THE PEOPLE FACTOR 2004-05-03 (1)

Al Heller

Supermarket chains are beginning to mine many segments of the labor pool, mentor store-level workers, and fund higher education for their most promising staffers.

These programs carry ambitious goals -- to stem costly turnover that can exceed 100% annually, groom the next generation of store managers and corporate executives, and build store teams that excel at satisfying and retaining customers who are prized in an industry netting 1%.

"Limiting turnover can improve the bottom line directly for every supermarket in America. Stores can lower their costs of hiring and training, as well as the costs of mistakes made by new employees, and the number of customers a new employee might drive away," said Jack Brown, chairman, president and chief executive officer, Stater Bros., a private chain of 158 supermarkets with 15,000 employees in Colton, Calif. He noted a 6% turnover rate of full-timers at his stores, excluding courtesy clerks who turn once a year compared with a 300% rate industrywide, and "we're working hard on that."

"Our industry is fraught with Rs. ROI. ROE. We talk about ROP, Return on People. That's an equation that doesn't show up on the balance sheet," he told SN. "But only companies with a good ROP will have a good balance sheet."

Brown insisted that "customer service will be the most significant difference between the winners and the 'never wases' in the coming five years. We can all compete for price and variety and other issues, but service will set chains apart."

Indeed, consultant Fred Martels, president of People Solution Strategies, Chesterfield, Mo., couldn't agree more as he linked staff turnover to customer retention: "Track turnover decreases against sales, transaction sizes and numbers of customers weekly. As one goes down, the other goes up because it affects execution."

Noting how important it is for store associates to see their efforts in the big picture, Martels, a former vice president of human resources at Dierbergs Markets, also based in Chesterfield, urged chains, "Redefine productivity to include an employee's ability to influence a customer's decision to return to your store and recommend you to others. Next, determine your ROI by measuring turnover, the cost of turnover, and your customers' actual experience. Set goals for each and link them to recognition, rewards and incentives."

Martels assessed the sales value of a household at $5,000 per year, and regarded that as "a portfolio for a cashier or deli clerk to be in charge of. If you can keep those customers long term and the recommendations they might make, that's exponentially a lot of money."

Which explains why major investments to find and shape workers are important to help overcome "the Mr. Whipple image with the name tag and the vest," said Mike Gantt, senior vice president of human resources, Bashas', a privately held 148-store non-union chain. "Our guys and gals are the most effective managers of all, when you think of all the businesses they oversee in one building. They're directing multimillion-dollar stores, and there are a great number of jobs they know a lot about."

Potential Strike Repercussions

Gantt, a member of the Food Marketing Institute's Human Resources and Training Committee who served twice as its chairman, expressed further concern about how replication of the Southern California strike-lockout settlement elsewhere could cause "the labor supply to dwindle because the supermarket industry would hold less appeal. If Arizona apes what California did, that would be the most significant change I've seen in my career here since 1970.

"It would save us money. But it would create a new and lower class of worker who'd fall behind the others. It would create recruitment, retention and morale issues, and our administration costs would rise because of the need to maintain two health care plans," he added.

Instead, Stater Bros. and its workers benefited by taking an allied path in Southern California. "Our people did a Herculean task to protect our market share and take care of other customers who came in needing food. One hundred percent of our UFCW [United Food and Commercial Workers] employees voted in seven different local elections not to strike Stater Bros.," said Brown. "Here, it's not enough to do the right thing, but we must do it for the right reasons. It was right not to lock out our people because of their loyalty.

"Hopefully, our industry learned that loyalty is a two-way street, and that communications with our people is a daily task, not once every three years or whenever there's a new contract," he added.

Brown also recalled receiving about 800 letters from shoppers four years ago after his chain purchased 40 Albertsons/Lucky stores: "Every one of them said they were proud we kept Chuck the butcher or Betty Lou the baker, who were their favorites. 'If I don't see them next week, you won't see me,' they wrote. We encourage those relationships."

At Price Chopper, in upstate Schenectady, N.Y., President and CEO Neil Golub fosters a culture of communications he regards as Best Practice. "We're around, we're hands-on. I visit the warehouses regularly, and we organize breakfasts with the president where store folks from different regions can ask me questions. We do a lot to stay close with our people, adjust and keep them informed."

The 1,200-store Food Lion chain, Salisbury, N.C., aims to create chemistry through "diversity and a culture of inclusion and teamwork in all areas of the company. We want our associates to reflect the great diversity of our customers. [We want] to create a nurturing environment that will help all employees reach their full potential," noted spokesman Jeff Lowrance.

With a smaller teenage labor pool forecast for the next decade, stores' traditional workforce will be squeezed and operators will need to widen their recruitment net to include more seniors, women and people of varied ethnic backgrounds, as well as the mentally and the physically challenged, and retirees from other professions.

"The employment of good, qualified people is dependent upon paying them well and having good benefits. That's been a real focus for us," said Ron Pearson, chairman, Hy-Vee, West Des Moines, Iowa. "With better loyalty and less turnover, we get better productivity and better customer retention. We sell more, profits improve, and we leverage that better wage over and over again. When people love their job, it makes for a much better atmosphere. Our studies show that stores with the best directors, who hire the most qualified and most intellectual people, get a better return on investment. It is overwhelmingly the right way to go."

His 219-store chain with 44,600 employees is decentralized and "allows store directors to determine what to pay people. Other centralized chains might not gamble that this will work," Pearson added. "Our people feel they're on an equal or above par with the customers they serve."

Employee Incentives

Meanwhile, at non-union Price Chopper, 55% of associates are stockholders. "Our stock price went up 20% last year when Wall Street went to hell. The noise level from our truck drivers, meat people, everyone was overwhelming. People appreciate what we do," explained Golub.

The chain's approach has a purpose. Employee turnover has dropped overall from the high 80s to the mid-60s over the past year, said Golub, describing a scholarship program for part-time youth going to high school and college, "where 1,300 associates can each get as much as $7,000 to $8,000 in scholarships over a couple of years. Each year they need to be selected by their manager and write essays to compete for this. That group has a turnover rate of 14%."

Considering the $1,950 cost per employee turned over at Wal-Mart (see table), such investments seem worthwhile.

The Bureau of Labor Statistics forecasts a graying of the U.S. workforce between now and 2012, and further representation of women. While the labor force should grow by an aggregate 12%, or 17.4 million, to 162.3 million by 2012, it "will continue to age, with the annual growth rate of the 55-and-older group projected to be 4.1%, nearly four times the rate of growth of the overall labor force.

Meanwhile, women "will increase at a faster rate than that of men," and their share of the labor force will rise to 47.5% by 2012, it adds.

Over the same period, the number of jobs as retail sales workers will grow an aggregate 14.2% to 9.4 million, according to BLS. Cashiers will account for 3.9 million of that group.

Enter the broader view by supermarkets, as they build diverse store teams that mirror the communities in which they operate. Among the labor mix are seniors who bring maturity and lifetime experience. "About 500 of our workers are 65 or older," said Bashas' Gantt. Also in the labor mix are women who reflect the primary shopper base of most food stores. Ethnic workers bring bilingual skills and know customs and seasonal opportunities. Mentally and physically challenged workers offer seriousness and their strong work ethic impresses customers. Retired professionals such as teachers can effectively service customers and mentor staff well through their communications skills. Teens have high energy and comfort with technology. "Their common ground," said Brown, "has to be a desire to serve customers, and feel it's not beneath them to assist others."

Workforce in 2012

Within the next eight years, the national labor force is expected to grow by 12% to 162.3 million people. Those workers generally will be older with 47.5% female and 52.5% male. Workers age 55 and older are projected to grow at four times the rate of the overall labor force.

Seniors (age 55 and up): 19%

Youth (age 16 and up): 15%

Adults (age 25 to 54): 66%

Source: Bureau of Labor Statistics

COMING THROUGH THE RANKS

Supermarkets don't court experienced executives from other industries because they value their up-from-within culture.

That's the practice of Ron Pearson, chairman of Hy-Vee, West Des Moines, Iowa, and Jack Brown, chairman, president and CEO, Stater Bros., Colton, Calif.

"We all started bagging groceries, including myself," said Brown.

Added Mike Gantt, senior vice president of human resource, Bashas' Markets, Chandler, Ariz.: "If we ever lose a store director, the replacement would likely be a courtesy clerk because we bump people up."

Brown noted, however, that "former teachers make a quick transition into store management because of their instructional skills."

That healthy respect for education has spurred numerous programs, both within chains and as partnerships with community colleges and other institutions.

For example, Gantt is a former teacher who has created a Department of Translation at Bashas' that's launched language programs for his heavily Hispanic constituency in Arizona. "At our expense, we teach English to Hispanics in our stores, and we teach Spanish to our English-speaking people. We do it both to serve customers, and help employees understand directions and integrate more," he said. "Local community colleges provide instructors. At any given time, several hundred employees are in the classes."

Bashas' also tapped Don Adams, a 30-year chain veteran from divisional management, to assume a newly formed position of vice president, development and training, three years ago "to ratchet up accountability classes for store directors which we'd begun three years earlier, so they and their people can be held more accountable for everything they do in the workplace." Faculty from Arizona State University teach the courses.

Giant Eagle, the Pittsburgh-based chain, partners in Project Opportunity with Pittsburgh Vision Services, the local Office of Vocation Rehabilitation and the Pittsburgh Public Schools. The chain launched the program in 1991 as an employment and educational support program for students aged 16 to 21 who have disabilities, explained spokesman Brian Frey. It also "identifies students with visual, hearing and mobility challenges, as well as emotional and learning disabilities, and provides a three-tier program to prepare these individuals for work, including student/teacher education of the various Giant Eagle departments, hands-on training in a Giant Eagle department, and job coach assistance for those who've successfully completed the first two stages."

The chain also collaborates with agencies, organizations and schools throughout Pennsylvania, Ohio, West Virginia and Maryland to train and accommodate people with physical or mental disabilities. For its efforts, the chain recently earned the Department of Labor's New Freedom Initiative Award for outstanding employment practices toward people with disabilities.

Stater Bros. runs a unique checker training school that puts the 40 clerks chosen each week through their paces during the four-day curriculum. "One of our tests is having to know 400 different produce items by sight because we should be able to tell customers what's there, not ask them. We also teach policies and liquor laws and more," noted Brown.

Hy-Vee runs its well-reputed Hy-Vee University where it trains new employees who hope to reach higher management levels. Both Stater Bros. and Bashas' are among operators who have workers participating in a two-year associate degree program administered by the Western Association of Food Chains.

ESTIMATED COST OF EMPLOYEE TURNOVER AT WAL-MART

Number of terminated/resigned employees: 725,000 divided by

Number of active employees: 1,300,000

Employee turnover: 55.7%

Cost of recruiting/advertising for one employee: $25

Cost of interviewing materials for one employee: $15

Hours spent interviewing to fill one position: 3

Hourly wage of interviewer: $15

Hours spent orienting one employee: 4

Hourly wage of person conducting orientation: $15

Administrative cost for a new employee: $20

Hours spent training a new employee: 40

Hourly wage of a new employee: $6 (not including payroll costs, benefits, etc.)

Hourly wage of trainer: $15

TOTAL COST FOR ONE NEW EMPLOYEE: $1,950

TOTAL DIRECT COST OF EMPLOYEE TURNOVER: $1.4 billion

The impact on customer loyalty can be 2 to 3 times the direct cost of loyalty.

Source: People Solution Strategies, Chesterfield, Mo.