Labour is the biggest controllable expense for most retailers

August 4, 2023
/ SKUBlog
/ By Susan Sipos

There is a lot in the news right now about the people working in grocery stores. There is a strike impacting 27 Metro stores in Ontario. We believe we will see more challenges between retailers and employees. Profits continue to rise and inflation continues to impact consumer’s disposable income. People working in the stores are going to demand a share of increased profits.

Labour is the word retailers use to refer to the people working in stores and warehouses. Labour is the biggest controllable expense for most retailers. There is a lot of work done to ensure stores have the right amount of labour.

Too little labour leaves consumer frustrated and feeling under serviced and too much labour costs a lot and impacts profits. With lead times for scheduling, a challenging labour market and the different jobs to be done in a retail store managing labour is one of the biggest challenges any retailer faces.

Our industry has its own language and we are working to help people understand many of the terms we use. We do believe if we are talking the same language, we have a better chance of building prosperous relationships between suppliers and retailers.

Managing labour

Each store format has a different requirement for labour. Discount stores and warehouse clubs operate with the least amount of labour whereas conventional stores and specialty stores have the highest labour as a percentage of sales. In the discount format labour can represent between 5-7% of sales and in a conventional store is 9-11%. Obviously, these numbers will vary from retailer to retailer and be impacted by their sales. One of the biggest reasons for higher margins in conventional stores is the cost of labour.

Most retailers will build their labour schedule based on the sales forecast they have for the week. Ultimately the store manager owns the total store sales call. They certainly depend on their department managers to look at what is in the ad, recent trends vs previous year and previous weeks.

Once the department sales forecast is done and the store manager agrees with each department and the total store, department managers can build a schedule. My experience has been the sales forecast will dictate the number of hours they can schedule. This is calculated using a sales per labour hour (SPLH) formula. In other words, if the SPLH target for produce is 250 that means for every hour they schedule the department must generate $250 in sales. For example the produce manager forecasts $100,000 in sales with a SPLH target of 250 they can schedule 400 hours ($100,000/250=400). The store manager will challenge them to achieve a higher SPLH (and schedule fewer hours) if the lead item is clementines. Very little labour required to drag a pallet of clementines on the floor compared to an item like strawberries that need to be culled carefully and displayed in refrigeration.

Most retailers will have a sophisticated method of calculating SPLH which is based on the tasks required to operate the department. Department managers almost always think they need more labour and the store manager and people running operations push them to do more with less. It is a constant back and forth within retailers. At the end of every period labour as a percent of sales receives a lot of scrutiny.

Suppliers can impact labour

We talk a lot about understanding your customer. One of the most important factors to understand is the labour in the stores where your products are listed. If you are selling into discount stores there will be minimal labour and they will see you in a favourable light if you can find opportunities to reduce the labour cost associated with selling your products. If you are selling into conventional stores or specialty stores it might be more about educating their labour sell your products better. You can improve your relationships with your customers if you find opportunities to reduce labour or help them do their job better.

Labour is managed by the operations part of the business, not the merchandisers suppliers usually interact with. If you have ideas to reduce labour, try to develop some relationships with the operators to ensure it makes sense. No disrespect to the merchants in the office but they do not always understand how it needs to happen at store level. The operators will not get you a price increase but if they like what you are doing it all helps with the relationships.

10 ideas for suppliers to impact labour

1. Implement changes such as tear away cases or trays within cases to reduce the time required to merchandise your products at store level. Walmart are very focused on this so you can get some good ideas walking their aisles. If you can save the store employee 2 minutes per case and you sell the retailer 50,000 cases that adds up to 1,667 hours in a year.

2. Look in the store to see where they are using more labour. An example would be cored pineapples. Perhaps you are selling pineapples and you hear them say the cored ones outsell the regular ones by a factor of 5:1. You know how many pineapples you sell them and if you can provide a ‘pre-cored’ option it could allow them to save a lot of labour. This is where understanding your customer is good. A discount banner might want this option but a specialty store would prefer to core their own.

3. Many suppliers have merchandising reps on the road visiting stores. Sometimes these people can help employees build displays or even get product out on the floor on a busy day. You must know if this is permitted with your customer. Some labour contracts prevent this as it takes hours away from store employees.

4. Perishable products require more work to check best before dates. If you can increase your shelf life it will require less checking and faster filling at the store.

5. One big cost of labour is the front end or check outs. Make sure your product scans properly and that there are no issues with your item in the system. Yes it should be the retailer’s job to have it listed properly but it is always good to check yourself and encourage changes if required. This also applies to the warehouse. Your case UPC needs to be easy to scan and product descriptions easy to read in that environment.

6. There has been a lot of focus on reducing package size to manage retails with cost increases. If your product can actually be larger this will translate in greater sales per labour hour. A box of cereal that sells for $5.99 takes the same amount of labour to put on the shelf and through the front end as a box that can sell for $7.99. The sales per labour hour are better for the larger more expensive box.

7. We know compliance fines at warehouses are frustrating. If we could go back to why they started part of the reason is because they would receive products that were not shipped according to retailer’s expectations. Fines might not be the best solution but getting product right going into the warehouse will definitely reduce a retailer’s labour.

8. Some products require a more skilled employee than others. More skilled employees usually cost more per hour. If there are things you can do with your product to allow retailers to manage them through the system with any employee as opposed to ones with more specialized skills you will save them some money.

9. Many people have been focused on logistics and the number of cases per pallet is one metric to explore. If you can get more cases on a pallet, you will save the retailer labour. If they move a pallet with 80 cases as opposed to 70 it is more efficient every time they touch your product.

10. Training employees is included in the labour cost. If you or people within your business can train retailer’s employees, this will save them some money. You will also get to know them and teach them how you see it should be done.

Labour is +/- 10% of the average retailer’s sales. They focus on it a lot and if suppliers appreciate this and bring ideas forward it can have a very positive impact on the relationship with your customers.

If you have any questions about labour, you can always send me an email peter@skufood.com or call me at (902) 489-2900.

Peter

27 Metro stores in Ontario closed for labour dispute

Strikes are never easy for anyone. I can remember a few during my time with Loblaw and it is a challenge. Both sides have positions they fight for and there can be a lot of animosity between employees and employers.

Every retailer will be watching this situation carefully. Once changes happen with wages, full time to part time ratios, pensions and other components of the labour agreement it could impact upcoming negotiations. The labour market is different than when some of these contracts were negotiated. It appears the pendulum has shifted to the employees and they will fight to get what they want. Also, interesting to note in the Metro store and Vancouver port strikes the union negotiated an agreement that was rejected by employees.