It's fair to say that grocery store employees have been putting their health and safety on the line ever since the coronavirus pandemic began. As essential workers, these employees are currently prioritized for the coronavirus vaccine, and some supermarkets, as will other employers, will be paying them to go out and get inoculated. But still, with a slow vaccine rollout and new weather-related delays in getting doses out to the masses, many supermarket employees are still working largely unprotected, save for the face masks they regularly don.
For this very reason, Seattle made the decision to implement a rule mandating grocery workers receive a $4 hourly pay raise. All supermarket chains with over 500 employees will be required to provide hazard pay for as long as a state of emergency remains in effect. Given where we are in terms of the pandemic and vaccinations, that could be awhile.
One major supermarket chain, however, isn't happy about that. Kroger (NYSE: KR) has announced it will close two of its stores in April in response to Seattle's hazard pay mandate. The reason, not shockingly, boils down to money.
Bad news for real estate investors
While there's been no shortage of demand for groceries during the pandemic, some supermarkets can't afford to boost worker wages by $4 an hour. Kroger is claiming the new hazard pay requirement will make it impossible to run a financially sustainable business and is closing some stores as a result.
Seattle isn't the only city to require that grocery store employees be eligible for hazard pay. Both Long Beach and Montebello, California have passed measures mandating hazard pay, and there are similar proposals in the works throughout California.
Earlier in February, Kroger announced it would close two stores in Long Beach in response to its hazard pay requirement -- and that's in addition to the two Seattle locations it's planning to shutter. Of course, four closures in the grand scheme of all U.S. supermarkets isn't terrible. But if more cities adopt hazard pay rules in the near term, the concern is that additional grocery store chains could opt to follow Kroger's lead and start closing down locations. And if that happens, shopping centers could end up with a major vacancy crisis on their hands.
Shopping centers typically rely on supermarkets as anchor tenants, and finding replacement tenants for large spaces is a difficult ask, especially when new businesses aren't exactly rushing to open up. As such, real estate investors, especially those in the commercial real estate arena, will need to keep tabs on the hazard pay situation and brace accordingly.
The Millionacres bottom line
Though the idea of hazard pay so far seems to be gaining the most traction along the West Coast, if enough cities adopt their own policies, the concept could take off on a national level. That would be a good thing for grocery store workers, but a potentially bad thing for the commercial landlords and property owners who stand to lose out big time if supermarkets start shutting down due to financial constraints.