As Country's Jobless Rate Approaches 25%, Mercadona Keeps Hiring and Boosting Sales Using a German TemplateBy D. BALL and I. BRAT
MADRID—Spain's unemployment rate is near 25%, retail sales have declined for 25 straight months and the country is closer than ever to a bailout from the European Central Bank. Yet supermarket chain Mercadona S.A. hired 6,500 employees last year, more than any Spanish company, and its sales increased 8% and remain on the rise.
The secret to its success: a German-style recipe for higher productivity that includes flexible working conditions, extensive employee training and performance-linked bonuses - a rare mix in Spain. As a result, the family-controlled retailer is fast becoming a model in a country urgently trying to rewrite the rules for its economy.
A decade ago, corporate Germany reached a compromise with employees who agreed to work more hours and for wages growing more slowly than productivity. In return, workers were awarded better job security, even in difficult times. Labour costs fell 1.2%, while productivity rose 9% between 1999 and 2006, according to Deutsche Bank. But in Spain, easy money silenced companies into accepting rigid labour contracts. Corporate earnings were artificially boosted by inflation, relieving the pressure to keep costs under control. The result: Spanish labour costs rose 23% over the same period.
"The whole country went over the top - including trade unions, businessmen, bankers and politicians," Juan Roig, Mercadona's billionaire owner, said at a company presentation this year.
Mercadona has become a point of reference in Spain, though it will take a while for anyone to copy it, says Luis Simoes, who runs the Spanish office of consulting firm Kantor Worldpanel. "Mercadona has invested in its employees for years and years." The chain had 1,356 stores and 70,000 permanent employees at the end of last year. Profit increased 19% to €474 million on €17.83 billion in revenue. The closely held company doesn’t release quarterly figures.
Mr. Roig's drive to transform Mercadona began in the early 1990s. Big international chains such as Carrefour S.A. started raising competitive pressure on Mercadona, which started as a butcher shop in eastern Spain in the 1970s. Mr. Roig decided that Mercadona needed to offer consistently low prices to compete. "We had to find a model that would differentiate us from our competitors," he says by email. Among his models was Wal-Mart Stores Inc.
Mr. Roig visited his stores and noticed poorly stocked shelves and managers checking employee bags for stolen items at the end of shifts. He decided that temporary contracts - which then covered about 60% of Mercadona's workers - hurt morale. He abolished the practice. Today, about 90% of Mercadona workers have permanent, full-time contracts. At other big Spanish retailers, 60% of employees work part-time, according to the country's General Workers' Union.
Mercadona invests about €6,500 and four weeks of training in each new employee - largely unheard of in Spain. Employees receive an additional 20 hours of training a year. The Spanish government recently followed Mercadona's example by granting all workers in the country a right to 20 hours of training a year.
Mercadona also pays above-average wages and never has conducted mass layoffs. If the company hits certain profit targets, nearly all employees receive a bonus of up to two months' salary. In exchange, Mercadona requires dedication from its employees. They are sometimes called on to help with other jobs around a store, giving the company freedom to adjust to changes in shopper traffic. Workers are trained to keep a close eye on customer needs. When a shopper spends a long time before a fresh-food shelf, for example, an employee can offer help in around seven seconds, the company says.
Although Mercadona unions have expressed support for the company, the approach occasionally causes tension. Workers with minor medical conditions face pressure to consult company physicians instead of independent doctors who might authorize longer sick leave, some union officials say. A company spokesman says workers are free to visit any doctor and that under federal law, sick-leave can only be approved by state health-service doctors.
Adapted from online.wsj.com 23 October 2012