Reference no: EM131038192

Case Study: A Unique Partnership Drives Wegmans

If you're looking for the best Parmesan cheese for your chicken parmesan recipe, you might try Wegmans, especially if you happen to live in the vicinity of Pittsford, New York. Cheese department manager, Carol Kent, will be happy to recommend the best brand because her job calls for knowing cheese as well as managing some 20 subordinates. Kent is a knowledgeable employee, and Wegmans sees that as a key asset. Specifically, Wegmans believes that its employees are more knowledgeable than are the employees of its competitors.

Wegmans Food Markets, a family-owned East Coast chain with nearly 80 outlets in six states, prides itself on its commitment to customers, and it shows. It ranks at the top of the latest Consumer Reports survey of the best national and regional grocery stores. But commitment to customers is only half of Wegmans' overall strategy, which calls for reaching its customers through its employees. "How do we differentiate ourselves?" asks Wegman, who then proceeds to answer his own question: "If we can sell products that require knowledge in terms of how you use them, that's our strategy. Anything that requires knowledge and service gives us a reason to be." That's the logic behind one of Kent's recent assignments-one which she understandably regards as a perk. Wegmans sent her to Italy to conduct a personal study of Italian cheese. "We sat with the families" that make the cheeses, she recalls, "broke bread with them. It helped me understand that we're not just selling apiece of cheese. We're selling a tradition, a quality."

Kent and the employees in her department also enjoy the best benefits package in the industry, including fully paid health insurance. And that includes part-timers, who make up about two-thirds of the company's workforce of more than 37,000.Full-time employees are eligible for participation in the company's group health insurance, with Wegmans picking up 85% of the cost. Part-time employees working 24 hours a week or more are also eligible for individual coverage, a benefit almost unheard of in the industry.In part, the strategy of extending benefits to this large segment of the labor force is intended tomake sure that stores have enough good workers for crucial peak periods, but there's no denying that the costs of employee-friendly policies can mount up. At 15% to 17% of sales, for example, Wegman's labor costs are well above the 12% figure for most supermarkets. But according to one company HR executive, holding down labor costs isn't necessarily a strategic priority: "We would have stopped offering free health insurance [to part-timers] a long time ago," she admits, "if we tried to justify the costs."Other benefits include dental coverage, retirement and 401(d) plans, life insurance, and paid time off for vacation and sick days.

Employee turnover at Wegmans is about 6 percent-a mere fraction of an industry average that hovers around 19% (and can approach 100% for part-timers). And this is an industry in which total turnover costs have been known to outstrip total annual profits by 40%. Wegmans employees tend to be knowledgeable because about 20% of them have been with the company for at least years, and many have logged at least a quarter century. Says one 19-year-old college student who works at an upstate-New York Wegmans while pursuing a career as a high school history teacher, "I love this place. If teaching doesn't work out, I would so totally work at Wegmans." Edward McLaughlin, who directs the Food Industry Management Program at Cornell University, understand this sort of attitude: "When you're a 16-year-old kid, the last thing you want to do is wear a geeky shirt and work for a supermarket," but at Wegmans, he explains, "It's a badge of honor. You're not a geeky cashier. You're part of the social fabric."

In a recent survey, the company found that three factors were most likely to influence someone to join the Wegmans team: flexible work schedules, company reputation, and health benefits. Surprisingly, the starting pay was ranked second to last out of 12 choices, indicating that wages and salaries are not as important as one might expect. The company also surveyed their current employees to find out the reasons that they stayed with the company. Health benefits and flexible work schedules topped the list, followed by job security.

Wegmans recently placed third in Fortune magazine's annual years on the list and seven straight top-seven finishes. "It says that we're doing something right," says a company spokesperson, "and that there's no better way to take care of our customers than to be a great place for our employees to work." In addition to its healthcare package, Wegmans has been cited for such perks as fitness center discounts, compressed work weeks, telecommuting, and domestic-partner benefits (which extend to same-sex partners).

Finally, under the company's Employee Scholarship Program, full-time workers can receive up to $2,200 a year for four years and part-timers up to $1,500. Since its inception in 1984, the program as handed out $76 million in scholarships to more than 23,500 employees. Like most Wegman policies, this one combines employee outreach with long-term corporate strategy: "This program has made a real difference in the lives of many young people," says president Colleen Wegman, who adds that it's also "one of the reasons we've been able to attract the best and brightest to work at Wegmans."

Granted, Wegmans, which has remained in family hands since its founding in 1915, has an advantage in being as generous with its resources as its family of top executives wants to be. It doesn't have to do everything with quarterly profits in mind, and the firm likes to point out that taking care of its employees is a long-standing priority. Profit sharing and fully funded medical coverage were introduced in 1950 by Robert Wegman, son and nephew of brothers Walter and John, who opened the firm's original flagship store in Rochester, New York, in 1930. Why did Robert Wegman make such generous gestures to his employees way back then? "Because," he says simply, "I was no different from them."

Questions:

1. Why do you think the starting pay at Wegmans ranked less important on the survey than flexible work schedules and health benefits?

2. Wegmans has invested quite heavily in their scholarship program. How do you think this benefits the company?

3. In what way is a low employee turnover a strategic advantage for Wegmans?

4. If you were developing a list of "100 Best Companies to Work For," what factors would weigh most heavily on your rankings and why?

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