retail news in context, analysis with attitude

Kroger said yesterday that it will close three more stores - all in the city of Los Angeles - in response to the City Council's vote to mandate $5 an hour "hazard pay" on top of regular wages for grocery store employees.

The closures include two Ralphs stores and one Food4Less unit.

The retailer said that the stores had been underperforming before the hazard pay mandate, and that now they are simply not viable:

“It’s never our desire to close a store, but when you factor in the increased costs of operating during COVID-19, consistent financial losses at these three locations, and an extra pay mandate that will cost nearly $20 million over the next 120 days, it becomes impossible to operate these three stores,” a Kroger spokesperson said.

The Los Angeles Times writes that "the Kroger announcement comes as businesses continue to argue, some in court, that the extra pay is too costly to sustain and that the ordinance unfairly singles out grocers when there are other businesses employing front-line workers."

The Times goes on:

"Long Beach became one of the first cities in California to pass hazard pay rules, approving an ordinance mandating an extra $4 an hour for grocery workers in late January. Backlash was swift, with the California Grocers Assn. launching a lawsuit against the ordinance in federal court.

"Other jurisdictions that have approved similar proposals, including San Jose, San Francisco and Montebello, have also seen pushback from trade groups.

"Last month, Kroger announced the impending closure of a Ralphs and Food 4 Less in Long Beach, blaming the new pay boosts. Kroger also announced plans to close two stores in Seattle after the city passed a hazard pay mandate; the two Quality Food Centers slated for closure were already underperforming, the company said."

KC's View:

The Times story points out that "an analysis released by the city days before the vote noted that the grocery industry is a low-profit-margin sector and warned that companies could respond to the ordinance by closing stores, laying off staff or raising food prices. Experts say grocery stores should generally be able to absorb temporary pay boosts, though already-struggling stores could be more adversely affected."

Which is exactly what is happening.

These mandates are knee-jerk reactions and bad public policy.