Costco shares huge edge it holds over Walmart, Kroger and Target

Sometimes saving money actually costs you money.

If a homeowner opts to patch their roof rather than replace it, that can ultimately be more expensive. The same is true when someone chooses to put tape over their check engine light rather than actually getting their engine checked.

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In the business world, it can be tempting to spend less money because companies are judged on their quarterly results. That’s an idea Amazon (AMZN) – Get Free Report has rejected by being willing to openly sacrifice short-term profits in order to make long-term investments. 

Relatively few companies do that and one area many companies make a mistake in is hiring. Filling a job at the lowest possible rate or even the prevailing rate for that type of job can lead to higher turnover which both costs a company money and hurts the experience for its consumers.

Walmart and Target, arguably Costco’s  (COST) – Get Free Report biggest competitors, have raised wages in recent years. That, you can argue, happened due to social pressures and worker shortages. It’s sort of a mix of wanting to look like responsible employers who pay a living wage and market demands forcing increases anyway.

Costco, however, while it pinches pennies in most areas of its operations to lower expenses so it can sell members’ items more cheaply, has always viewed employees as an investment, not an expense.   

That’s something members should appreciate, but workers who have been with the company for years are more likely to be able to solve their problems. It’s a strategy that Costco is proud of which sets it apart from Walmart, Target, and grocery chains like Kroger (KR) – Get Free Report and Publix.  

CFO Richard Galanti spoke about the company’s employee strategy during the warehouse club’s fourth-quarter earnings call.

Costco pays more than Walmart, Target, and Kroger

Costco has built a hard-fought reputation as a good place to work. Some of that comes from how it treats employees and wages play a big part in it. 

“Well, first of all, we’ve always prided ourselves in providing the best hourly wage package out there: wages, benefits, contributions, and 401(k). I’m using U.S. numbers here. But our average U.S. — 90% of our employees, like many big retailers, are hourly — and our average hourly wage is approaching 26. It’s in the high 25s,” Galanti said.

The company has also long recognized that wages are only a piece of the compensation package that will entice workers to stay for long periods.

“And that’s on top of a very rich healthcare plan, where the employee only pays around 11% or 12% of it, I believe, and on top of — a little less than that. And on top of that, we, irrespective of what an employee contributes to his or her 401(k), we contribute anywhere from 3% to 9% based on years of service,” he added.

Galanti thinks its industry-high compensation helps the company hold onto workers.

“So, you’ve got a 20-year cashier making on a full-time basis in the mid-60s, with another $4,000 or $5,000 being contributed to his or her 401(k) plan, with a very rich healthcare plan. So, we stand apart, in our view, compared to anybody. Our pressure comes from ourselves,” he said.

How Walmart, Target, and Kroger compare

Walmart shared a statement on its hourly wages on its website:

“We are continuously investing in higher wages, and the average hourly wage for our U.S. frontline associates is more than $17.50. Over the past few years, we’ve introduced higher-paying roles in our stores, raised wages for more than 1 million frontline associates, and invested in clearer career pathways that give associates more room to increase their pay as they build a career here,” the company shared. 

Target has a starting hourly wage that varies from $15 to $24 depending upon the job and market. The chain does not publicly share what an average hourly worker earns.

Kroger pays its hourly employees an average of $16 per hour, according to statements from the company. 

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