How U.S. Companies Are Coping With Inflation and Scarce Labor
U.S. businesses are dealing with rising costs, from labor to raw materials to shipping expenses.
(Bloomberg) -- It’s no secret: U.S. businesses are dealing with rising costs, from labor to raw materials to shipping expenses. But many are already starting to see the light at the end of the tunnel as the economy works its way through what may prove to be temporary inflationary pressures.
Take Clorox Co., for example. The Oakland, California-based consumer-products maker’s chief executive officer, Benno Dorer, said on the company’s quarterly earnings conference call Thursday that he expects increases in transportation costs to ease to a “mid to high-single-digit” pace from “high double-digit.”
And while many say the rising input costs will mean that prices have to go up, they’re still taking other steps to mitigate the pressures. July data from the Labor Department on producer prices, due Thursday, and consumer prices on Friday will detail the extent of pressures at the start of the third quarter.
Below are a few highlights from this week’s earnings calls. All comments are from transcripts available on the Bloomberg Terminal at NH BT.
Automation Comes to Fast Food
Fast-casual burger chain Shake Shack Inc. has begun experimenting with cashless ordering to contain rising labor costs. So far, so good, according to Shake Shack CEO Randy Garutti, who said “it’s absolutely one of our goals to decrease the payroll over time.”
“We’ve gotten some of our highest marks from our guest surveys on the experience of the kiosk, even versus our other channels with which you can order. So that’s encouraging, people like it,” Garutti said Thursday. “We’re going to do some, in some of our newer markets that have higher labor cost, such as the Bay Area and Seattle, and we’ll test in some of those new markets with the ultimate goal of guest experience, guest experience, guest experience.”
Dealing With Freight Rates
While many expect shipping inflation to moderate following big increases, they’re also being proactive to keep costs down. Craig Kesler, the chief financial officer of Eagle Materials Inc., a building-materials producer based in Dallas, indicated the company is reducing the distances over which it ships its products.
“Freight rates have gone up in that 10 percent to 12 percent range as we expected, when you’re doing the best that you can, and so you start shrinking your shipping radius in order to offset some of the freight increases,” Kesler said Monday. “You are trying to meet your customer needs to the best that you can, and minimizing the freight bill where you can as well. And I think our guys have done a very good job of doing that.”
Operation Kitchen Sink
Many companies are being forced to adjust to rising wages after years of cheap and widely available labor. Wilson Jones, CEO of heavy-vehicle maker Oshkosh Corp., refers to the initiatives his company is taking as “Operation Kitchen Sink.”
“Access to skilled labor is going to be one of our big issues going forward,” Jones said Tuesday. “Our team, they call it Operation Kitchen Sink, because we are throwing everything at it in terms of working with the technical schools, we’re doing apprentice programs with a high school, we have a school-to-work program in our facilities now where they actually teach four hours of high school classroom and then they work four hours in our business.”
Nurses Get Bonuses
Wage growth has been slow to accelerate in the U.S. despite low unemployment. One reason may be that many companies are turning to one-time incentives like bonuses to attract additional labor, before taking the bigger step of increasing base wages.
That’s the picture Susan Salka, CEO of the medical-staffing firm AMN Healthcare Services Inc., offered during the company’s call Thursday in response to a question from an analyst about pay for nurses.
“We’re not hearing of anything unusual beyond sort of your typical 2 percent, 3 percent, 4 percent,” Salka said. “If it is happening, it’s probably one-off. What we are hearing are lucrative incentives up front, one-time bonuses, maybe a $20,000 bonus to sign on. And many times, the requirement to stay isn’t more than one or maybe two years. Other things like tuition reimbursement and other sorts of incentive are being thrown in.”
--With assistance from Katia Dmitrieva and Jeanna Smialek.
To contact the reporter on this story: Matthew Boesler in New York at firstname.lastname@example.org
To contact the editors responsible for this story: Brendan Murray at email@example.com, Scott Lanman, Vince Golle
©2018 Bloomberg L.P.