An increase in minimum wage leaves no business or industry untouched. From retailers to wholesale vendors, higher labor costs reverberate throughout the supply chain. The impact of a minimum wage increase varies from business to business, but all will be affected in some way. The impact is more significant for those companies who have a large percentage of employees who earn minimum wage.
In Ontario, the minimum wage is set to increase by 30 percent in 18 months.The economic impact will be unprecedented, and all businesses will have to adapt quickly to keep their numbers in the black. Very few companies can afford to absorb such a substantial and fast increase in labor costs. To reduce costs businesses will have to look at their current systems to increase efficiency and optimize their operational process. It's no coincidence that large retailers and fast food restaurant chains have been moving towards automated ordering and check-out systems. Those businesses have done the math and realized that efficiency through technology is how they are going to stay competitive. According to the C.D.Howe Institute, the impact of automation on Canada’s labor market in 2017 will be extensive.
“Less than a quarter of employees are vulnerable to automation, accounting for 4.9 million Canadian jobs.”
The jobs that are considered vulnerable to automation typically require little technical skill. Automation technology isn’t the answer for all businesses, but adopting new technology to improve operational efficiency could be.
Impact to the Horticultural Industry
The new minimum wage increase will make a significant impact in the horticultural industry in Ontario, since the seasonal labor force typically earns minimum wage. Ontario is not alone. Many horticultural states in America, including California and Oregon, are likely to face a similar wage increase. To absorb the increased labor cost, horticultural businesses will have to look to reduce redundancies within their fixed expenses.
“In Horticulture, the cost of the minimum wage increase is estimated to be $225 million, and the associated transition programming cost valued at about $617 million.”
Source: AGRI Food report for Ontario 2018-2019
The increase in labor cost will significantly decrease profitability, specifically for operations that rely heavily on manual labor systems. Growers will find it easier to acquire seasonal workers because of the sizable increase in minimum wage. However, their profits will likely take a more significant hit than those in the highly-mechanized agriculture industry. The increased labor cost will impact growers ability to compete in the domestic and global markets. Higher labor costs will require the horticultural industry to evolve to maintain its place in the globalized market.
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How Wholesale Nurseries and Greenhouses can Respond
Now that minimum wage has increased, it’s time to review the fixed expenses of operating your business. You can’t cut wages, but you can cut out redundant internal systems. Companies often turn to reducing variable expenditures around purchasing. However, most businesses are already buying as cheaply as possible. Rather than saving pennies on the dollar for the short term, evaluating fixed costs (like how labor is allocated) will be more efficient. For all wholesale nurseries and greenhouse growers, efficiency should be the goal in all aspects of your operation. Production costs can be lowered in the long-term by investing in more mechanized or automated systems. Investment in production technology will offset labor costs and produce more consistent products, reducing waste and producing higher-quality plants.
Technology adoption in the administration of your business will also offset labor costs. Investing in software will reduce the amount of labor and manual administration that takes place within the business. Monitoring your inventory in the long term will assist with forecasting and reduce the amount of over-production that takes place annually. Furthermore, online order management technology that is integrated with internal systems eliminates the need for data entry and weekly availability updates. A streamlined inventory and ordering system will reduce the number of costly ordering and shipping errors, further reducing waste.
All businesses need to respond swiftly to the 30 percent increase in wages. The success of how businesses respond will be directly reflected in their bottom line. Every business, no matter the size, can evolve their operations to be more efficient and cost-effective through technology.