Description: Grocery chains have been among the winners during the pandemic. With more people working at home, and restaurants either operating under restrictions or not operating at all, grocers are growing their sales. Loblaws has decided to bump up its dividends to shareholders given that profits were up in the most recent quarter. Left on the sidelines are the Loblaw in-store employees who have lost their $2/hour bonus from the early “hero” days of Covid-19. Loblaws, along with two other major grocery chains, Empire and Metro, all cut these bonuses for front-line staff on the same day.
Date: November 12, 2020
1) What is your reaction to this story?
2) Why do you think Loblaws would make this move given the possible reputational risks?
3) Chapter 11 in Wiley’s Financial Accounting: Tools for Business Decision-Making discusses how to evaluate dividend performance. What ratios might the shareholders of Loblaws be using to evaluate this latest dividend increase?
Montana Branch, Sophie Austin, Drew Besco, Shashank Avindan
1) We think since grocers are growing in sales that the $2/hour bonus should stay in place because the employees are still working and putting themselves out there on the front-line during Covid-19. Once the workers no longer receive their bonus, we think they will be less inclined to continue working at Loblaws and look for employment elsewhere.
2) We think Loblaws is making this move to reduce the amount owed in salaries and increase overall net income, which increases dividends. As Thomas from Loblaw’s said he “noted the company has consistently raised dividends annually over the past nine years.” and “Increases were paused earlier in the year due to very large investments in colleague and customer safety. The dividend increase occurred in spite of continued major investments in safety and security,””
3) Shareholder’s at Loblaws would be using the payout ratio which calculates what portion of net income is paid in dividends. Next the dividend yield calculates what portion of the share price Loblaws is paying as dividends. Lastly, and widely used is the return on common shareholders’ equity calculating what Loblaws return has been compared to common shareholders.
Lucy Poole, Hunter Morley, Nana Kwabena Asare Nti
The extra 2 dollars an hour for grocery store employees during the pandemic was a great thing to do. It makes sense, since grocery store sales were increasing dramatically because they were only one of the few essential services that could stay open. The management team did a great thing and recognized the risk that all of the employees were taking by working in a public place during pandemic. I truly connect to this story because I work at super store in the summer I was very grateful to be receiving the hero pay for working hard and making sure everyone was social distancing and keeping safe. Many businesses have had to adapt to the new world we are living in to protect employees and customers.
During the early “hero” days of the Covid- 19 pandemic, many employees quit their jobs to stay at home and be safe. I think Loblaws was struggling to find new employees and keep the current ones happy, so they decided to give them the bonus to keep them motivated stay in the job. Also, during that time, the competition for workers was growing, as groceries were in high demand. So as things have started to look normal again, I think Loblaws realize that as it is safe to cut these bonuses as other large grocery chains are doing because there is no longer as much competition for workers.
Two common ratios used to evaluate dividend performance are the payout ratio and the dividend yield. The payout ratio is calculated by dividing the amount of cash dividends declared by net income, and the dividend yield is calculated by dividing the dividends declared per share by the market price per share. By increasing their dividends, Loblaws is consequently increasing the values of these two ratios, which will be received positively by shareholders (but not so much by employees!).
Robbie Loughery, Siyun Chae, Nicolas Briere, Jonathan Desrochers
1) Our initial reaction was more on the negative side as it seems as though they by taking away the hero pay they are reinvesting the money that was before going to those who were ultimately putting their health on the line to keep things in operation to now putting that money into the shareholders pockets though dividends that will in their eyes help the company more as a whole. Given the company’s six billion dollars of investment in infrastructure to build on the e-commerce side of the business, arguably this investment in the online infrastructure will turn a good chunk of shoppers to shop in this fashion therefore reducing the amount of shoppers in physical retail locations in turn reducing the rick for Loblaws employees.
2) They are following in the footsteps of their competition and for that reason we do not think that it is that big of a repetitional risk. This move was done in order to remain competitive and these new changes bring more incentives to shareholders to stick around or possibly buy in more. Given their in position in the market they are able to make decisions like this without huge repercussions, given the lack of alternatives for consumers.
3) The shareholders of Loblaws would turn to both the Dividend Yield ratio as well as the Payout ratio in order to evaluate this latest dividend increase. The payout ratio can determine what portion of the net income Loblaws pays out as dividends. The dividend yield ratio will tell investors what percentage of the share price that Loblaws is paying as dividends.
David Elsinga, Nicolas Gauvin, Ashley French
1) Our reaction to this story is very negative, for us, it is disappointing to hear that big chains are taking away bonus pay from those who are ultimately risking their health every time they go to work, it’s especially disappointing that they are benefitting from the pandemic with an increase in sales and are deciding not to redistribute the money to those are really need it.
2) We think that Loblaws did this to save money on salaries, however, they may not think it is that damaging to their reputation because at least they had “hero” pay at the beginning of covid when other businesses didn’t.
3) It is very likely that the shareholders are using the Payout ratio & the dividend yield ratio.
Chris Heo, Ben Hopper, Will Fenton
1) During the Covid-19 pandemic the extra $2 per hour was very helpful for employees and was a great thing for Loblaws to do. It makes sense because it is beneficial in various ways. The employees would really benefit from the extra pay during these tough times and because of the pandemic where most stores are closed, Loblaws is still very much in business due to owning grocery stores and food is a necessity so while people have nothing to do and nowhere to spend money, they are taking the extra money and buying more food to take all this free time to improve their cooking. Once these workers cannot receive this benefit anymore, they will likely look for employment elsewhere because it would not be as worth the pay anymore compared to other possible job opportunities.
2) We believed that it is because the number of employees is back to normal. At the start of COVID-19, they lacked employees and wanted the current employees to work more and be happy. So, they added the $2/hour bonus. However, now that we are getting used to it and employees are stable, they got rid of it as other grocery chains are doing.
3) Loblaws would use two main ratios: payout ratio and dividend yield. The payout ratio represents the percentage of net income that is allocated towards cash dividends, while the dividend yield measures the rate of return of cash dividends for investors.