“Challenge the status quo through the lens of our values. This is our rallying cry.” --Pat O’Dea, Peet’s Coffee & Tea CEO, 2011 Annual Report

Tuesday, November 6, 2012

Peet's Coffee & A Living Wage Pt. 1: Can they afford it?

This begins the five-part series "Peet's Coffee & A Living Wage."

"Can the company afford to pay you a living wage?"

This is a common question among small business owners in particular. Struggling in an economy evolved to favor and protect large corporations, small business owners nevertheless tend to extend much misplaced empathy toward their gigantic competitors. For a small business owner, especially in the first few years of her company's existence, it can be a very real challenge to pay even highly contributing employees a living wage. Independent coffee shop owners, in particular, may see the Peet's Workers Group living wage campaign as an indictment of their own minimum wage pay scale.

It is crucial to differentiate immediately between Peet's Coffee & Tea and the mom-and-pop coffee shop around the corner. We in PWG are intimately acquainted with small business owners, and most of us have worked for or participated in running small businesses ourselves. We know the story. You pay your employees minimum wage, treat them like family, let them eat free meals at the shop, and at the end of the year you're lucky to break even. You employ high school students, college students, people without dependents, people who live with their parents, people whose partners earn a "real" income, people who receive government assistance. People who are otherwise subsidized, so they can manage to scrape by on less than a living wage. You wish you could pay them more, that you could pay yourself more, but you can't. Yet.

When your company is traded at $70/share, has 3700 employees, 200 stores, 175 licensed partners, a booming grocery business, executive officers paid in the millions, and a market cap around $1,000,000,000, you will be able to pay each of your employees a living wage.

When PWG asked our friends further up the corporate ladder the question, "can Peet's afford to pay us a living wage?" they just laughed. A quick glance at the numbers was more than enough to say, of course they can afford it.

The problem with asking "can they?" is that for those of us with limited corporate accounting knowledge, the question precipitates an overly simplistic "bottom line" analysis: figure out the total cost per year of increasing each employee's salary to a living wage. Then take the company's net profit, subtract the added labor cost, and see what's left.

We did this, and yes, the company could give every retail worker in the country a $3/hour raise and still net $8 million a year in pure profit. The equation looked like this: 3000 retail level employees x 1000 hours/year average due to part timers x $3/hour = $9,000,000 subtracted from about $17,000,000 net profit each of the last couple years = $8,000,000 net profit left.

Peet's' stock more than doubled in the last 5 years.
Corporate accountants will tell you that increasing labor spending is not a simple subtraction of money from the bottom line. The answer to "can Peet's?" is, there is no question they can. But in order to do so they must first recognize the dignity of their employees as a clear priority, revisiting their own value of "prosperity." They must then reallocate money within the company to accommodate this prioritization. New store openings may slow. Equity may not accrue at a rate that facilitates stocks doubling in value every five years (see chart). Expansion and shareholder profits, in other words, could potentially be less dramatic than they have been.

At least at first.

Because actually our math is still too simplistic. It is based on the short-sighted business philosophy that labor is an expense, rather than an investment. Which leads us to our second post in this series: What about the bottom line?

Peet's Coffee & A Living Wage 5-part series:
1. Can they afford it?
2. What about the bottom line?
3. Why should Peet's be different than any other retailer?
4. Whatever happened to the dignity of work?
5. Living wage Q&A

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