Amazon-Whole Foods: Good Deal For Consumers, Bad News For $15 Minimum Wage

The Amazon-Whole Foods deal will have winners and losers. Among the winners will be consumers, as Amazon’s technology and superior services will provide more grocery options, saving them time and money at the same time.

Among the losers will be traditional neighborhood stores, which won’t be able to compete with Amazon’s razor thin operating margins – and minimum wage employees like cashiers, as Amazon’s technology will make them dispensable and speed  up a trend already underway in traditional retail chains…and in the process, make the $15 minimum wage irrelevant.

While it’s still unclear how Amazon will re-organize Whole Foods, a video released on Amazon Go stores last year may provide a good hint—there will be no cashiers. They will all be replaced by technology, which monitors customers entering the store, records what they buy, and ensures that they are charged the appropriate amount. Though Amazon officials are denying the company has such plans for Whole Foods. “Amazon has no plans to use the technology it developed for Amazon Go to automate the jobs of cashiers at Whole Foods,” said, a spokesman for Amazon. “No job reductions are planned as a result of the deal” he said.

 To be fair, the primary driver behind Amazon’s new store concept is to speed the shopping experience by cutting down the long lines usually observed in convenience stores, rather than cutting labor costs. And Amazon’s technology may help revive Whole Foods, and expand positions in other store areas like food preparation and store shelf stuffing. 

Still, Amazon usually operates at razor thin margins, and cutting an employee or two can make the difference between making and losing money.

 The trouble is that other store chains will also have to do away with cashiers to keep up with Amazon, accelerating and broadening a trend already underway in the retail industry. Wal-Mart and Target have been using technology to replace labor that is usually paid the minimum wage.

Amazon’s move comes as a franchise chain like Amazon McDonald’s announced that it would be replacing cashiers with ordering kiosks. McDonald’s is  another company that operates at low margins; at least its franchises do, as the fast food market is highly competitive.

fast food market is highly competitive.

Company Amazon.com (AMZN) Wal-Mart Stores
Forward PE 87.33 16.36
Margin 1.81% 2.79%
Operating Margin 2.89% 4.36%
Qrtly Revenue Growth 22.60% 1.40%
Revenue (ttm) 142.57B 487.50B

Source: Finance.Yahoo.com 6/18/2017

That’s certainly bad news for the fight for $15 minimum wage movement. In fact, the movement may have helped Walmart, Target, Amazon, McDonald’s and the like to step up the trend to replace workers, who are now more expensive than technology, which usually becomes more efficient and less costly over time.

But that’s the reality in highly competitive industries where technology drives sales growth and demand for better-paid labor.

While minimum wage mandates help low paid workers bring home a higher pay in the short term, they send these workers to the unemployment lines in the long term, as companies replace labor with machines.

That’s how a good cause turns into a bad one, an ugly truth for the fight for a $15 minimum wage.

 

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