The Price Of Cutting Labor Hours
March 1, 2018 | 4 min to read
Originally printed in the March 2018 issue of Produce Business.
Sometimes 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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