Historically low unemployment has been a thorn in the side of the Federal Reserve’s policy-setting committee and prognosticators. While Jerome Powell and Fed’s Open Market Committee have raised the Fed funds rate nine times in a little more than a year, the job market has refused to slacken.
Will we see evidence of weakening in the employment picture soon? Or are there still months ahead of dealing with a lack of worker availability and unfilled job openings? Relevant data released this week includes job openings on Tuesday and the March nonfarm payrolls report on Friday.
But data can only tell so much. To gauge what kind of problems companies are dealing with, we pulled a selection of comments from recent earnings calls, Wall Street conferences, and investor days. What they show is the variety of ways the worker shortage and wage inflation are hitting companies.
(Quotes are from S&P Global Market Intelligence transcripts.)
In the second half of fiscal ’23, we’ve seen an acceleration in wage pressures. And we expect that trend to continue in fiscal 2024. I think we’ll be able to offset a portion of that through revenue scaling and efficiency initiatives, but there’s going to be a remaining impact [on] the bottom line.
In addition to wages, we’re seeing increased traffic in our stores, which means more hours spent on replenishing inventory, replenishing shelves. We’re also in the last innings of our inventory rebuild, which means the goods are making their way from our [distribution center] to the stores, which also requires more labor hours.
Historically, the business is not focused so heavily on lean manufacturing opportunities and driving productivity and efficiency gains. So, that’s the focus for my team going forward. We have already kicked off a number of lean Kaizen events, providing training for all team members and driving improvements in specific processes.
One of the big drivers for [the] labor cost increase was overtime. Based on the work that we’ve done so far, we virtually eliminated overtime in the manufacturing team. That’s really within three months. I’m really excited about the potential for this program within the business.
A lot of our growth in the [advanced sterilization products] business is driven by elective [medical] procedures. Electives are getting back to normal. We saw some labor shortages and we think particularly in the [United States] that’s going to be a little bit of a hindrance. We don’t need perfection in ’23. We need ’23 to be better than ’22.
We don’t need perfection in ’23. We need ’23 to be better than ’22.
From a hospital’s financial perspective, money is made in elective procedures. So there’s a definite financial incentive, but some of it is this labor challenge that is playing out in hospitals, and that will get better over time.
Throughout 2022, we made significant cost cuts reducing our employee headcount from approximately 1,570 total employees at our peak in 2022 to approximately 1,310 total employees now.
At the corporate level, our workforce was reduced by 31%. At retail, there has been a 13% reduction in our average labor hours per dispensary per month from approximately 3,100 hours in April of 2022 to approximately 2,700 hours in February of 2023. As of April 2, we expect to move to a budgeted labor hour model that will result in approximately 1,550 average hours per dispensary per month, resulting in a total estimated 50% labor hour savings since April 2022, and we will seek to continue to improve our labor model to drive profitability.
As we mentioned, we’re very well-staffed. We have more managers per restaurant than we’ve ever had in our history. They can spend more time teaching their team and getting more productivity out of their team. So we feel really good about where we are.
We have more managers per restaurant than we’ve ever had in our history. They can spend more time teaching their team and getting more productivity out of their team.
We’re not going to talk necessarily about what our wage growth will be next year. I will say that even before COVID, wage inflation was in the mid-single digits. So we will continue to work with whatever the economy comes our way, and however we can handle that. Without getting into too much detail on turnover, our turnover is closer to pre-COVID levels than COVID levels. And we would intend to get it back toward those levels.
Labor is clearly one of the challenges that we’re facing. And it varies widely by what part of the U.S. you’re in. In general, labor is as often the bottleneck as is supply chain as is whether or not you have the manufacturing capacity. And so we’re obviously working on things we can do differently, working on automation as a potential solution to deal with some of these labor issues.
Labor is as often the bottleneck as is supply chain as is whether or not you have the manufacturing capacity.
Coming out of COVID, we find very much like many of you that a lot of our workforce didn’t come back to work. And as a result, we’re having to scramble today to really build enough labor capacity in our facilities.
The clinical labor shortage was a unique challenge. Despite robust demand, the lack of labor availability restricted our ability to perform procedures in many cases, therefore negatively impacting our results both on the revenue and the cost side. Fortunately, the environment has improved somewhat thus far in 2023.
Going forward, we are excited about the organic growth outlook … the reason we start to see the organic growth back is not because demand is back. Demand was always there. The reason is our access to labor is much better. Meaning what? Meaning, some of the contracted labor that kind of left the business in the second half of the year, and it was referred to in health care as the ‘Great Resignation,’ is coming back. It’s coming back full-time in our business.