Industry Strategic Employment and Compensation Analysis

Retail Grocery: Industry Strategic Employment and Compensation Analysis

An Analysis of Ukrop's Super Markets

Although Piggly Wiggly was the first self-service store opened in 1916, the first supermarket to open was King Kullen Grocery Company in New York in 1930 (Food Marketing Institute 2004). Today, though, there are over 69,461 supermarkets competing nationally for a share of the American consumer food dollar. In Central Virginia, Ukrop's Super Markets have achieved a degree of success by focusing on providing busy consumers with a wide range of prepared foods, in-store cafes, full-service pharmacies and a prohibition on alcohol sales. This paper will provide an overview of Ukrop's Super Markets and the sector within the North American Industry Classification System in which they compete. An analysis of the number of establishments within the sector, the average payroll and average number of employees will be followed by an assessment of the types of benefits that are typically provided in this sector. A comparison with other sectors of interest will be followed by a summary of the research in the conclusion.

Review and Discussion

Company History and Overview. Ukrop's stores were founded in 1937 by Joe Ukrop and are located throughout Central Virginia today. The 26-store grocery chain is best known for its strong emphasis on prepared foods, in-store cafes, full-service pharmacies, small-town hours (the stores are closed at 10 p.m. And all day Sundays) and a prohibition on alcohol sales (Fisher 1998). According to Scott Ukrop, the vice president of marketing for the privately held company, "We feel like we've got a strong brand, but the question remains as to how to strengthen it. Not only do we need to get ourselves out to our new markets, but there's enough turnover here [in Richmond] that it's just as important" (Fisher 1998:11).

Ukrop's NAICS Classification. The U.S. Census Bureau (2004) reports that the Standard Industrial Classification has been replaced by the new North American Industry Classification System (NAICS); however, several data sets are still available with SIC-based data. Regardless of which approach is used, both SIC and NAICS classify establishments by their primary type of activity. (Zeisset & Wallace 1998). In Ukrop's case, the chain would be classified under SIC 514 - Groceries and Related Products, a component of SIC Major Group 51 - Wholesale Trade -- Non-Durable Goods (U.S. Department of Labor 2002); the new NAICS classification for this sector is: Grocery stores 445110 Supermarkets and Other Grocery (except Convenience) Stores (North American Industry Classification System 2004).

According to the U.S. Census Bureau's 2002 NAICS Definitions, this industry is comprised of establishments that are generally known as supermarkets and grocery stores that are primarily engaged in retailing a general line of food, such as canned and frozen foods; fresh fruits and vegetables; and fresh and prepared meats, fish, and poultry. Also included in this industry are delicatessen-type establishments primarily engaged in retailing a general line of food (North American Industry Classification System 2004). The data that are published with NAICS code 445110 are comprised of these parts of the following SIC industries:

1) 5411 (pt) Delicatessens, primarily selling meats and a range of grocery items; and 2) 5411 (pt) Supermarkets and grocery stores (North American Industry Classification System 2004).

Number of Establishments in Sector. Nationally, there were 69,461 establishments in the United States that fell within the 445110 hierarchy (Economic Census: NAICS 445110 1997); however, as of 2002, there were 166,135 grocery stores reported nationally (Supermarket Facts - Industry Overview 2002).

Average Payroll in the Sector. The 1997 Economic Census reports that the average annual payroll for this sector of $35,827,805,000 with 69,461 establishments competing; this represents an average payroll for this sector of $515,797.00. As shown in Table 1 below, the median hourly wage reported in this sector as of 2001 was $13.28; the mean hourly wage was $16.00 (2001 National Industry-Specific Occupational Employment and Wage Estimates, 2002).

Table 1. National Wage Estimates for NAICS 445110.

Wage Estimates

Median Hourly

Mean Hourly

Mean Annual (2)

Mean RSE (3)

2) Annual wages have been calculated by multiplying the hourly mean wage by a "year-round, full-time" hours figure of 2,080 hours; for those occupations where there is not an hourly mean wage published, the annual wage has been directly calculated from the reported survey data.

3) The relative standard error (RSE) is a measure of the reliability of a survey statistic; the smaller the relative standard error, the more precise the estimate.

Number of Employees on Average in Sector. According to the 1997 Economic Census: NAICS 445110, there were 2,489,721 individuals employed in this sector nationally in 69,461 establishments; this equates to an average number of employees of 35.84.

Types of Benefits Provided in Sector.

Big "multiple" stores have proliferated across the nation because of their economies of scale that allow them to stock at a wide range of products reasonable prices. Reflecting this mood on a national level, grocery managers have been under the gun to reduce labor costs because of their razor-thin profit margins, which has in turn adversely affected employee benefits in this sector.

In her article, "Grocery contract a 2-tiered omen," Stacey Hirsh reports that employee benefits in supermarket chains nationally are eroding as a result of more consumers shopping as "big-box stores" and nonunion grocers such as Wal-Mart Stores Inc. In response, unionized grocers have become increasingly concerned that their market share is slipping, insist that they need labor concessions to remain viable. As a result, a two-tiered employee system has been introduced on both coasts that adversely affects newer employees by providing them with fewer benefits; it may also have a negative effect on long-term employees as they are forced from their jobs by grocery managers looking to achieve further cost savings by hiring the lower-tiered employees.

Officials with the United Food and Commercial Workers note that although they were able to preserve existing benefits for their 29,000 existing members, new supermarket workers will have higher co-payments than existing workers, and will have longer waiting periods before they are eligible for the same health care benefits as current workers. "Some labor analysts contend such a system creates division in the ranks as employees work side-by-side with colleagues who earn more or have better health benefits" (Hirsch 2004:3). Union officials pointed out that under the new contract, new workers will eventually receive the same benefits as the older workers; they will just have to wait longer. Allowing the benefits of new workers to eventually "snap back" to correspond to those of more tenured employees provides supermarkets with the relief they need through turnover, and ultimately rewards faithful employees who remain.