WASHINGTON — The anticipated hike in the minimum wage has many food retailers concerned about higher labor costs, but some retail leaders polled by SN last week said the proposed increase will have little impact and may even be beneficial as low-income shoppers gain spending power.
As one of the first initiatives undertaken by the newly elected Democratic Congress, the federal minimum wage would rise to $7.25 in three steps over the next two years from its current level of $5.15, according to a bill passed by the House this month. Late last week, a Senate committee approved tying the minimum wage increase to tax breaks for small businesses, and a full vote was expected soon.
Although several states have minimum wages that are higher than the federal floor, and many supermarket operators already pay more than the minimum for most of their workers because of union contracts or market pressures, some retailers said the increase could put pressure on their payroll costs.
Scott Schnuck, chairman and chief executive officer, Schnuck Markets, St. Louis, told SN that an increase will “have a substantial effect on our wages, because it doesn't just affect the people at minimum wage — there's a ripple effect upward. We're trying to calculate right now what the impact is.
“The one thing it does do is raise the costs for everybody, so it keeps the increases level across businesses. So while it might raise our costs, it will also raise everybody's costs.”
Eddie Owens, director of communications for United Supermarkets, Lubbock, Texas, said the increase in the minimum wage is going to have a “significant impact” on the company.
The chain employs about 1,500 baggers earning $5.75-$6.05 an hour, “so the proposed change will require us to boost that by $1.50 over the next two years,” he said. “That's something we're still trying to get our arms around, though clearly it will be a significant impact.”
Some retailers pointed out that many low-wage earners are not the heads of their households, so the increase doesn't have the impact on lifting families out of poverty that supporters often claim.
“A raise to $7.25 an hour could adversely affect me, as I have some 14-, 15- and 16-year-olds working for me making around $6.50 an hour,” said Dale Riley, owner, Fresh Seasons Market, Minnetonka, Minn. “But to kids that age, who don't have to support a family, that's pretty good money. We also have some seniors who do part-time work — again, not to support a family but for the social activity and a little extra spending money. If I had to raise all workers' pay like that, it could be detrimental to my business.”
Rich Niemann Jr., CEO of Quincy, Ill.-based Niemann Foods, said he is more concerned over the effects of a minimum wage hike in his home state. Gov. Rob Blagojevic signed legislation in December that increases the Illinois minimum wage by $1 an hour — to $7.50 — starting July 1, with 25-cent escalators bringing the minimum to $8.25 by 2010. The state law would allow businesses to pay 50 cents below minimum scale for workers under the age of 18.
“We have a big hike in the minimum wage coming up in Illinois — larger than the national one they are talking about — which tends to be inflationary across the board. That's what concerns us,” Niemann said.
Dick King, vice president at Associated Food Stores, Salt Lake City, said the Utah Legislature has started working on raising the state's minimum wage, which is at $5.15 an hour, to meet the anticipated federal guidelines. “But so many people already earn more than the state's minimum wage anyway, including courtesy clerks and entry-level people at the supermarkets, that I don't foresee any detriment to our operation if the minimum is raised.”
He said he doubts an increased minimum wage will have any impact on spending at the supermarket. “Food is one of the largest expenditures people have, and I doubt people will spend much more than they already do, so any increase probably won't help sales that much.”
More than half of the states in the country have minimum wages that are already higher than the federal level, including many of the largest.
In Washington, for example, the minimum wage stands at $7.93 an hour, so an increase at the federal level to $7.50 will not have much impact at Associated Grocers, Seattle, John Runyan, president, told SN.
As for the potential impact on consumer spending, Runyan said, “Anytime anyone gets a raise in wages for any reason, some of it ends up helping the supermarket industry. That's pretty standard.”
Minyard Food Stores, Dallas, is still evaluating the impact of the minimum wage increase, Poul Heilmann, senior vice president, marketing and strategic planning, told SN, “though it will certainly impact our part-time people. But the Dallas market is so competitive from the standpoint of labor that wages tend to be higher than the state minimum anyway.”
Jack Brown, chairman and CEO, Stater Bros., Colton, Calif., said the wage would have a minimal impact on his company's business.
“It doesn't affect our industry directly because only a slight percent of our wages start at the minimum, and then they move up,” he said, although he added that the company is affected by higher costs for the products and services it buys that they are impacted by the wage hike.
“I don't want to tell other people how to run their business, but I think it's clear that, economically, there are those who are stuck at the bottom and need some help,” he added.
He said he thinks the state health insurance plan introduced by Gov. Arnold Schwarzenegger in California “will have a bigger impact.”
“I think it's important that everyone have a basic medical program for themselves and their children,” he said. “The facts are in California that we will pay for them anyway. They won't let you leave the hospital with a broken arm — they're going to fix it first. So why shouldn't employers help pay for that? Why should I pay [benefits] that cover my people, and then when I go to my local hospital I have to pay a high price for those services for people who don't pay insurance for their employees?”
Peter Larkin, president of the California Grocers Association, Sacramento, said federal minimum wage standards will have little impact in California because the minimum wage there is already higher at $7.50 an hour, with an increase to $8 an hour scheduled for next year.
Asked about the impact of increased minimums on consumer spending, Larkin said, “I don't know of any economic impact studies that have addressed the issue of how much of the salaries of minimum-wage workers go to food-at-home, but intuitively I would think there will be some impact because some of that will be spent at supermarkets.”
Bob Spengler, president and chief operating officer of Save Mart Supermarkets, Modesto, Calif., said, “If a consumer has a little bit more, he will probably spend a little bit more. But because many of minimum-wage earners are already struggling, that little bit more will probably be enough only to get them over the hump.”
Reporting by Mark Hamstra,
Jon Springer and Elliot Zwiebach