Buckle Up—This Ride Is Going To Last A Bit Longer The Question Is, Will We Still Be On When It Ends?
By Michael Jorgensen, Executive Vice Chairman, NCASEF
It seems every other headline in the news these days is about the tight labor market, and for good reason. Our country is experiencing a severe employee shortage, and it’s having a particularly heavy impact on the retail industry. According to a recent report by the U.S. Department of Labor, there are now more job openings than people seeking work—about 9.8 million job vacancies versus approximately 8.7 million potential workers as of July 16.
Needless to say, the competition among retailers for these workers is stiff. Many are not only offering starting wages of $15 per hour or more, but also signing bonuses of $500+ and benefits like health insurance, paid vacation and sick days, and college tuition assistance. Smaller retailers lacking the deep pockets to offer such perks are instead compensating by reducing their hours of operation, thus reducing their need for workers. Unfortunately, with all the bigger retailers like Walmart, Target and Amazon offering hefty starting pay, $15 per hour is becoming the new “reservation wage,” known as the least amount of money a person would consider for a certain type of employment.
Obviously, not all 7-Eleven franchisees can afford to pay this wage rate. And, although SEI allowed stores to close overnight during the pandemic for labor shortage reasons, it appears the company is not going to make it a permanent option for franchisees with staffing issues.
So what other solutions are available to us? One obvious answer is for SEI to take a smaller piece of the graduated gross profit split.
The 7-Eleven franchise model is unique in that we have to split our gross profits with corporate. As sales increase, profits increase, and so does our royalty to SEI. There are no provisions in our agreement with SEI that would allow us to offset these increased salary demands with autonomy, like reducing store hours. But allowing us to keep a larger portion of our gross profits will help put more money into our payroll so we could afford to attract and keep reliable employees. True, SEI has Hire Right and other staffing resources available to franchisees, but at the end of the day, even when we do interview the people we find on Hire Right, what they expect in pay is a lot more than what stores can afford to give.
The fact is, we can’t keep up. It’s just money right out of franchisees’ profits. It’s understandable if you’re running your own independent mom and pop business and you can make whatever adjustments you want to compensate for your higher payroll. But when you have to sell more merchandise to make up the difference in your payroll and your franchisor gets a bigger cut of those sales, is like trying to roll a boulder uphill.
By the time you read this article the minimum wage in Florida, where I live and operate my stores, will have increased from $8.56 per hour to $10. Currently, 29 states have a minimum wage higher than the federal rate of $7.25 per hour.
In two of my stores combined, from January 1, 2020 through March 31, 2020, the average hourly pay of my employees was $10.98. From April 1, 2020 though May 26, 2020—at the height of the pandemic shutdowns—the average hourly rate was $11.90 due to the extra “hero pay” I was giving them. From January 1, 2021 through March 31, 2021 the average pay rate was $11.72, and from April 1, 2021 through May 26, 2021 the average hourly rate was $11.99. For August of this year, the average hourly rate is $12.26.
If I average 260 hours a week in payroll at a $1 increase, this will bump my payroll up $260 a week or $13,520 a year, or $1,127 month. Three hundred hours a week with a $1 increase will bump my payroll expenses by $300 week or $15,600 a year, or $1,300 month. This doesn’t include managers, whose pay is also increasing. If I increase my starting pay for new hires to $15 per hour, I would also have to increase the hourly wage of my existing employees accordingly. How would this even be possible without help from our franchisor?
To date, SEI has yet to communicate how it intends to adjust its systems for this dramatic change in wage requirements. There was a Minimum Wage Committee on the NBLC as far back as 2016, which was eventually changed to the Store Profitability Committee. There was certainly a concern at the time, enough to dedicate a committee to examine salaries in the cities that led the way to increased minimum wages such as Seattle, San Francisco and Los Angeles. Although there was much discussion, information gathering and sharing of the effects of different strategies to approach what were deemed “ultra high minimum wage areas,” the focus of the committee changed. We all know that with the 2019 Agreement the GGPS became GGPS-OS. While it is becoming much more operationally challenging, especially in the last year and a half, there has been little communication from SEI that they understand the effect of the necessary wage increases on franchisee net income, nor that they have any concrete plans to address the issue.
Ultimately, what they should do is make an allowance for taking a lower cut of the in-store sales because it will be some time before we are going to see a return to minimum wage workers in our stores. This quote from a recent Time Magazine article states it best, “It’s too soon to tell if this is just a characteristic of an economy suddenly reopening and leaving employers scrambling for workers, or whether these changes will be permanent. There were signs, however, that workers were losing patience with years of low pay even before the pandemic. The rock bottom unemployment rate in November 2019 hit 3.5 percent, the lowest in decades and gave them confidence to start pushing back.”
By all indications, this labor shortage problem isn’t going away anytime soon, and our new reality will be a $15 per hour starting wage. If we want a state-of-the-art convenience store business, and we want things to run smoothly and effectively, then we need the ability to properly compensate our people while maintaining our by store net income.