and Human
Services Agency, Staff Director of the Senate Republican Fiscal Office, Chief of Administration of the
California Department of Corrections and Rehabilitation, and Director of the Social Services section of
California's Legislative Analyst's Office.
Brad Williams joined Capitol Matrix Consulting in 2011, after having served in various positions
in state government for 33 years. Mr. Williams served for over a decade as the chief economist for
the Legislative Analyst's Office, where he was considered one of the state's top experts on the tax
system, the California economy, and government revenues. He was recognized by the Wall Street
Journal as the most accurate forecaster of the California economy in the 1990s, and has authored
numerous studies related to taxation and the economic impacts of policy proposals. Immediately
prior to joining CMC, Mr. Williams served as a consultant to the Assembly Appropriations
Committee, where he advised leadership of the majority party on proposed legislation relating to
taxation, local government, labor, and banking.
C.'ainsurn it and C.'arnirm uirift limpacts ct f 1-11azaird Pay Mandates
EXECUTIVE SUMMARY........................................................................................................................ 4
INTRODUCTION....................................................................................................................................................... 6
BACKGROUND - GROCERY IS A LOW -MARGIN, HIGH -LABOR COST BUSINESS ................................ 6
COVID-19 TEMPORARILY BOOSTED PROFITS........................................................................................................................ 6
BUT THE INCREASES ARE SUBSIDING........................................................................................................................................ 7
MANY STORES INCUR LOSSES IN NORMAL YEARS................................................................................................................... 8
MANDATED WAGE INCREASES WOULD PUSH MOST STORES INTO DEFICITS...................................................................... 8
POTENTIAL IMPACTS ON CONSUMERS, WORKERS AND COMMUNITIES ............................................. 8
HIGHER COSTS PASSED ALONG TO CONSUMERS...................................................................................................................... 9
HIGHER COSTS ARE OFFSET BY JOB AND HOURS WORKED REDUCTIONS............................................................................ 9
SOME COMMUNITIES WOULD LIKELY BECOME FOOD DESSERTS........................................................................................10
CONCLUSION......................................................................................................................................................... 11
C'oin^ wrneir wri C' it irnuiriut: Ilirnpa t f 111azaird Flay Iftir date
Executive Summary
Hazard -pay mandates passed in the City of Long Beach and under consideration in the City of Los
Angeles and in other local jurisdictions would raise pay for grocery workers by as much as $5.00 per
hour. Since the average pay for grocery workers in California is currently about $18.00 per hour, a
$5.00 increase would raise store labor costs by 28 percent, and have major negative impacts on
grocery stores, their employees and their customers. Specifically:
Average profit margins in the grocery industry were 1.4% in 2019, with a significant number
of stores operating with net losses. While profits increased temporarily to 2.2% during early
to mid 2020, quarterly data indicates that profit margins were subsiding to historical levels as
2020 drew to a close.
Wage -related labor expenses account for about 16 percent of total sales in the grocery
industry. As a result, a 28 percent increase in wages would boost overall costs 4.5 percent
under the City of Los Angeles proposal of $5.00 per hour. This increase would be twice the size
of the 2020 industry profit margin and three times historical grocery profit margins.
In order to survive such an increase, grocers would need to raise prices to consumers and/or
find substantial offsetting cuts to their controllable operating expenses, which would mean
workforce reductions. As an illustration of the potential magnitude of each of these impacts,
we considered two extremes:
1) All of the higher wage costs (assuming the $5.00/hour proposal) are passed through to
consumers in the form of higher retail prices:
• This would result in a $400 per year increase in grocery costs for a typical family of
four, an increase of 4.5 percent.
• If implemented in the City of Los Angeles, its residents would pay $450 million more
for groceries over a year.
• The increase would hit low- and moderate -income families hard, particularly those
struggling with job losses and income reductions due to COVID-19.
• If implemented statewide, additional grocery costs would be $4.5 billion per year in
California.
2) Retail prices to consumers are not raised and all the additional costs are offset through a
reduction in store expenses:
• Given that labor costs are by far the largest controllable expense for stores, it is
highly likely that the wage mandates will translate into fewer store hours, fewer
employee hours, and fewer jobs.
➢ For a store with 50 full-time equivalent employees, it would take a reduction of
11 employees to offset the increased wage costs, or a 22% decrease in staff.
➢ If the mandate were imposed statewide at $5.00 per hour, the job loss would be
66,000 workers.
IN
C.'an uir it and C.'ar irnuirift Ilii 111 act f 111azaird Flay Mandates
dat
➢ If imposed in the City of Los Angeles, the job loss would be 7,000 workers.
➢ And in the City of Long Beach, the job impact of its $4.00 per hour mandate
would be 775 jobs.
➢ Stores could alternatively avoid job reductions by cutting hours worked by 22
percent.
• For the significant share of stores already operating with net losses, a massive
government -mandated wage increase would likely result in store closures, thereby
expanding the number of "food deserts" (i.e. communities with no fresh -food options).
C.'an uir it and C.'arnirnuirifty Ilirnpa t of 111azaird Flay Mandates
WITMITO
The Long Beach City Council has passed an ordinance that mandates grocers to provide a $4.00 per
hour pay increase - "hazard pay" - to grocery workers. The mandate expires in 120 days. Two
members of the Los Angeles City have introduced a similar measure for a $5.00 per hour increase
for companies that employ more than 300 workers nationwide. Grocery workers in California
currently earn about $18.00 per hour.' Therefore, the Los Angeles proposal would increase average
hourly pay to $23.00 per hour, an increase of 28 percent. Several other cities in California have
discussed $5.00/hour proposals similar to Los Angeles.
This report focuses on the impact of hazard pay mandates on grocery store profitability and on the
sustainability of an industry with traditionally low profit margins. It also assesses the potential
impact of the proposed wage increases on consumers, especially lower-income consumers (a cohort
already hit hard by the COVID lockdowns and business closures).
SHIM. 11111111 111 111111y11111
The grocery business is a high-volume, low -margin industry. According to an annual database of
public companies maintained by Professor Damodaran of New York University (NYU),2 net profit
margins as a percent of sales in the grocery industry are among the lowest of any major sector of the
economy. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) averaged 4.6
percent of sales in 2019, and the net profit margin (which accounts for other unavoidable expenses
such as rent and depreciation) was just 1.4 percent during the year. This compares to the non-
financial, economy -wide average of 16.6 percent for EBITDA and 6.4 percent for the net profit
margin. The NYU estimate for public companies in the grocery industry is similar to the 1.1 percent
margin reported by the Independent Grocers Association for the same year.3
COVID-19 temporarily boosted profits
In the beginning of the COVID-19 pandemic, sales and profit margins spiked as people stocked up on
household items and shifted spending from eating establishments to food at home. According to data
compiled by NYU, net profit margins in the grocery industry increased to 2.2 percent in early to mid
2020.4 Although representing a substantial year-to-year increase in profits, the 2.2 percent margin
remains quite small relative to most other industries. This implies that even with the historically high
rates of profits in 2020, there is little financial room to absorb a major wage increase.
1 $18.00 per hour is consistent with the responses we received to our informal survey. It is also consistent with published
contract agreements we reviewed. See, for example, the "Retail Food, Meat, Bakery, Candy and General Merchandise
Agreement, March 4, 2019 - March 6, 2022 between UFCW Union Locals 135, 324, 770,1167,1428,1442 & 8 - GS and Ralphs
Grocery Company." In this contract, hourly pay rates starting March 2, 2021 for food clerks range from $14.40 per hour (for
first 1,000 hours) up to $22.00 per hour (for workers with more than 9,800 hours), The department head is paid $23.00 per
hour. Meat cutter pay rates range from $14.20 (for the first six months) to $23.28 per hour (for those with more than 2 years
on the job). The department manager is paid $24.78 per hour. https://ufcw770.org/wp-content/uploads/2020/08/Ralphs-
Contract-2020.pdf
' Source: Professor Aswath Damodaran, Stern School of Business, New York University.
http://pages.stern.nyu.edu/—adamodar/
' Source: "2020 Independent Grocer Financial Survey." Sponsored by the National Grocer's Association and FMS Solutions
Holding, LLC
4 Supra 2.
6
C'iirisuirn it airid C.'arnirnuirifty Ilii 11 act 1 111azaird Flay Mairidate
But the increases are subsiding
Moreover, quarterly data indicates that the sales and profit increases experienced in early 2020
were transitory and were settling back toward pre-COVID trends as 2020 drew to a close. This
quarterly trend is evident in quarterly financial reports filed by California's two largest publicly
traded companies in the grocery business: The Kroger Company (which includes Ralphs, Food for
Less, and Fred Meyers, among others) and Albertsons (which includes Safeway, Albertsons, and
Vons, among others). Figure 1 shows that the average profit margin for these two companies was
3.6 percent of sales in the Spring of 2020, declining to 1.9 percent by the fourth quarter of the year.5
Monthly sales data contained in the 2020 Independent Grocer's Financial Survey showed a similar
pattern, with year -over -year sales peaking at 68 percent in mid-March 2020, but then subsiding to
12 percent as of the first three weeks of June (the latest period covered by the survey).6
Figure 1
Combined Net Profit Margins During 2020
Albertsons and The Kroger Companies
4.0%
,3.5%
0)3.0%
co12
2.5%
2.0%
M
1.5%
0
0-1.0%
0.5%
0.0%
Spring 2020 Summer202O Fall 2020
While grocers continued to benefit from higher food and related sales during the second half of
2020, they also faced higher wholesale costs for food and housing supplies, as well as considerable
new COVID-19 related expenses. These include expenses for paid leave and overtime needed to
cover shifts of workers affected by COVID-19, both those that contracted the virus and (primarily)
those that were exposed and needed to quarantine. Other COVID-19 costs include those for intense
in-store cleaning, masks for employees, new plastic barriers at check-outs and service counters, and
additional staffing and capital costs for scaling up of e-commerce, curbside and home delivery.
5 In their SEC 10-Q quarterly report for the four-month period ending in June 2020, Albertsons reported that consolidated
sales were up 21.4 percent from the same period of 2019 and before -tax profits were 3.5 percent of total sales. In the
three-month period ending in mid-September, the company reported year -over -year sales growth of 11.2 percent and
before -tax profits equal to 2.5 percent of sales. In their 10-Q report filed for the three-month period ending in early
December, Albertsons showed year -over -year sales growth of 9.3 percent, and profits as a percent of sales of just 1.0
percent. Data for the Kroger Company indicates that year -over -year sales growth subsided from 11.5 percent for the three-
month period ending in May 2020 to 8.2 percent for the three-month period ending in August, and further to 6.3 percent
for the three-month period ending in November. Profits as a percent of sales fell from 3.8 percent to 3.5 percent, and
further to 2.8 percent during the same three quarterly periods. (Source: EDGAR Company Filings, U.S. Securities and
Exchange Commission. https://www.sec.gov/edgar/searchedgar/ companysearch.html.
6 Supra 3
'7
C.'airiuir it aired C.'ar irnuirift Ilir 111 act of 111azaird Flay 11 airidate
Many stores incur losses in normal years
The 1- to 2 -percent net profit levels cited above reflect industry averages. There is considerable
variation around these averages among individual stores, with some doing better and some doing
worse. As one indication of this variation, the 2020 Independent Grocer Financial Survey found that,
while the nationwide average profit before tax for all stores was 1.1 percent of sales in 2019, about
35 percent of the respondents reported negative net profits during the year.? This national result is
consistent with feedback we received from California grocers, which reported that even in profitable
years, anywhere from one-sixth to one-third of their stores show negative earnings. While chain
operations can subsidize some store losses with earnings from other stores, a major mandated wage
increase would eliminate earnings for even the most profitable stores, making cross- subsidies within
supermarket chains much less feasible. As discussed below, the consequence would likely be a closure
of some unprofitable stores.
Mandated wage increases would push most stores into deficits
The grocery business is very labor intensive. Labor is the industry's second largest cost, trailing only
the wholesale cost of the food and other items they sell. According to a benchmark study by Baker -
Tilly, labor expenses account for 13.2 percent of gross sales of grocers nationally.8 The Independent
Grocer Survey, cited above, found that labor costs account for 15 percent of sales nationally and 18.4
percent for independent grocers in the Western region of the U.S.9
Respondents to our survey of California grocers reported that labor costs equate to 14 percent to 18
percent of sales revenues. For purposes of this analysis, we are assuming that the wage base
potentially affected by the mandated hourly pay increase is about 16 percent of annual sales.lo
A mandatory $4-$5 per hour increase, applied to an average $18.00 per hour wage base, would
increase labor costs by between 22 percent and 28 percent. This would, in turn, raise the share of
sales devoted to labor costs from the current average of 16 percent up to between 19 percent and
20.5 percent of annual sales. The up -to -4.5 percent increase would be double the 2020 profit
margin reported by the industry, and three times the historical margins in the grocery industry.
In order to survive such an increase, grocers would need to raise prices to consumers and/or find
substantial offsetting cuts to their operating expenses. As an illustration of the potential magnitude of
each of these impacts, we considered two extremes: (1) all of the higher wage costs are passed
through to consumers in the form of higher retail prices; and (2) prices are not passed forward and all
the additional costs are offset through a reduction of jobs or hours worked.
' Supra 3
'White Paper, "Grocery Benchmarks Report", November 5, 2019, Baker Tilly Virchow Krause LLP.
9 Supra 3
io This recognizes that not all labor costs would be affected by the hazard pay proposal. Grocers report that both in-store and
warehouse staff would receive the increase, as would supervisors and managers, although some executive and
administrative staff may not. In addition, costs for health coverage would probably not be affected, at least not immediately,
but payroll taxes and some other benefit costs would be.
M
C.'airiuir it aired C.'arnirnuirifty Ilirnpa t of 111azaird Flay 11 airidate
Higher costs passed along to consumers
Aggregate impacts. If a $5.00 per hour wage increase were imposed statewide and all of the
increase were passed along to customers in the form of higher product prices, Californians would
face a rise in food costs of $4.5 billion annually. If imposed locally, the City of Los Angeles's $5 per
hour proposal would raise costs to its residents by $450 million annually, and the $4.00 per hour
increase in Long Beach would raise grocery costs to its residents by about $40 million annually."
Impact on household budgets. The wage increase would add about $400 to the annual cost of food
and housing supplies for the typical family of four in California.12 While such an increase may be
absorbable in higher income households, it would hit low- and moderate -income households
especially hard. The impact would be particularly harsh for those who have experienced losses of
income and jobs due to the pandemic, or for those living on a fixed retirement income including
many seniors. For these households, the additional grocery -related expenses will make it much
more difficult to cover costs for other necessities such as rent, transportation, utilities, and
healthcare.
According to the BLS Consumer Expenditure Survey, California households with annual incomes of
up to $45,000 already spend virtually all of their income on necessities, such as food, housing,
healthcare, transportation and clothing.13 For many of these households, a $33 per month increase
in food costs would push them into a deficit.
These increases would add to the severe economic losses that many Californians have experienced
as a result of government -mandated shutdowns in response to COVID-19. According to a recent
survey by the Public Policy Institute of California, 44 percent of households with incomes under
$20,000 per year and 40 percent with incomes between $20,000 and $40,000 have reduced meals or
cut back on food to save money.14 Clearly, imposing a $4.5 billion increase in grocery prices would
make matters worse, especially for these lower-income Californians.
Higher costs are offset by job and hours -worked reductions
If grocers were not able to pass along the higher costs resulting from the additional $5/hour wage
requirement, they would be forced to cut other costs to avoid incurring financial losses.ls Given
11 Our estimates start with national U.S. Census Bureau estimates from the Annual Retail Trade Survey for 2018 (the most
current data available), which indicates that nationwide sales by grocers (excluding convenience stores) was $634 billion
in 2018. We then apportioned this national data to California as well as the cities of Los Angeles and Long Beach based on
relative populations and per -household expenditure data from the Consumer Expenditure Survey. We then updated the
2018 estimate to 2021 based on actual increases in grocery -related spending between 2018 and 2020, as reported by the
U.S. Department of Commerce, and a projection of modest growth in 2021. Our estimate is consistent with the industry
estimate of $82.9 billion for 2019 that was by IBISWorld, as adjusted for industry growth in 2020 and 2021. (See
IBISWORLD Industry Report, Supermarkets & Grocery Stores in California, Tanvi Kumar, February 2019.)
12 Capitol Matrix Consulting estimate based on U.S. Bureau of Labor Statistics, Consumer Expenditure Report, 2019.
https:ll www.bls.gov/onub/reports/consumer-expenditures/2019/home.htm
13 U.S. Bureau of Labor Statistics, Consumer Expenditure Survey, State -Level Expenditure Tables by Income.
https://www.bls.gov/cex/csxresearchtables.htm#stateincome.
14 "Californians and Their Well -Being", a survey by the Public Policy Institute of California. December 2020.
http s: //www.pp i c. o rg/publi cati o n/pp ic-statewi de-survey-califo rni ans-and-the it -eco no mic-well-being-december-2 02 0/
is Circumstances where stores would not be able to pass forward high costs include communities where customers are
financially squeezed by pandemic -related losses in jobs or wages, or where the increased is imposed locally and customers
are able to avoid higher prices by shifting purchases to cross-border stores.
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C'iirisuirn it aurid C.'arnirnuirifty Ilii 11 act of 111azaird Flay Mairidate
that labor costs are by far the largest controllable expense for stores, it is highly likely that the
wage mandates will translate into fewer store hours, fewer employee hours, and fewer jobs. For a
store with 50 full-time equivalent employees, it would take a reduction of 11 employees to offset
the increased wages, which is about a 22 percent decrease in staff/hours.
Aggregate impacts. As an illustration, if the full California grocery industry were to respond to a
statewide $5.00 wage mandate by reducing its workforce, we estimate that up to 66,000 industry
jobs would be eliminated. This is about 22 percent of the 306,000 workers in the grocery industry in
the second quarter of 2020 (the most recent quarter for which we have detailed job totals).16 If the
mandate were imposed locally in the City of Los Angeles, the impact would be about 7,000 workers,
and in the City of Long Beach (at $4.00 per hour), the impact would be about 775 jobs. Stores could
alternatively avoid job reductions by cutting hours worked by 22 percent across-the-board.
Under these circumstances, some workers receiving the wage increases would be better off, but many
others would be worse off because of reduced hours or layoffs. Customers would also be worse off
because of reduced store hours, and fewer food choices and services.
Without any external constraints imposed by the local ordinances, it is likely some combination of
higher prices and job and hour reductions would occur. Stores within some jurisdictions imposing
the mandatory wage increase might be able to raise retail prices sufficiently to cover a significant
portion of the mandated wage increase, thereby shifting the burden onto customers. However, the
degree to which this would occur would vary from jurisdiction to jurisdiction, depending on the
price -sensitivity of their customers and (if the mandate is imposed locally) the availability of
shopping alternatives in neighboring communities that have not imposed the wage mandate.
Of course, if the local ordinances contain provisions prohibiting stores from cutting hours, then
stores would be forced to pass costs on to consumers in the form of higher prices, or to close stores
in those jurisdictions.
Some communities would become food deserts
Many of the up -to one third of stores already incurring losses may find it impossible to raise prices or
achieve savings that are sufficient to offset the higher wage costs. For these stores, the only option
would be store closure. Indeed, a consistent theme of feedback we received from California grocer
representatives is that it would be extremely difficult, if not impossible, to justify continued operation
of a significant portion of their stores following a government -mandated 28 -percent increase in
wages. This would leave some communities with fewer fresh food options.
According to the Propel LA: "The United States Department of Agriculture (USDA) defines a food
desert as 'a low-income census tract where either a substantial number or share of residents has
low access to a supermarket or large grocery store.' There are a large number of census tracts in Los
Angeles County, including Antelope Valley and San Fernando Valley, that are considered to be food
deserts. The population of food deserts is predominantly Hispanic or Latino, followed by Black and
White, respectively." 17 The map also shows several food deserts in and around the City of Long
Beach. The hazard pay proposal would exacerbate this problem.
16 Employment Development Department. Labor Market Information Division. Quarterly Census of Employment and Wages.
https://www.labormarketinfo.edd.ca.gov/qcew/cew-select.asp
17 "Food deserts in LA, an Interactive Map." Propel LA, https://www.propel.la/portfolio-item/food-deserts-in-los-angeles-
county/
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C.'an uir it and C.'ar irnuirift Ilii III act f 111azaird Flay Mandates
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Closing even one supermarket in many neighborhoods would result in residents having to commute
significantly farther to find fresh and healthy food at reasonable prices. Tulane University studied
the impact of food deserts and concluded that while the majority of items at smaller stores are
priced higher than at supermarkets, price is a consideration in deciding where to purchase staple
foods, and transportation from a food desert to a supermarket ranges from $5 to $7 per trip.18
Thus, mandating hazard pay would likely impose significant hardships on some communities,
especially in lower-income areas. The loss of a grocery store means both fewer jobs for members of
the community and higher costs for all residents in the community, who must pay higher local prices
or incur additional time and expense to shop.
we"I
Hazard pay initiatives like those passed in the City of Long Beach, and proposed in the City of Los
Angeles and in other local jurisdictions, would have far-reaching and negative consequences for
businesses, employees and customers of grocery stores in the jurisdictions where levied. They
would impose an up -to -28 percent increase in labor costs on an industry that is labor-intensive and
operates on very thin profit margins. The increases would be more than double the average profit
margins for the grocery industry in 2020, and triple the margins occurring in normal years, and thus
would inevitably result in either retail price increases or major employment cutbacks by grocery
stores, or a combination of both. If the increased costs were passed forward to consumers, a typical
family of four in California would face increased food costs of $400 per year. This would intensify
financial pressures already being felt by millions of low- and moderate -income families, many of
whom are already cutting back on basic necessities like food due to COVID-19-related losses in jobs
and income. Establishments not able to recoup the costs by raising prices would be forced to reduce
store hours and associated jobs and hours worked by employees. For a significant number of stores
that are already struggling, the only option may be to shutter the store. This would be a "lose -lose"
for the community. It would mean fewer jobs with benefits, less local access to reasonably -priced
food, and more time and expense spent by customers that would have to travel greater distance to
find grocery shopping alternatives.
11 "Food Deserts in America (Infographic)," Tulane University, School of Social Work, May 10, 2018.
https://socialwork.tulane.edu/blog/food-deserts-in-america
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