Starbucks, Whole Foods Are Incomparable
By George Anderson
When most companies in retail discuss their employee wage and benefit programs, they talk in terms of offering packages that are comparable to what others in the industry are doing.
For companies such as Starbucks, Whole Foods and others, comparable is not enough. These companies make programs such as company-paid health insurance available to a wider percentage of employees in the effort to recruit a more professional workforce and to reduce turnover.
Amy Schaefer, a spokesperson for Whole Foods, told The Providence Journal, “It’s important that, as we continue to grow, that we continue to attract the types of team members we want to help serve our shoppers,” Schaefer said. “We want team members to be knowledgeable and excited about the food we sell, because without them, we would be unable to serve our shoppers.”
Louisa Conze, a college graduate who has worked as a barista at Starbucks for four years, said, “I’ve worked for other companies that wouldn’t give you benefits unless you are salaried. It (Starbucks) seemed like a great place to work during a transitionary period, but it turned out to be a great place to stay.”
Ms. Conze said the company’s treatment of its employees benefits Starbucks and its customers. “Any employee at any job is going to do a better job because the company cares about them. We’re all very happy to be here because of that attitude.”
John Barry, Starbucks’ district manager for Rhode Island, said, “I think the benefits are a huge draw. It’s part of the commitment we make to all our employees.”
Mr. Barry admits that the high cost of providing healthcare coverage is a challenge even for businesses as large as Starbucks.
“I think it’s the biggest challenge we face today,” he said. “The escalating cost is more of a challenge than ever. The cost of a cup of coffee includes more to cover health-care expenses than the cost of the coffee beans and other components of the product itself.”
Edward M. Mazze, dean of the College of Business Administration at the University of Rhode Island, said many businesses faced with the rising cost of healthcare have either had to reduce work hours (making fewer employees eligible for company-pad benefits) or increase the premiums paid by workers to participate in a plan.
This is especially true, he said, when it comes to smaller businesses. “Every company with four or five employees basically has one employee who doesn’t have to show up. That extra employee is someone who doesn’t have to show up for his job because he’s the health-insurance premium.”
Moderator’s Comment: Will retailers need to find more (perhaps expensive) ways to attract and retain employees if they wish to remain successful in the
future? Are companies in retail and elsewhere doing a thorough enough cost/benefit analysis to determine if these actions might be “penny wise and pound foolish?” –
George Anderson – Moderator
Good points, Scanner. I agree with many of them, especially the point of the customer buying an experience. It is my opinion, from having studied over 1100 companies in depth, that many companies struggle with how to provide excellent benefits and not have the costs erode the company’s financial strength. This is the problem that skyrocketing healthcare costs present. You may disagree. I have had many discussions with executives that sincerely struggle with this. I would have a difficult time concluding from the data that this is “wrong.” It may not be the whole picture, but it seems to be part of it.
Hmmmm. Let’s see. Take good care of your employees and the result will be lower turnover and better service to your customers. Or, pay them poorly, provide little in the way of benefits and the result is high turnover and marginal customer service. Which way would you choose?
Right on target, as usual, Warren. See the drastic measures GM and Ford recently took mostly because, they said, of healthcare costs.
There seem to be two underlying issues here: our monstrous healthcare cost problem, and the assumption by those who control organization finances that “low-rung” workers are disposable, easily replaceable, and the least important (i.e., not important). If 50,000 organizations make these degrading assumptions and 1000 assume “low-rung” staff is more important, the 50,000 will mostly be fully staffed (though turnover will be high) because there are so few alternatives for workers. If the numbers were reversed (1000 organizations making degrading assumptions), there would be so many better avenues for workers, and it would likely be hard for those 1000 organizations to get staff.
This means, I believe, that if thousands of retail organizations over the next five years were to change their assumptions and their financial structure (by becoming much more efficient), and the healthcare cost problem were to be largely solved, yes, retailers would need to become much more attractive places to work in order to get and retain staff. Not much of a chance of that, it seems.
I think things will stay about the same. Companies like Whole Foods and Starbucks need to attract good looking, knowledgeable people because their customers will demand that. Therefore, they must offer a premium wage and benefit package. Other retailers like Wal-Mart only need warm bodies and have built their model around high turnover. For each new store they get hundreds of applicants from the lowest level of society applying for their jobs. So they don’t need to up the ante. No two companies are the same in retail and each has their own specific needs with labor.
Good intentions and warm fuzzies are all well and good, but unless we get a national healthcare program that makes sense, employers are going to be very hard pressed just to retain the health programs they already offer.
As the boomers start to retire, businesses of all sorts are going to be pressed to find and retain competent workers. Large businesses, and retailers will probably be in the forefront and are going to bring enormous pressure to reform the healthcare system to get costs back into line. Otherwise, the guy willing to bite the bullet on benefits is going to get the best people.
In the 90s, when everyone was making money, I heard CEOs complaining that they had to “spoil” workers to get anyone to work for them. When the boom ended, they moved instantly to slash benefits and there was a sense of revenge about it, that workers had been taking money that rightfully belonged to management and shareholders.
That kind of attitude is going to be a death knell for companies in the new labor-shortage economy, in my opinion.
Retaining good employees with competitive and strong wages and health care benefits also makes good sense from a labor relations perspective. The labor unions that recently defected from the AFL-CIO and have formed the Change to Win Coalition are targeting those retailers — large and small — who are not providing benefits and competitive wages to employees. Once a union becomes the employees’ bargaining representative, the company’s labor costs will increase approximately 30% automatically. It makes much better business sense to pass those costs to the employees directly, than as a result of third-party representation.
Unfortunately Warren and Race are both wrong. National Health Care will not solve the problem, it will simply shift it to a source that is even more inept at dealing with it than business has been. GM and Ford made choices – a lot of them. They made the reverse choices that companies such as Whole Foods, Starbucks and Costco have made. They also failed at creating an experience that the consumer continued to choose when there became competitive alternatives. Certainly in the earlier years of the auto struggle, imports were at a distinct price advantage. They are not today. Simply compare the price of a Chevy Impala and either a Honda Accord or Toyota Camry. What the auto consumer bought then and continues to buy (even if it is perception) is the experience.
What Mr. Barry fails to mention (although I hope that he understands) when he tells of the costs of healthcare exceeding that of the beans is that they aren’t really selling coffee. They are selling an experience. The coffee is really only a side effect, so to speak.
Retailers, companies and corporations make choices. They can easily make the choice to value their employees or consider them a painful expense. When they choose the prior, they find ways through their offering to put the whole thing together. In reality, I think, few people really like the three sentence Latte’ more than any other – they like the experience of it delivered the way Starbucks consistently delivers it to each and every customer. How do they do that? They do it through an employee that feels valued, knows the mission, is well trained, and is appreciated as the source of their success. GM, Ford and others simply made different choices. Much in the same way that, for Starbucks, it’s not really the coffee, for GM and Ford, it’s not really healthcare or pensions, it’s the experience or lack of in their case. When you have an experience that the consumer wants, a vision of delivering it through people, you have an entire package. When that happens, healthcare and other costs become easily dealt with. For GM and Ford, they became an excuse and that’s okay, it is their choice.
These newer models for success in retailing indicate that it is possible. Yet, nevertheless, many will continue to choose otherwise because they are unable to create an experience that the consumer wants. If they could, the other stuff is easy.
The consumer never began choosing a Toyota, Honda or other import because they were better looking, fast, exciting and hot. They choose them and continue to do so based on their perception of the experience. GM and Ford lost the battle long ago when they failed to realize that it’s really not the car as much as it was the experience of the car. Today, changing the consumer’s perception to believe that they can get the same experience with them has been difficult, if not impossible. Retailers that can continuously deliver a better experience, and that constantly reinvent themselves will have a chance to do incredible things. They’ll do so if they understand the whole package. That package includes people, not excuses.
After all, since we are a service nation, doesn’t it make sense that the “frontliners” be an organization’s positive point of differentiation? In most cases the frontliners are the last persons that we see or speak with. I believe that we need to treat our employees the way that we want them to treat our customers. It is imperative that we figure out a way to offer not only competitive salaries and benefits, but also compensation packages that dignify them as human beings.
This is an issue that is only going to intensify as Generation Y, with their significantly different views on work, enter the mainstream work force.
Penny wise, pound foolish are the first words that pop into my mind upon reading this discussion. Frontline personnel at retail are very important. Then why pay them so little? Where does the cost of hiring, training and lack of customer service come into to play? How high is the turnover for most retailers? What is the cost associated with that? I don’t begrudge top execs their money, but should they be compensated 30-50 times more than the people who interact with the consumer? What execs are out there day-to-day selling on the retail floor? Sorry for the rant, but did you ever notice that those who pay a little better and give benefits have better, more qualified employees? Not to mention a better reputation for customer service and better year-over-year comps! Hmmm, maybe something for retailers to think about!
Attract employees? No, a poor economy will do that. Retain employees? Absolutely — forced choices don’t stay palatable forever.
Unfortunately, I see more and more retailers reducing benefits for employees. Of course the pressure is on to reduce costs, but at what price to the consumer in terms of customer service and overall satisfaction with a retailer? Customers can clearly see which employees are happy to work at a particular store based on their store experience. There is an increasing need to communicate more, not less, to employees about the company mission and goals, especially as companies grow in size. And how about more employee profit sharing plans to share the wealth and increase commitment?
Retailers whose compensation (wages and benefits) are “comparable” or “average” get average turnover (high) and average performance (poor). Retailers with superior compensation have the great luxury of choice: they can recruit and retain the best if they want. Since most retailers don’t measure employee performance they can’t prove any benefit by hiring and keeping top performers.
Thanks Race. I apologize for the word “wrong.” I could have chosen better. I enjoy the discussion – it’s real value.
I would be interested in understanding where the executives that struggle with these decisions themselves have the same benefits and out of pocket costs by percentage as their workers. It would be also interesting as to how many have an equal, or even an option to have an incentive program for their workers as they do for themselves. I think these types of questions are interesting and determine greatly the end culture in any company. I think it’s much to do with success of companies like Costco, Trader Joe’s, Whole Foods, etc.
True, they may not be wrong, but it may not be the best model possible. It’s their choice. It’s not wrong having a model where the benefits are provided for the executives and the shareholder and the worker and the customer are left out. It just seems to me when you eliminate 50% of your stake, you are less likely to reap the maximum in return.
Not only intensifying Generation Y, today’s companies’ thinking will rub the Baby Boomers and Gen X, plus new Millenniums as well, the WRONG way!
Starbucks and Whole Foods get it; but unfortunately, the majority of companies don’t.
The Top Hundred Companies to work for are stellar, like
Starbucks and Whole Foods.
It’s a new business world and many retail businesses DON’T get it.
SO, food retailers, wake-up and smell the new world of employee needs. Or loose business, on both sides of the counter!!! Hmmmmmmm