Is Kroger justified in closing stores over a hero pay ordinance?

Discussion
Photo: Kroger
Feb 04, 2021

Kroger has announced that it will close a Ralphs and a Food 4 Less store in Long Beach, CA, after the city passed an ordinance requiring it to pay an extra $4 an hour to frontline associates for at least 120 days.

The grocer said it was forced into taking this action at the locations because they were underperforming prior to passage of the ordinance and would not be viable with a higher payroll. The two stores represent about a quarter of Kroger-owned locations in Long Beach.

Kroger criticized the ordinance as imbalanced, contending that some grocers must pay workers the additional $4 an hour more while others not. The law applies to stores with 15 employees or more that are part of larger businesses with 300 or more employees. Kroger also pointed out that, while Long Beach is requiring the company to pay its frontline workers more, it does not apply the same rule to city employees paid by the hour that are at risk as well.

The California Grocers Association, which filed a suit against Long Beach, claiming the ordinance interferes with collective bargaining, said that its passage will raise labor costs at grocery stores by about 28 percent, according to the Long Beach Post.

Long Beach is not alone in considering so-called “Hero Pay” resolutions. Other towns in California and other states are moving close to passing similar ordinances, all of which point to the increased risk that hourly, mostly low paid frontline workers, face in grocery store environments.

A study published last October in the journal Occupational and Environmental Medicine found that grocery workers in shopper-facing positions were 5.1 times more likely to be infected with COVID-19 than those who did not interact with customers. About 20 percent of those studied were infected and 76 percent of those were asymptomatic.

A recent Wall Street Journal article told a sobering story of Joyce Babineau, a 67-year-old Stop & Shop associate from Massachusetts. Ms. Babineau, who took great pains to avoid bringing COVID-19 into her home and infecting her 76-year-old husband Paul, believes she contacted the virus while at work. She was asymptomatic and Mr. Babineau, who suffered from chronic obstructive pulmonary disease, became ill and died.

DISCUSSION QUESTIONS: Do you see chains closing large numbers of stores if hero pay ordinances are passed in other cities and towns around the country? Will Kroger come out of the dispute over hero pay in Long Beach looking like the good or bad guy to its customers?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"This will come back to haunt Kroger. It’s called being penny wise and pound foolish. What terrible timing!"
"Again, this is arbitrary and in spite of populist anger, Kroger doesn’t deserve the black eye."
"This is populist without an understanding of how a $4 increase makes a very large impact on payroll on a percentage basis."

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37 Comments on "Is Kroger justified in closing stores over a hero pay ordinance?"


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Neil Saunders
BrainTrust
Regardless of the economics, this isn’t a very good look for Kroger – especially in the middle of the pandemic. I also believe that front-line workers should be rewarded well for the risks they are taking during the pandemic. Trader Joe’s response of increasing pay for all workers is more convincing, although as a consequence they cancelled their usual mid-year pay increase. That said, I do not agree with councils passing pay ordinances. It is very easy to sit in a council chamber and vote through an increase that, ultimately, you don’t need to pay for. And each council doing different things creates a patchwork of pay rates that’s hard to manage and is unfair to workers in different parts of the country or state. I also have a moral objection to government becoming too involved in the running of private business and circumventing the usual bargaining processes. The Kroger store closures are a consequence. My understanding is that those shops were struggling before the pandemic but that the pay increases pushed them too far… Read more »
Cathy Hotka
BrainTrust

“Hero pay” isn’t just an empty term; it describes additional compensation for people who literally risk their lives to keep food on the table as essential workers. By closing its doors over this issue, Kroger proudly embraces the role of Bad Guy. I’d like to see some top Kroger execs take on the role of front-line workers, at their pay, to see what it’s like.

Paula Rosenblum
BrainTrust

This will come back to haunt Kroger. It’s called being penny wise and pound foolish.

What terrible timing!

Cathy Hotka
BrainTrust

And the cost of closing a store easily dwarfs the pay increase. This is a stunt, and an unfortunate one.

storewanderer
Guest
1 year 3 months ago

It is okay. Other grocers will go ahead and serve these customers. Kroger can spend money litigating this, paying store closure costs, lease exit costs or costs to maintain an empty building they own, etc. rather than just pay 120 days of extra payroll … perhaps they ran the numbers and they think they will come out ahead this way. I certainly would say that analysis is flawed, but I don’t know.

Dr. Stephen Needel
BrainTrust

Kroger should just say, “Okay, but we’re raising our prices to cover this forced labor increase and your government is the reason food costs more.” Put the blame where it belongs.

Ben Ball
Guest

I’d love to agree with you Stephen (and Gene Detroyer below) but the issue is that Kroger and other “major employers” would be forced to post higher price notices while other small local chains would not. That approach would only exacerbate the diminished competitiveness of the chains (perhaps a sub-plot to the Long Beach City Council’s decision anyway for some?).

storewanderer
Guest
1 year 3 months ago

The one thing I do take issue with here is Walmart and Target are not subject to this additional pay in Long Beach. That, I feel, is wrong and they should be subject to it (and Costco). I believe the Los Angeles ordinance will subject the big-box retailers to additional pay per hour like the grocers.

It is a 300 employee cutoff (total) to be subject to the additional pay in Long Beach. I am guessing there must be some independent grocery stores there, but many of the small chains in the market will be subject to this as well as they absolutely have over 300 employees.

Richard Hernandez
BrainTrust
Richard Hernandez
Director, Main Street Markets
1 year 3 months ago

I see Kroger leadership on TV commercials saying they care about their employees and want customers to continue to shop in their stores. This is definitely NOT a good look for Kroger when they are portraying something different. I hope this doesn’t become an M.O. for Kroger.

Karen Wong
BrainTrust

I 100 percent agreed with Neil on this one. This is terrible optics during a pandemic. Others have handled this better or found ways to spread out the impact. But I don’t agree with ad hoc interference with wages, especially if it targets specific sectors. A time limit on these increases isn’t realistic IRL. It’s not reasonable to expect that people will be willing to take a decrease in pay once they’ve adjusted to spending based on the increased pay. It’s proven out again and again. We saw it when others rolled back hero pay. This is populist without an understanding of how a $4 increase makes a very large impact on payroll on a percentage basis.

Chuck Ehredt
BrainTrust

I´m sure there is a bigger story here and Kroger’s decision may be convenient to stem losses at those stores, but more importantly is a signal that they will act if similar legislation gets implemented (unfairly) in other regions. This decision may lead to bad PR in the short-term, but has huge ramifications over many years across the entire business. It is hard to speculate on what is the right information without knowing the details, but I chalk this up to playing out a longer and bigger poker game.

storewanderer
Guest
1 year 3 months ago

Competitors will keep their stores open and just increase prices to make up for the added overhead cost of the 120 day mandated labor rate increase. Perhaps you cut staffing levels and close or scale back money losing labor intensive departments (bakery, seafood, parts of deli, who knows) at the same time to make up for this. Not a great solution — increasing prices is probably the best solution.

Harley Feldman
BrainTrust

The problem with the Long Beach ordinance is that it treats different stores differently. Kroger, because of its size and number of employees receives a $4 per hour penalty to compete in the marketplace for store employees. While it is not a good look for Kroger, they are making a statement about the unfairness of the new policy. I suspect Kroger would do the same thing in other cities and towns where the hero pay ordinances were applied just as unfairly. On the other hand, their customers will not like them keeping the stores open and potentially raising prices to cover the new hero pay cost either. Many of their customers will support the idea of being fair in the imposition of hero pay.

Gene Detroyer
BrainTrust

Maybe I am overreacting more than I should. This disgusts me.

The solution is simple. Put signage up that your are raising prices and why. Let your customers vote with their wallets.

We are not talking about major price increases — a nickel here, a dime there.

I suspect that just the announcement will send many customers to their competitors, and the reason won’t be price.

Jeff Weidauer
BrainTrust

A company of Kroger’s size and scale should have a better handle on the optics of its actions. Whether or not its actions are justified from an economic perspective, the sound bite of “Kroger closing stores to avoid hero pay” will cost the company dearly for years to come.

Bob Phibbs
BrainTrust

I lived in Long Beach and am well aware of those two stores in challenging neighborhoods. I think the city is out of bounds here. Why $4? Why 120 days? Why now? Sorry but this seems arbitrary at best. The optics for the city are not good here. Los Angeles too is looking at mandating this, then I’m sure every other business.

There’s a reason this law is being challenged in court by the California Grocers Association. The cascade of local ordinances around hazard pay in Seattle and several California cities is “just the beginning,” UFCW International President Marc Perrone said in a statement. It’s a backdoor way to raise minimum pay and I think it will backfire as businesses balk.

Ben Ball
Guest

Agreed Bob. Unions are losing effectiveness with both employers and workers, so they are resorting to local governments under the PR cover of the pandemic and the justly earned label of “front-line worker” which ALL retail workers assumed during this time — not just grocery. Kroger will wear the media egg on their faces for a while, but this battle needs to be fought.

Bob Phibbs
BrainTrust

Yeah I just don’t see the endgame. We got it for 120 days, we can make them give it to us all the time. BTW this is $4 on top of whatever union wages they are getting so it potentially goes much higher than minimum wage.

Ben Ball
Guest

Apologies for turning this into a running commentary Bob. But it’s worth noting that I come from a union family. My dad was a union member (and steward for a time) in a NC textile mill in the ’50s. He quit in the ’70s. Later he told me “son, I joined the union when they fought for a man’s right to work. I quit the union when they started fighting to keep us from having to work very hard.”

Bob Phibbs
BrainTrust

My mom was in the teacher’s union for 50 years and I have many relatives in unions as well.

Steve Montgomery
BrainTrust

There is the financial reality and the optics that Kroger has to address with these locations. If the stores were underperforming and at best marginally profitable, they may have faced closing at some point. As the pandemic has done for some, many things that mandated extra pay accelerated the timetable for their closure. That is the financial reality.

The optics are that for a major chain to close two locations in one community that mandated extra pay for essential workers is not good. Will it make them look like good guys? Never going to happen. Closing a store anytime does not make a retailer look good. People may understand the closure but at the very best they will be neutral.

Bob Phibbs
BrainTrust

They have until April to work something out. These stores have been turned over prior because they didn’t make money. If/when they close those marginalized communities will have less access to food.

Rich Duprey
Guest

“Hero pay” is an absurd term, as it’s a word thrown around way too easily. Sorry, but it’s not heroic what they’re doing and that demeans those who truly go above and beyond.

As for the issue, it’s easy to demand businesses pay extra money, but grocery stores already operate on razor thin margins. Kroger made the right choice, unfortunately for their employees, they have politicians who prefer grandstanding.

Jack Flanagan
Guest
1 year 3 months ago

Perhaps these municipalities could consider absorbing a portion of these government-mandated increases by, say, reducing other government mandated costs such as the affected stores’ property taxes.

Scott Norris
Guest

And now Los Angeles is moving forward with a similar plan. So will Kroger pitch a fit and close a few stores there, too? Retreat to Orange County? No. That they are keeping most of their stores in Long Beach open but just closing two in economically challenged neighborhoods is the tell that it isn’t about the extra pay at all — they could have blamed Amazon, accelerating distribution and trucking costs, home delivery charges, or a dozen other things. This just gave them what they thought would be populist cover, and they totally read the room wrong. Now competitors have a big club to hit them with.

Martin G Ramirez
Guest
1 year 3 months ago

The Los Coyotes location is right in the middle of $800K+ homes. Nowhere near lower income. It has been rumored for years that it was closing down.

The hero pay has nothing to do with it closing.

Bob Phibbs
BrainTrust

I couldn’t let this go and researched in the WaPost just now where I found this: “The Long Beach policy is in place for 120 days and includes groceries that sell at least 70 percent food products and employ more than 300 people nationally with at least 15 employees per store. Under those terms, it may exclude retailers like Target and Walmart.” Again, this is arbitrary and in spite of populist anger, Kroger doesn’t deserve the black eye.

George Anderson
Staff

Kroger’s opposition to the ordinance is based on facts that demonstrate the inconsistencies/deficiencies of the Long Beach ordinance.

The real question is how it will play in the court of public opinion. Perception, as we all know, is often a replacement for reality. That doesn’t seem as though it will play well for Kroger in this instance although I could be wrong. Closing stores in any community that is largely lower income and populated by minorities is not a great look for a retail brand at this time (there’s that perception thing again).

I hope A) that something can be worked out so members of those areas will still have good options for getting their groceries and B) that Kroger finds a way to address its grievance with the local government without talking past its customers in this case.

There’s no doubt that store associates will be losers as these locations shut. The stores’ customers will be right there with them.

Bob Phibbs
BrainTrust

Agreed George. But the cynical side of me says proponents intentionally used the words “hero pay” in an effort to build support.

Craig Sundstrom
Guest

I chose “no change” but that’s a little misleading: I think it will harden existing attitudes (liberals will decry “greedy Kroger” while conservatives will decry the “meddlesome” LB City Council).

As I pointed out in the Target (Minneapolis) reopening, operating money-losing stores is an unseen — and thus under appreciated — form of philanthropy (IMHO far more meaningful than taking out ads or issuing PR statements about how well intentioned you are). How far that should go is open for debate, as is the legality of such measures.

All that having been said, I think Kroger lost the first round of the battle, the “optics” one.

James Tenser
BrainTrust

My first reaction when I heard this story was sadness. The City of Long Beach seems not to have thought through all the consequences of its ordinance. Kroger’s announcement feels like grandstanding. Store employees are caught in the crossfire.

Kroger evidently has used this news event as cover for the closure of two poor-performing locations. Not its finest moment.

The additional pay proposed in Long Beach adds up to $2,743 per FTE over four months. Is that enough hazard pay to compensate an employee who contracts the COVID-19 virus in the workplace?

Bob Phibbs
BrainTrust

I don’t agree with the whole “hazard pay” or “hero pay” calculated wording of the ordinance. Why not say anyone who pumped gas, worked in a hardware store or doctor’s office should get an additional $4? This was intended to be the spark of a new labor movement and I don’t think it will hold up in court. Especially when Target and Walmart are exempt.

James Tenser
BrainTrust

Note that I avoided “hero” and could have substituted “extra” for “hazard” in my comment, Bob. You observe correctly that words are chosen for their emotional/political impact. I exert myself to be thoughtful about that in this forum, as I believe you do. Seems to me the LB City Council would have benefitted from better counsel.

Richard J. George, Ph.D.
BrainTrust

Slippery PR slope that Kroger is on. Lots of potential negativity, not to mention the blowback from customers, whose stores have closed. Understand the financial arguments, but this issue is as much about emotions of the workers and customers as it is about the numbers.

dbsfla2003
Guest
1 year 3 months ago

So let me get this right, a company with revenue in excess of 280 billion dollars and net operating cash flow of over 8 billion in 2020, according to financial statements, is closing stores because of “hero pay” of $4 per employee. Correct?

And your complaints about this are?

Should any company make 8 billion dollars in net operating cash flow and complain about “hero pay” to front-line workers in the middle of a pandemic that has killed over 450,000 Americans?

If you would answer differently, I would hope you are also working the “front-lines” during this pandemic, risking your and your families’ lives to SERVE the public, while your corporate owners are running the company from the safety of their own homes!

storewanderer
Guest
1 year 3 months ago
Terrible move and terrible PR. Close stores for good over a 120 day mandated pay increase? Meanwhile Trader Joe’s announced $4/hr pay increase to employees chain-wide yesterday, in an afford to get ahead of these types of ordinances. In the west regional grocers such as Stater and Save Mart have been paying extra $2-$3/hr hero pay through 2020 and into January 2021 (I’m not sure if they are still paying it). Whether or not it is within the City Council’s right to do this is a topic for a courtroom and some political message board somewhere. But I will say this — had these chains kept the $2/hr hero pay from the middle of 2020, I doubt these City Councils would be imposing this. Now the chains will spend a lot of time and money litigating this matter (and paying whatever arbitrary increase in wage the local city council dictates) when they could have just done the right thing for their employees and paid them the higher wage through this whole period. Even if you… Read more »
Martin G Ramirez
Guest
1 year 3 months ago

Hi, I live in Long Beach and have lived here for over 50 years.

The Los Coyotes location has been rumored to be closing for many years. It is within a mile of a Stater Brothers, Pavilions and Walmart Super Center. Supposedly it is going to be redeveloped for housing. It is smack in the middle of upper middle class homes, 800k and up.

I don’t know much about the other location except that it was long struggling as well.

What is making residents angry is that Kroger is blaming the hero pay ordinance.

If that were true, why didn’t they close the other four locations that they have in Long Beach?

wpDiscuz
Braintrust
"This will come back to haunt Kroger. It’s called being penny wise and pound foolish. What terrible timing!"
"Again, this is arbitrary and in spite of populist anger, Kroger doesn’t deserve the black eye."
"This is populist without an understanding of how a $4 increase makes a very large impact on payroll on a percentage basis."

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