One of the more interesting topics in the business world these days is how employers go about hiring talent. The reason is simple: Businesses are run by humans (for now, anyway, until the artificial-intelligence overlords enslave us all). And in today's world of low unemployment and fresh corporate tax cuts, top talent is in demand, with employees having more options than ever.
Grocery store chain Kroger (NYSE:KR) has made a push to become a desired place to work. The company recently put out a press release saying that it was looking for 11,000 employees, including 2,000 managers. In addition, on the last conference call, it unveiled plans to share the benefits of the federal tax cuts, distributing them between customers (through lower prices and better in-store tech), employees (through a comprehensive benefit program), and shareholders (via capital returns).
In April, we got even more details about the new employee benefit program, which management highlighted as an attempt to stand out from competitors that have raised wages recently, like Walmart (which, for all the hoopla about Whole Foods, is still Kroger's biggest rival). Here are the details of the new plan and why it's important to Kroger's future.
Kroger management said on the last earnings call that it wanted to give employees "more than just a one-time award" as some other companies are doing. Now, we have more details on what that meant. The new plan includes:
- Feed Your Future, an educational assistance program whereby Kroger will contribute up to $3,500 per year, up to $21,000 total, toward an employee's education. The credit will apply to various certifications and degrees, from the GED to an MBA. What's cool is that these benefits kick in after just six months of employment and are also available to part-time associates. Interestingly, the company will also grant leaves of absence to pursue advanced studies while allowing employees to maintain a job with Kroger during the time away.
- Increased wages: Like its competitor Walmart, Kroger is raising wages for multiple levels of employees in several different markets. Since Kroger is a conglomerate built on acquisitions of local and regional chains, it must negotiate with multiple labor unions for its employee benefit plans. The company's minimum wage will increase from $10 to $11 per hour for Cincinnati-area employees who have worked there one year (Kroger is based in Cincinnati). Other increases were already part of the Restock Kroger initiative but will now be accelerated sooner, totaling about $500 million over three years.
- Increased 401(k) matching: The company will also be increasing its 401(k) matching contributions, from 4% of employee wages to 5%.
- Employee discount on "Our Brands": Kroger employees will also get expanded discounts on "Our Brands", which include Kroger's private-label brands such as Private Selection and Simple Truth. Kroger had these discounts in place before, but they varied by market and brand (Kroger operates several supermarket chains under a variety of names). Employees saved an estimated $53 million on discounts in 2017, so this "cost" will probably increase in the coming years (though the discount should also lead to more volume/sales).
- Helping Hands: Finally, the company will also increase its internal fund for employee hardships with a new $5 million contribution. The fund, called Helping Hands, was instrumental in helping employees who were victims of last summer's hurricanes.
Do the right thing
While many companies have made various declarations about raising wages recently, I especially like Kroger's structuring of the program to build lifetime loyalty for their employees, from supporting educational development to daily savings when shopping at Kroger and helping them through disasters or retirement planning.
Clearly, Kroger is not going to be able to offer something quite as exciting or fast-paced as a certain tech company from Seattle, but it can differentiate itself by building long-term relationships with employees. In return, Kroger is likely to receive a similar loyalty back in the form of better talent and lower employee turnover.
As for the stock ...
The increased spending is part of the reason Kroger sold off after its fourth-quarter earnings call. The stock now trades at just 12 times forward earnings. While some may be nervous about spending amid an intense price war in groceries, I like the confidence on the part of management, and quite frankly, expanding benefits for employees is the right thing to do, not only for employees in the short term but also for shareholders over the long run.