Higher Wage Bills Will Eat Into Grocers' Gains -- Heard on the Street
April 01 2020 - 6:54AM
Dow Jones News
By Carol Ryan
Supermarkets and e-commerce retailers are doing a roaring trade
during the Covid-19 pandemic. But the cost of keeping staff safe
and properly paid for the risks they are taking is also rising.
This week, a group of workers walked out of Amazon's Staten
Island warehouse to protest about safety conditions. At the
e-commerce giant's Whole Foods supermarket chain, some staff called
out sick Tuesday to pressure the company to provide health coverage
for part-time workers, among other demands. And online grocery site
Instacart is being pushed to pay staff a $5 hazard fee for every
delivery made to a customer's door.
As the outbreak intensifies, essential workers are at growing
risk of infection by showing up for their jobs. Some retailers,
particularly U.S. supermarkets, saw the need to pay more early on.
Target said on March 20 that it will invest $300 million for higher
wages and paid-leave benefits. Walmart and Amazon have topped-up
hourly wages by $2 on a temporary basis.
Absenteeism due to illness may make it increasingly difficult to
keep operations running in the coming weeks. Britain's largest
supermarket, Tesco, is hiring 20,000 extra staff to meet surging
demand and provide cover for sick colleagues. The company, which
spent 12% of total revenue on salaries in its last financial year,
has increased hourly wages by 10%.
Keeping work environments safe is an additional expense as
infections rise. Amazon disinfects fulfillment warehouses whenever
a Covid-19 case is confirmed among its workforce. Some companies,
such as British fashion retailer Next, have shut their e-commerce
operations completely as staff were worried about infection --
though weak demand for clothing may have influenced Next's
decision. "People do not buy a new outfit to stay at home," the
company said in a review of its annual results last month.
For grocers in particular, business has likely never been so
strong. For the four weeks through 22 March, U.K. supermarket sales
were 20.6% higher than in the same period last year, according to
Nielsen data released Tuesday. Brokerage firm Bernstein now expects
comparable sales growth at U.S. grocers to be 3.9% for 2020, up
from a forecast of 2.5% before the crisis.
But higher costs will eat into these gains, even with the help
of tax holidays and economic relief packages announced by
governments. Supermarkets' full-year operating margins will
probably be flat due to higher labor and logistics bills, figures
Bernstein.
While retailers selling essential goods can barely keep up with
demand, investors might do well to rein in their expectations. In
demanding conditions, workers are understandably higher up the
queue for the benefits.
Write to Carol Ryan at carol.ryan@wsj.com
(END) Dow Jones Newswires
April 01, 2020 06:39 ET (10:39 GMT)
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