It's a much believed assumption in the retail world: If you're going to compete on the basis of low cost, then you can't afford to invest in your employees.
Extensive training—who has the time to give? Regularly scheduled hours?—way too inflexible. Benefits?—forget it! Better to trim schedules and leave vacant positions unfilled for immediate, measurable savings. That's the retail way. Moreover, the costs of understaffing aren't easily quantifiable; who can say how many customers are lost to long lines or stock-outs?
“You can invest in your people and offer low prices."
But now a growing group of retailers is challenging this notion of an industry built on the backs of crummy jobs, very prosperous companies that include Costco, Mercadona, Trader Joe's, and QuikTrip. What do they know that their competitors don't?
In a new case study on QuikTrip, Harvard Business School professor Zeynep Ton goes behind the scenes to discover how the Tulsa, Oklahoma—based chain of convenience stores manages to outperform its competitors while maintaining a loyal workforce of over 10,000 employees. These workers enjoy above-average wages, job security (the chain has never had layoffs), and benefits including health insurance, performance bonuses, and paid vacation—all relatively rare in the industry.
Blueprint For Transformation
The QuikTrip (QT) case, taught in the MBA course Coordinating and Managing Supply Chains, offers a blueprint on how retailers can combine the best of both worlds. Ton says the key is making the right operating decisions. "You can invest in your people and offer low prices," she says. "And guess what? You'll have a service advantage too."
For QuikTrip, that advantage is evident to customers in easy-to-navigate stores with organized shelves, clean bathrooms and parking lots, along with quick, friendly service. The result? In 2010, its by-store profit was almost double that of the top quartile of competitors. Since its founding in 1958 by Chester Cadieux and Burt B. Holmes, QuikTrip has opened over 500 stores in 11 metropolitan areas; 33 more are planned to launch this year.
Like Mercadona, a Spanish supermarket chain that Ton profiled in a case last year, QuikTrip systematically makes operating decisions that are good for employees, customers, and profits, she says. One principle is simplicity. Instead of customizing stores according to market, QuikTrip uses the same store layout everywhere, along with limited product variety. "The reduced complexity that results from these decisions leads to higher employee productivity and fewer errors," says Ton. "This standardization of stores and products also provides flexibility: QuikTrip can easily transfer employees and managers from one store to another."
QuikTrip makes decisions that increase costs in the short term but offer long-run benefits. For example, it invests in "relief employees," people who do not report to a specific store but are able to fill in for workers who get sick, take a vacation, or have an emergency. These people ensure that the stores are never understaffed. QT also cross-trains employees for multiple functions, making it possible to shift employees as need dictates.
"Instead of constantly changing the quantity of employees in response to workflow," Ton observes, "QuikTrip changes what employees do."
A daily activities worksheet lists tasks for each shift; managers can assign jobs to each employee, but more often than not the staffers are trusted to complete the work at their own pace. "The store is staffed knowing how long it takes to perform the various tasks," Ton says, explaining that employees frequently initiate a team-based, mutually accountable approach to their work. "It's not uncommon for them to step up for each other if there's a sick child at home or another family issue."
Conversely, workers who aren't doing their part hear about it sooner rather than later, whether it's from a manager or coworkers. "Slow movers are not meant to work at QuikTrip," says Ton. If an employee's performance isn't up to par, a manager investigates to find out how he or she can help (QuikTrip offers a variety of employee support programs). But if there are no real barriers and a worker's performance continues to suffer, the employee is cut loose.
Improving on the Fly
QuikTrip employees also engage in process improvement. For every position in the store, QT has resource groups where employees regularly get together and discuss problems and improvement opportunities. Many of these opportunities end up being implemented across the chain.
"It's amazing how clearly the employees' voices are heard," Ton adds. "In retail chains with hundreds or thousands of stores, retailers struggle to learn from employees who see problems, talk to customers, and have great ideas for improvement. But retailers like QT and Mercadona have created ways to institutionalize improvement. And employees greatly appreciate the fact that their voice is heard."
"Retailers like Mercadona and QuikTrip have created ways to institutionalize improvement.”
Ton notes that another commonality between QuikTrip and Mercadona lies in the strongly held values of its leadership. QuikTrip's CEO is Chet Cadieux, son of cofounder Chester Cadieux. In a classroom visit on the day the case was taught this year, the chief executive emphasized the obligation he feels to give back to QuikTrip's employees, as well as his commitment to avoiding operational or strategic changes that would compromise how workers are treated. (QuikTrip, like Mercadona, is a privately held company; in fact, "Remain privately owned" is listed as one of its core values.)
"Chet started out by working most positions at the stores including part-time employee and night assistant, so he knows how hard the jobs can be," Ton says. "He spends 50 days of every year visiting stores and employees and personally responds to any e-mail they send him."
All of these factors have made QuikTrip a regular on Fortune's 100 Best Companies to Work For. Yet the company's focus on promoting from within presents a dilemma of sorts, given its purpose statement that includes the line "to provide an opportunity for employees to grow and succeed." When so many workers view the company as their career-long home, what happens when the chain runs out of available manager-level positions? The case notes that full-time employee turnover at QT is 13 percent, compared to 59 percent in the industry's top quartile and 109 percent in the industry overall. (Part-time employee turnover for QT is 36 percent, compared to 84 percent in the top quartile and 157 percent overall.)
"This issue of running out of management positions hasn't become too much of a problem yet, but at some point I imagine it could be," Ton surmises. "Opening stores in new markets is typically not a way to sustain internal promotions."
The case turns on the question of future growth for the chain in North Carolina, the next area targeted for expansion. Entering a new market is not cheap: QT's past experience has shown that it takes up to five years or about 50 stores before the brand begins to stand out in consumers' minds. A QuikTrip store costs an average of $4.2 million to build. Ideally, some of QT's qualified (and willing) Atlanta-area employees would want to relocate, but that would also cost money.
Another critical issue is whether QT can hire enough people who embrace the company's values and practices. "In our classroom discussion, Chet said that that factor would be the only limit to QT's growth," Ton recalls.
Such investments might take years to bear fruit—though patience has paid off in the past. "This is not an organization that focuses on short-term maximization of profits," says Ton. "By putting customers and employees before profits, QT enjoys long-term returns that puts it ahead of the competition." (As it happens, the company's current strategy is to open stores at a faster-than-usual rate; the first North Carolina QT will open this September, for a total of 20 to 24 stores in the first year.)
As the examples of success pioneered by QuikTrip, Mercadona, Costco, and Trader Joe's becomes more prevalent, is it possible that the tide will turn toward truly treating employees as "our most valued assets," as the saying goes? Ton hopes so.
"As a group, retail employees make up some of the lower-wage workers in our economy," she says. "This could be one way to begin to address the income inequality gap and offer some measure of stability to employees who don't always enjoy that quality in their work lives."