The Price Of Cutting Labor Hours

Don Harris - Retail Perspective

Originally printed in the March 2018 issue of Produce Business.

Don Harris - Retail PerspectiveSometimes during the Monday morning meeting‭, ‬the discussion turns to the dreaded subject‭ ‬‮—‬‭ ‬cost reduction‭. ‬This normally happens‭ ‬after a week or two where financial results don’t measure up to the target‭. ‬

Management begins to search for ways to reduce costs and boost profits to meet the goals‭. ‬Occasionally‭, ‬Produce will bravely raise the possibility of meeting the goal by another method that would include adding hours to drive sales‭. ‬This usually is met with rolled eyes and skepticism from managers as they do not understand why this could be a solution‭. ‬Their total experience has taught them the only major cost that can be controlled by management is labor‭, ‬and they use this tool as often as necessary to meet profit goals‭. ‬

These experiences are gained by a predominance of time spent working in other parts of store operations‭. ‬Consequently‭, ‬managers have gained relatively little knowledge of the unique aspects within the Produce operation‭. ‬By sticking to this‭ ‬time-honored method of utilizing reduced hours to bolster profits‭, ‬it proves once again that management‭ ‬“just doesn’t get it‭!‬”

In the constant fight to obtain enough hours to operate a produce department efficiently‭, ‬the produce team often resorts to begging for additional hours just to be able to perform the basics of department operations‭. ‬This results in the bare minimum being‭ ‬accomplished in terms of product maintenance‭, ‬proper ordering and merchandising of the department‭, ‬among other duties‭. ‬Management shows little interest in utilizing any other method to control costs other than the reduction of hours in the department as dictated by‭ ‬“efficiency ratios”‭ ‬from the industrial engineers‭. ‬

This cold and impersonal but quick way of evaluating the needs of the department is a major cause of stagnant sales and declining presentation‭. ‬This belies the fact that industry trends show consumers want to have an‭ ‬“experience”‭ ‬when they are in the store and shopping the various departments‭. ‬With the prevailing bare-bones labor budgets‭, ‬this is becoming‭ ‬increasingly difficult and even impossible in some cases‭.‬

It would seem in these days of increased pressure to generate profit that an innovative retailer would take a closer look at the sales and other benefit derived from increasing‭ ‬labor hours instead ‬of cutting them‭.‬

It would serve these operations far better to take a fresh look at the novel concept of adding labor hours to the produce department in an effort to generate additional sales and ultimately‭, ‬additional profit‭. ‬It has been proven in its variants and observation that the addition of one dollar of labor would return approximately‭ $‬1.33‭ ‬in sales‭. ‬Some operations are able to generate higher ratios of return while others are not quite as positive‭, ‬but the fact remains the addition of these hours does indeed drive‭ ‬sales and ultimately more profit‭. ‬The drawback to this is that it takes time‭, ‬whereas the simple act of cutting hours is a quick way to gain results‭, ‬and quite often management desires immediate results‭. ‬Progressive retailers‭, ‬however‭, ‬will utilize this type of strategy to add hours in the key departments that can drive sales by providing more support‭. ‬This is especially true in the produce department‭. ‬These extra hours allow for better care of the product‭, ‬better operational efficiency and better presentation of the product to the consumer‭. ‬

Although this would seem to be a strategy that would be more beneficial in conventional stores‭, ‬all formats can utilize this strategy to improve individual operations‭. ‬Even operations that are based on low-cost offerings can utilize additional hours to be‭ ‬more efficient in presentation and better product protection‭. ‬Additional labor hours also have the welcome byproduct of improving department morale by lessening the stress as a result of performing tasks in a compressed timeframe‭. ‬We all realize extremely‭ ‬tight labor budgets cause employees to make choices‭, ‬and often result in bypassing tasks that take more time than the worker can‭ ‬afford to spend‭. ‬This is also a way to counter the present climate in produce departments where employees concentrate on the tasks at hand and seemingly ignore the customers‭, ‬as well as their needs‭.‬

Adding more labor hours is a positive action‭, ‬especially when compared to the reduction of labor hours‭, ‬which has a negative effect on sales‭. ‬Just as increasing labor hours yields a positive ratio of return‭, ‬the cutting of labor hours offers a negative ratio toward sales‭. ‬Experience has shown that the cutting of one labor dollar results in a return of‭ .‬85‭ ‬in terms of sales‭. ‬This type of action results in stagnant and declining sales‭, ‬which creates the need to increase prices to offset the loss of sales from‭ ‬slower movement‭. ‬Ultimately‭, ‬this creates a competitive problem if it continues and can become a major factor in becoming price‭ ‬noncompetitive‭. ‬Management’s cutting of labor hours results in a negative spiral that continues to create a drag on the operation and requires more negative action‭ (‬price inflation for example‭) ‬to prop up the operation‭. ‬It would seem in these days of increased pressure to generate profit that an innovative retailer would take a closer look at the sales and other benefits derived from increasing labor hours instead of cutting them‭. ‬Wouldn’t it make more sense in terms of stimulating sales momentum and ultimately the return on the time invested to add labor hours instead of taking them away‭? ‬ ‭

Don Harris is a 41-year veteran of the produce industry, with most of that time spent in retail. He worked in every aspect of the industry, from “field-to-fork” in both the conventional and organic arenas. Harris is presently consulting. Comments can be directed to [email protected].

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