How retailers can turn rising labor costs into innovation opportunities

Dive Brief:

  • A report from L.E.K. Consulting notes that although labor costs for grocers are rising, innovative operators are able to maintain their profit margins and avoid passing costs along to shoppers, according to a company release.
  • L.E.K. highlighted five ways retailers are maintaining sales and driving innovation: maximizing existing labor, outsourcing labor-intensive tasks, promoting high-margin goods, refining price promotions, and automating non-customer facing jobs. 
  • Kroger, for instance, plans to save $250 million in yearly labor costs with a system that optimizes open checkout lanes based on shopper volume, while Wegman’s instituted a digital coupon campaign that lead participating customers to spend 50% more than the average consumer.

Dive Insight:

Many retailers are implementing the strategies L.E.K. highlights not just to offset higher labor costs, but to stay profitable in an increasingly competitive industry, as well.

Take Whole Foods, for instance. With mainstream competitors chipping away at its once dominant positioning in natural and organic products, the company has had to get smarter about the way it does business. It is doing things like focusing on digital coupons and targeted promotions, instituting direct-to-shelf replenishment and outsourcing foodservice preparations.

Innovation and efficiency can help retailers compete while also addressing labor costs, which according to the National Grocers Association comprise 14% of grocery revenues. But there’s more to consider here.

Revisiting worker training could uncover additional efficiencies. It could also increase employee and customer satisfaction by creating more empowered associates.

Retailers should also consider the benefits of higher wages. Costco pays employees $13 to $13.50 an hour to start, and after four years with the company an employee can make as much as $22.50 an hour. Costco has stated it wants its employees to be happy and fairly compensated for their work.

Higher pay can also ensure maximum effort and engagement from associates. It can turn employees into brand evangelists who promote the company to customers inside and outside of stores.

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Filed Under: Grocery Corporate Policy