Big Squeeze
Labor costs ? a grocer?s second-biggest operational expense after cost of goods ? are under pressure.
Grocers can anticipate continued wage and benefit cost increases, with recent cries to boost the minimum hourly wage, fulfillment of Affordable Care Act requirements, and changing union and government work rules.
In a competitive and complex business environment, food retailers are abandoning their old Excel spreadsheets and investing in sophisticated, next-generation workforce management (WFM) systems to control rising labor costs. They view their investment as a survival tactic.
WFM investments, however, can yield big returns in labor cost savings. Shaving a point or point and a half off labor expenses can mean thousands ? even millions ? to a retailer?s bottom line.
Getting there isn?t an easy process, however.
Upgrading the System
Calgary Co-op is one of the largest retailer cooperatives in North America, and the largest food retailer in the Canadian province of Alberta, with 24 stores, 3,500 employees and 440,000 members. It offers a full range of retail services, including food retail stores, pharmacies, fueling stations, wine and spirits stores, home health care centers, and travel offices. Annual revenue last year was CDN $1.1 billion.
The co-op found itself squeezed by rising labor costs in a market where the oil boom triggered wage competition. Hourly employees, of which 85 percent are unionized, get paid close to CDN $15 an hour.
After collective bargaining last year, workers received a 1.5 percent increase in wages. They?ll get another 2 percent this year and next, according to Shawn Jacks, the co-op?s retail scheduling and center operation director.
Despite these wage increases, the co-op was able to decrease its salary by a half a percentage point, which it attributes to an integrated WFM solution from Kronos, in Chemsford, Mass. Since 2010, the co-op has worked with Kronos to upgrade its antiquated scheduling system.
In 2010, co-op executives visited Scarborough, Maine-based Hannaford Supermarkets, a Kronos customer and a chain with a similar food operation, to witness firsthand the impact of an integrated solution on Hannaford?s labor costs, says Jacks.
By March 2012, Kronos software modules (time and attendance, forecasting, and scheduling) were up and running at the co-op. Year-over-year results produced a 1 percent decrease in payroll of front end employees, which is about 40 percent of its labor force.
Efficiencies were achieved, in part, by holding part-timers to their template hours and reducing the amount of ?casual employee? hours.
?We wanted a labor model that ensured we were providing customer service, but we were also being effective in how we scheduled to ultimately have a better percent of sales as a labor cost,? notes Jacks.
The association hired 800 employees last year for more labor flexibility, allocating hours to two or three employees instead of just one. Co-op sales are up, as are scores on customer service levels from third-party analysis, says Jacks, who adds, ?This program solidified where we needed to go to make sure we are being profitable as an organization.?
Although WFM tools have become part of the co-op?s culture, he notes, employees still have to manage their schedules. ?We want to be a great employer, and we still have to manage our business for customers. We have to have that balance? between employee work-life issues and customer service.
Calgary Co-op plans to expand its use of Kronos solutions across all divisions, including grocery, bakery, pharmacy, deli, produce, petroleum and liquor, to further enhance its quality of member service. It?s working with Toronto-based Axsium Group on developing engineered standards for those departments.
Starting from Scratch
?A hodgepodge of systems performing different functions? is how Paul Simas, director of operations and payroll, describes the labor management system Roche Bros. had in place before July 2013.
The 20-store, privately held chain, based in Wellesley, Mass., employs 4,500 associates and generates between $500 million and $600 million a year in revenue, according to various sources.
The goal was to consolidate all disparate systems. So Roche Bros. started from scratch and chose Orlando, Fla.-based Empower Software Solutions as its partner.
Many retailers resist getting rid of their legacy systems and letting go of old processes, forcing suppliers to configure their software to the retailer?s specifications. Simas believes it was more efficient and less disruptive in the long term to build a new system with Empower?s software out of the box.
Roche Bros. choose EmpowerWFM for its ease of configuration, report generation, dashboards, and implementation and support services.
The retailer uses Empower?s scheduler, time and attendance, forecaster, and employee self-serve software. It?s all hosted in the cloud as SaaS (software as a service). The result since implementation has been a 20 percent reduction in overtime expenses. Associates now have full access to their personal information and schedules. They can also request time off through the system.
One Seamless System
Some suppliers may say they have one integrated WFM solution that can do it all. But Noah Katz, co-president of PSK Supermarkets, in Mount Vernon, N.Y., tested several that couldn?t deliver.
Katz then tried Dayforce HCM from Minneapolis-based Ceridian, and is now an enthusiastic endorser of the single management solution for payroll, human resources, workforce, benefits, tax and payments services.
PSK, a 58-year-old independent with 11 stores in the metro New York area operating under the Foodtown and Freshtown banners, has a workforce of 850 associates.
Katz began searching for a solution that could replace PSK?s manual labor system with a SaaS system that delivers weekly labor budgets based on real-time labor spend. The system was deployed enterprise-wide without any cumbersome interfaces to complicate the process.
?Our goal was to find a solution that could give us reports in real time of how much money we were spending on payroll in the week we were currently in,? Katz explains.
It?s the difference between looking back on payroll spend to guesstimate for the coming week, and looking forward using real-time labor spend to budget for the coming week.
Managers now finalize their labor schedules for the week by pressing a button, and Dayforce calculates the department labor spend for the coming week. They log into the system during the week to make sure their departments are on track for meeting weekly budgets by comparing budget versus actual labor hours and costs, monitoring overtime expenses, and quickly identifying variances to their plan.
According to Nucleus Research, a Boston-based technology analyst, PSK?s WFM system has delivered an annual ROI of 1,688 percent and saved the company $1.1 million in average annual benefits. For every $1 PSK has invested in Dayforce, it?s getting back $6 in labor savings over a three-year period.
Katz says the cost savings comes out to 50 basis points, or a half a percentage point of sales: ?It?s a big number.?
Ceridian charges a fee per employee per month. The fee covers access to the Dayforce applications and includes future maintenance and support. There are additional fees for implementation and education.
?We want to be a great employer, and we still have to manage our business for customers. We have to have that balance.?
?Shawn Jacks, Calgary Co-op
?Our goal was to find a solution that could give us reports in real time of how much money we were spending on payroll in the week we were currently in.?
?Noah Katz, PSK Supermarkets