The grocery and broader retail industry is at a turning point. In recent years, retailers and grocers have seen rapid evolution, thanks to trends such as consolidation, changing customer preferences and competition from disruptive innovators, chief among them Amazon. Meanwhile, margins — always notoriously thin — have come under stress from rising labor costs. 

How much stress? Our research of the 10 largest U.S. grocers’ operating, general and administrative costs indicates that most of the spend — around 14% of sales — is for labor. And labor’s share is growing. The retail industry has many hourly workers — roughly 11 million in 2015, according to the U.S. Bureau of Labor Statistics (BLS). Hourly earnings for non-supervisory food and beverage store employees have gone up about 1% every year since 2010, with much of that growth coming from the 322,000 workers who earn minimum wage or less.

In this Executive Insights, L.E.K. examines the factors contributing to rising labor costs —including state-level minimum wage growth, overtime pay and recent moves from major retailers such as Walmart, Target and Costco — and recommends five strategies to consider.

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