After successfully lobbying Wal-Mart Stores Inc. to raise wages, workers have a new demand: Give employees a discount on food. For the world’s largest retailer, that could cost more than US$400 million.
Wal-Mart cutting workers’ hours after pay raise boosts costs
Wal-Mart Stores Inc., in the midst of spending US$1 billion to raise employees’ wages and give them extra training, has been cutting the number of hours some of them work in a bid to keep costs in check.
Wal-Mart currently offers workers a 10 per cent discount on all merchandise except the vast majority of food. Fruits, vegetables and some snacks are the only food items included in the promotion, unless they’re on sale. Employees want more groceries to be included in the discount, noting that competitors such as Target Corp. and Whole Foods Market Inc. already offer that perk.
“It is ridiculous,” said Janet Sparks, a Wal-Mart employee in Baker, Louisiana, who’s been active in labour groups pushing for higher wages. “You can get a 10 per cent discount on cat food, but if I buy tuna or chicken, I get no discount.”
A group of Wal-Mart workers started an online petition last week calling on the company to expand the discount, and it’s received 12,600 signatures from employees. The group, which isn’t affiliated with a separate organization financially backed by the United Food and Commercial Workers International union, plans to take the petition to store managers and executives this month.
For a company of Wal-Mart’s size, a seemingly small benefit can add up quickly. The 10 per cent discount would be spread out over 1.4 million U.S. employees, more than the population of San Diego.
The average U.S. household with an annual income above US$20,000 spends more than US$3,000 a year on food at home, according to the Bureau of Labor Statistics. If all Wal-Mart employees took advantage of the proposed benefit and purchased their groceries at work, it could cost the retailer more than US$420 million a year in discounts. And that’s in a category with already-thin margins. The supermarket industry has a profit margin of 1.7 per cent, according to research firm IBISWorld.
You can get a 10 per cent discount on cat food, but if I buy tuna or chicken, I get no discount
Wal-Mart, which had more than US$16 billion in profit last year, declined to say how much the additional discount would cost or whether it’s considering such a move. Spokesman Kory Lundberg said the retail giant is always reviewing employee benefits, noting that it offered US$500 million in discounts last year on general merchandise, fruits and vegetables.
The company has surveyed employees on what benefits they would like the company to offer, Lundberg said. While a food discount was mentioned, higher wages, better scheduling and more regular hours were a higher priority, he said.
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The added benefit could become a necessary expense for Wal-Mart as the labour market becomes more competitive and the company tries to improve worker morale. Wal-Mart began increasing its minimum wage this year in hopes that happier employees will be more productive and provide better customer service, an area the company has identified as needing improvement.
“It is probably going to be hard for Wal-Mart to say, ‘We can’t do that,’” said Brian Yarbrough, an analyst with Edward Jones & Co. “They are probably going to feel some heat” from employees, he said.
Adding the discount also might bring some upside if it coaxes more workers into doing their grocery shopping at Wal-Mart. Sparks said she and many of her colleagues get their food at stores such as Dollar General, Aldi and Winn-Dixie, where the prices are lower.
“A lot of employees are buying groceries outside of Wal-Mart because they have to stretch their dollars and are chasing sales,” Sparks said. “What better way to guarantee 1.4 million shoppers?”
Investors, though, are concerned about Wal-Mart’s already-escalating costs. They see the previous investments in its workforce as a drag on profits, and that’s reflected in the company’s share price. It suffered the worst one-day stock decline in more than 27 years in October after predicting a drop in annual profit, driven by an additional US$1.5 billion it will spend next year on higher wages. A food discount could further cut profits and upset investors, Yarbrough said.
“The question is, if a person spends less on grocery, do they put that money into other items in the store that have higher margins?” he said. “It is going to impact the bottom line some, but it is hard to know if it is offset.”
Bobby Womack, a cashier at the Wal-Mart in Baker, said the discount would allow her to buy food that would help her diabetes, such as whole grains or products without added sugar. She said she buys a lot of her food at Family Dollar and Dollar General, which have some of the same brands as Wal-Mart for a fraction of the price. A can of cream of chicken soup, one of her staples, costs 66 cents at Family Dollar, compared with $1 at Wal-Mart, she said.
Workers also note that Wal-Mart already offers a discount on food from around Thanksgiving until the end of the year. If the company can afford to offer that perk during the holidays, it should be able to do so every day, they say.
“We are hungry all year,” said Nancy Reynolds, a Wal-Mart worker in Merritt Island, Florida, who works with the labour group pushing for the change. “We need the help all year, not just one month.”
— With assistance from Leslie Patton in Chicago.