Analysis of proposed LA city ‘hero pay’ measure warns of possible layoffs, higher costs – Daily News

Los Angeles city officials, weighing a potential mandate on grocery stores to provide “hero pay” increases to essential workers, have released a 21-page analysis of the potential economic impacts. The assessment concluded that it could lead to higher pay for workers that could be funneled back into a recovering  economy — but it also warned of potential layoffs or reductions to employee work hours.

Struggling grocers, particularly independent shops, could be under more pressure and could even close if the proposed $5 bump in pay passes, according to the study, released last Friday. Grocery costs could also go up for consumers, the analysis said.

The projections arrive as council members are scheduled on Wednesday, Feb. 24, to consider the temporary mandate. The boost was proposed as a way to offset the disproportionate effect COVID-19 is having on workers at grocery stores, which have remained open — deemed “essential businesses” — throughout the pandemic.

The proposal would only apply to grocers that have 300 employees nationwide, 10 employees at each site, and 85,000 square feet of space in which 10 percent of the “sales floor” is dedicated to grocery and drug retail. The ordinance would sunset after 120 days.

The report noted that independent grocers could have a more difficult time shouldering the cost of hazard pay.

A quarter of western region companies reported a negative net profit in 2019, according to the Independent Grocers Association, while the California Grocers Association reported that between a sixth to a third of its members had a negative net profit. When one store is struggling, a chain typically offsets those losses with the earnings of a stronger store.

However, smaller chains and individual stores wouldn’t have the same ability to rely on other stores to offset such costs, the report said, while publicly traded grocers could have “more capacity to rely on the profits of stores throughout the nation to subsidize the local labor cost increase.”

And companies may decide to close stores, in order to “contain costs,” according to the report, which pointed to plans by Kroger, the parent of Ralphs and Food 4 Less chains, to close two stores in Long Beach following the enactment of a $4 per hour hazard pay in that city. Both the stores had already been under-performing “for some time before the city of Long Beach hazard pay was enacted,” the city report also noted.

Such closures affect employees, vendors and third-party companies that work with those stores, as well as customers, who could have less access to fresh meat and produce. City officials said they were still researching the number of stores that would be in or around so-called “food deserts” where there is less access to fresh groceries.

Meanwhile, the hazard pay could potentially put a hold on plans by chains to open new stores, renovate or increase wages or promote employees, although the later is more likely at non-union stores, the report said.

The analysis includes a list of stores that could be subject to the mandate. Based on the assumption that each store has 80 employees, the city anticipates that medium-sized grocers that could be affected by the mandate include Super King, Mitsuwa, Erewon, Han Kook and Super A Foods.

Large grocers that could be affected include 99 Ranch, El Super, Aldi, Trader Joe’s, Seafood City, Albertsons and Kroger. Such large retail stores like Target, Walmart and Sam’s Club, as well as such drug stores as Rite Aid, CVS and Walgreens, could also be impacted.

City analysts warned this was not a final list of stores that could be affected. It was pulled together to get a sense of how many chains reside in the marketplace.

City officials gave an overview of the grocery industry in the report. According to the financial information company Sageworks, it is a “low profit-margin industry.”

One possible economic impact of the mandate: A higher percentage of the revenue grocery stores earn could go to employee costs, and that may chip away at profit margins.

City analysts also looked how the hazard pay could affect consumers. They examined an economic analysis by the California Grocers Association that said the grocery bill for a typical family of four could go up by $33 per month, or a total of $132 over the 120 days the mandate would be in effect — if the entirety of the costs were passed on to the consumers.

However, city analysts said they had “limited discussions with grocers,” and found that stores likely would not pass all of the additional costs onto customers. They noted that shoppers, especially in low-income communities, are “extremely price conscious.”

The report added: “However, prices could increase on average to a lesser degree.”

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