FMI MIDWINTER

SCOTTSDALE, Ariz. -- Employee retention is one of the biggest problems for supermarkets today, and a study unveiled here last week provides compelling evidence that retailers need to act on the problem quickly.The study, which was conducted for the Coca-Cola Retailing Research Council, says the annual cost of employee turnover in the North American supermarket industry exceeds industry profits by

SCOTTSDALE, Ariz. -- Employee retention is one of the biggest problems for supermarkets today, and a study unveiled here last week provides compelling evidence that retailers need to act on the problem quickly.

The study, which was conducted for the Coca-Cola Retailing Research Council, says the annual cost of employee turnover in the North American supermarket industry exceeds industry profits by more than 40%.

The report describing the research provides new tools retailers can use to estimate their turnover costs and recommends specific actions that will boost retention.

The research was discussed at a business session of the Midwinter Executive Conference of the Food Marketing Institute, Washington. [For more on the event, see page 44.]

"Even a small decrease in turnover can increase profitability," said Jeffrey Noddle, executive vice president and chief operating officer of Supervalu, Minneapolis. "Even if you can't see the costs, they are there and they are big."

Christian Haub, president and chief executive officer of A&P, Montvale, N.J., told the Midwinter audience: "Like it or not, we must do a better job of understanding what attracts and motivates people to work for us. But much of the answer lies in our control."

The study found that the supermarket industry's average annual employee-turnover cost per store is about $190,000. It calculated the annual cost of turnover at $5.8 billion, which exceeds industry profits of $4.1 billion by 41%.

The costs cited include direct factors such as advertising, training and employment testing and opportunity costs such as paperwork mistakes, inventory shrinkage and improper use of equipment.

Turnover costs were found to increase with job level and were greater in union than nonunion companies.

The study found that too often turnover also leads to customer losses, which "could add anywhere from 34% to 119% to the direct and opportunity costs of turnover."

Ten companies, representing 18 operating divisions located across North America, participated in the research. Companies completed some 568 surveys and provided data on more than 170,000 store-level employees. More than 9,500 store-level employees completed a questionnaire about retention.

The study differentiated between the cases of hourly and management employees.

"To improve hourly employee retention, companies must focus on providing task-level assistance to help employees do their jobs better," it said. "To improve store-management retention, companies must focus on mission-level assistance to help them be better leaders and supervisors."

Discussing specifics for these two classes of employees, the report pointed to three major areas in which companies can improve their records with hourly employees. Retailers need to do a better job in providing directions, equipment and supplies, and immediate supervision, the study said.

These three drivers that most retain hourly employees are tactical in nature. "Most hourly employees are part-timers who likely consider their jobs as temporary," the report said. "To get things done quickly and effectively, they need specifics: what to do and how to do it. They need equipment that works well. They need the supplies to do their jobs. Supervision is an important tactical factor. Supervisors are their pivotal point of contact with the company."

Acting on these points can bring huge benefits, the report said. Research found that the median employee tenure is 148 days for companies doing the best job providing specific directions to hourly employees vs. 86 days for those executing poorly -- a 72% difference.

The factors influencing retention are different for store management. The three most important drivers are organizational direction, training and advancement, the study found.

"The strategic nature of the retention drivers for store management makes sense for their jobs," according to the report. "Store-management employees need to know where the company is going in order to inspire employees to work in that direction. For their complicated jobs they need thorough preparation (training). They are also concerned about improving their skills to help advance their careers."

The report urges companies to assign teams to study the issue of retention, select an initial target for focus and create action plans.

Firms were also encouraged to look even deeper into the various factors identified as retention drivers. For example, it's not enough to know that providing equipment and supplies supports lower turnover of hourly employees. Further analysis shows that repairing equipment as quickly as possible, ensuring equipment is safe and making supplies readily available are practices that can most improve retention results. Underlining that point, the study found a 111% difference in retention rates between companies that quickly repaired equipment and those that didn't.

Blake A. Frank, assistant dean of Academic Studies at the Graduate School of Management of the University of Dallas, conducted the study for the Coca-Cola Council. Frank, who spoke at the FMI session, urged companies to analyze the report's data, which includes retention curve charts, to gain a deeper understanding of the problem. "Within the first 97 days one half of new [hourly] hires leave," he stressed. "Twenty-five percent leave within the first month alone, so you don't have a lot of time."