IN JANUARY, THE HOUSE OF REPRESENTATIVESvoted on something that had been set in stone for over adecade. They voted in overwhelming numbers toapprove an increase in the federal minimum wage—adecision that could not only affect millions of c-storeemployees, but also their employers as well.
Cause for a Raise
The past decade has been the longest stretch Congress hasgone without increasing the minimum wage since it wasimplemented in 1938. Unfortunately, the wage—which wasboosted to the current $5.15 an hour back in 1997—is becoming more and more futile as time progresses. Factors like inflation and rising gas prices have diminished the value of thatwage to a level lower than it has been in 50 years. Because ofthe high cost of living in the current economic climate, the current wage has been rendered useless, lawmakers argued.
The plan that has been voted into effect is simple: it callsfor the minimum wage to be brought up to a new high of $7.25 over the course of the next two years. This will beimplemented in a tiered fashion as time progresses. Sixty daysafter the law is enacted, the wage will be increased to $5.85.Twelve months after that 60th day, it will be raised to $6.55,and then it will finally peak at $7.25 after another 12 months—making for a total increase of $2.10 when all is said and donesometime in 2009.
Effects of the Increase
As far as convenience stores are concerned, entry-levelemployees appear to have the most to gain from this legislation, however, the cons of an increase outweigh the pros. Thisis due to several factors, the first being that, on average,c-stores pay their employees much higher than the currentminimum wage. Any miminum wage boost may lead c-storeemployers to wage scales much higher than previously anticipated.
In fact, according to research conducted by Convenience StoreDecisions and Humetrics, a consulting firm that specializes infinding and retaining the best employees for hourly jobs, themajority of retailers polled were against an increase in minimum wage (53%). The survey invited c-store employers tovoice their opinion on the new minimum wage increase, andhow they plan to assimilate it into their current operations.
According to the survey, the majority of participants (31%)revealed that they start their employees between $7 and $7.99—an hourly rate that’s not only much higher than thecurrent federal minimum wage, but also comparable or higher to the proposed raises. Only 6% of the participants admitted to paying their employees between $5.15 and $5.49 anhour.
“Our state has a minimum wage of its own,” said EdwardStephens, vice president of retail operations for Englefield OilCo., which operates more than 90 stores under the Duke andDuchess Shoppe name. “Ohio has a $6.85 minimum wage,which we then adjust by a cost of living raise annually.”
Of course, minimum wage isn’t the only factor that determines what retailers pay their new employees. In fact, only asmall amount of participants admitted that minimum wage isthe sole deciding factor in what they pay their employees.The survey found almost 47% of the participants stated thatthey determine their starting wage by what they feel is necessary to attract and retain employees. Almost 45% of employers admitted that they base their payrate on what they feel it takes to becompetitive in the market place. Forcompanies like Englefield, it’s all aboutpaying according to an employee’s performance level.
“Performance is the key to the wholething,” said Stephens. “I’d rather paysomebody $10 an hour and get strongperformance because I know they’regoing to make me much more moneythan that in the long run, as opposed topaying somebody$7 an hour and not getting ashigh a level of performance.”
While stores that pay as well asDuke and Duchess mayhave nothing to fear immediatelyfrom the raise, the gradualincrease implemented over the course of the next twoyears could cost c-stores—even thosepaying their employees above minimumwage—thousands of dollars in increasedlabor costs.
While an outside observer may conclude that the problem only has aneffect within the entry-level ranks of thecompany, the retailers participating inthe survey thought differently. Fiftyseven percent of the participants reported that they would more than likelyhave to raise the wages of not justentry-level employees, but the wages ofall employees in order to maintain differentials between ranks and positions.
With all the potential increases inlabor costs on the minds of store operators, one question begs to be answered,”How do retailers intend to compensatefor the money that they will need tofork out in order to match their employee’s hourly rate up to the enforced federal wage?” Sixty-seven percent of theretailers surveyed reported their primary solution for offsetting the increasedwage would be by raising prices onproducts in the store. More than 45%said they would reduce labor hours,while as much as 24% said they wouldtake a direct hit to their bottom line toaccommodate for the increase.
Surprisingly, 18% of the retailerspolled said they would consider sellingtheir stores or simply allow themselvesto be forced out ofbusiness. Only13% of the retailers questioneddecided to take thesame route asEnglefield andattempt to increaseautomation.
“We wouldhandle somethinglike this by increasing any efficiencieswe can, be itthrough different scheduling or deliverymethods, and so on,” said Stephens.”Hopefully it would never be throughlaying off employees or raising prices,although they will go up some simplybecause all companies are eventuallyfaced with overhead increases.
“The minimum wage increase, inmy personal opinion, is inflationary,” headded. “Certainly workers, whetherjustified or not, get the increase, and inany business that raises overhead.Hence, the price of goods is then raisedand that is passed on to the consumer.So it ends up being a vicious cycle.”
Despite the results of the CSD/Humetrics survey and the opposition of groups such as the NationalAssociation of Convenience Stores(NACS), minimum wage is a necessaryevil, experts said. Retailers are going toneed to find ways to cope simply to stayafloat in the market.