If you want to see how painful the grocery business has become in post-pandemic Seattle, consider the dueling, grueling economic realities of PCC Community Markets and its unionized workforce. 

Union members say PCC’s pay scale is so low that many of the co-op’s roughly 1,600 hourly workers are effectively outcasts in their own stores.

“I can’t afford to shop at PCC,” says Maybe Dean, 36, who has worked at the Columbia City location since 2016, most recently as a grocery helper clerk, but makes just 11 cents over Seattle’s current minimum wage of $18.69.

But PCC also claims economic hardship, which it blames on slower-than-expected sales, persistent inflation and, especially, higher labor costs across its 16 locations. 

Co-op officials say the $4-an-hour pandemic hazard pay mandated by Seattle, Edmonds and Burien was one of the main reasons the co-op, after decades of profitability, barely broke even in 2021 and ended 2022 with a loss of $250,000, which would have been worse — $6.9 million — were it not for the sale of the former location of its Kirkland store.

Hazard pay has since ended, but PCC says the losses would continue under wage demands by United Food & Commercial Workers Local 3000 as part of a new three-year contract.

According to a PCC statement Wednesday, if UFCW’s latest proposal were implemented, “the cash requirements and operating loss … would make the co-op’s existence unviable.”

In truth, PCC’s financial problems are more complicated.

While most grocery chains have struggled in the post-pandemic era, some of PCC’s financial woes appear to be at least partly self-inflicted.

The decision to open a location in downtown Seattle, in January 2022, despite concerns about a lack of office workers and security, continues to hurt the bottom line. 

Roughly a third of PCC’s loss in 2022 stemmed from anemic sales at the store, located in the Rainier Tower at Fourth Avenue and Union Street, CEO Krishnan Srinivasan acknowledged last May. So far this year, the location is still “significantly underperforming relative to our original expectations,” PCC says. 

And many union members are still unhappy with PCC’s decision, nearly a decade ago, to move its headquarters from the University District to upscale offices on Elliott Avenue, with more than three times the space and views of Elliott Bay.

UFCW members say both those moves point to a broader problem: The 70-year-old co-op tried to copy corporate rivals with an aggressive growth strategy that has proven incredibly costly.

Since 2015, the co-op has opened seven new locations — in Columbia City, Bothell, Burien, Ballard, Bellevue, the Central District and downtown Seattle — and plans another, its 17th, in Madison Valley.

PCC’s expanding footprint has helped nearly double the co-op’s membership, to 110,000. But union members say the strategy has fallen short in other key respects. 

While annual sales are up 67% since 2015, to $422 million, operating expenses are up 90%, to $174 million, according to the co-op’s published annual reports. 

And while a lot of that increase is due to labor expense, up 72% since 2015, a large share comes from so-called general, administrative and occupancy costs, which grew 91%. 

Of special concern, union officials say, are occupancy costs, which include leases and store-opening expenses. Since 2018, which is the first year PCC breaks out occupancy costs in its public data, those costs have grown about twice as fast as labor costs. The downtown headquarters alone reportedly cost more than $700,000 a year, according to data from CompStak, a commercial real estate data platform. (PCC declined to comment on the lease figure.)

John Marshall, a financial analyst with UFCW 3000, has calculated that the increase in occupancy costs alone “represents about 70% of their entire deterioration in profitability” in 2022.

As a result, union leaders don’t think PCC can use its financial situation as a justification for lower wages. “Our workers shouldn’t pay the price for some missteps by [PCC’s] front office,” says Joe Solorio, a UFCW 3000 grocery retail director.

“Meet the demand”

To some degree, PCC is a victim of incredibly bad timing.

The co-op’s big growth strategy was launched nearly a decade ago by then-CEO Cate Hardy, a former Starbucks executive who saw dramatic expansion as necessary “to meet the demand of people asking to come to our community,” as she told the Puget Sound Business Journal.

That strategy paid off initially. Between 2013 and 2016, PCC’s profits climbed 77% to $7.6 million. 

But PCC wasn’t alone in capitalizing on a booming Seattle’s rising appetite for higher-quality, higher-priced products that rivals like Whole Foods and Sprouts were selling as they angled for a share of the natural/organic foods market. Niche operators like Metropolitan Market and Ken’s Market offered many of the same kind of specialty foods that PCC had begun to carry.

Even mainstream groceries like Fred Meyer and Safeway were offering organic products at bargain prices, which was “gradually taking business away from the natural organic specialists” such as PCC, says David Rogers, a retail industry consultant. 

Meanwhile, the same rising incomes that buoyed PCC’s sales also made it steadily harder for its employees to live in the city or continue to work for PCC or other retailers.

COVID-19 made everything much worse. Remote work emptied downtown Seattle of the office workers PCC’s new store, announced in 2018, was counting on. Inflation led many consumers to economize, which hurt sales of the higher-quality, premium-priced deli items, produce and meats that PCC had become known for. 

“What we started seeing was people taking their food dollar to more than one [grocery],” Srinivasan said in May. “Maybe there’s this perception that they can get a cheaper but still organic chicken breast at Fred Meyer than at PCC.”

Rogers says PCC still has a huge potential for growth among younger shoppers, who are “more concerned about the environment and more concerned about … people who aren’t as fortunate as them.”

That’s echoed by Srinivasan, who thinks PCC can do a better job highlighting its longstanding commitment to sustainably produced food, inclusiveness and community engagement through such initiatives as support for food banks.

Yet that very aspiration leaves the co-op open to criticism over its lagging pay scale, which workers say contributes to high turnover.

PCC wants “to be viewed as caring and wholesome,” says Dean, the Columbia City employee. But with the low wages, Dean adds, “I don’t feel like we are part of the community that they supposedly serve.”

Cutting back

PCC seems determined to fix that. Srinivasan says a wage deal that “reflects our values as a co-op” is a top priority, and that finalizing a new labor contract, while it won’t fix all of PCC’s problems, “is absolutely the most important first step.”

But it’s also a complicated one.

Last week, the UFCW 3000 urged members to reject a PCC offer that was well below the $25-an-hour-and-up scale that many employees regard as essential. That includes a vocal group of UFCW members affiliated with Seattle City Councilmember Kshama Sawant’s organization, Workers Strike Back, who have been holding rallies at PCC locations and putting pressure on both PCC and UFCW. Members will vote in early November, and a “no” will send the two sides back to the bargaining table.

Some still see a $25 starting hourly wage at PCC as possible. But they also think it’s contingent on PCC shifting its high-growth business model in a way that can boost sales while also cutting costs.

Some of that shift is already underway. The co-op is pushing member promotions and in-store discounts, both to drive sales and, some employees say, to soften PCC’s pricey image. It’s also expanding e-commerce and this year partnered with Doordash in addition to InstaCart.

As of May, PCC was still operating at a loss, but was up 3% on sales versus 2022, and was debt-free, according to data shared at an employee town hall in June.

PCC is also looking for ways to trim costs. A café concept piloted in the Ballard location won’t be expanded due to high labor costs, Srinivasan told Grocery Dive, a trade publication, earlier this year. PCC also notes that its downtown headquarters lease has nearly expired and that management is “evaluating alternatives that more accurately reflect our co-op’s values and needs.”

Some employees think PCC should be cutting back much more substantively, for example, by delaying or even canceling the planned Madison Valley store. Others want to slash administrative costs, starting with Srinivasan’s $500,000 base salary, which PCC disclosed in its 2022 report. 

PCC is being careful in what it promises. In a statement, the co-op said PCC’s developer has already broken ground on the Madison Valley project and that the co-op “is contractually obligated to comply with the terms of our lease.”

As for Srinivasan’s salary, it’s less than what CEOs at similarly sized companies make — and lower than the salaries paid to his “most recent predecessors,” according the latest annual report, which also notes that Srinivasan declined a bonus for 2022.

Some rank and file think that’s not enough. Marlin Hathaway, a union shop steward and a beer, wine and spirits buyer for the PCC on Northeast 71st Street, near Green Lake, would like to see Srinivasan cut to around $100,000. Hathaway thinks a half-million-dollar salary for any CEO is a bad look when so many rank-and-file employees are barely making it — all the more so at an organization that prides itself on ethical products and community roots. 

“That’s just not the way that PCC should be running,” he says. “It’s a co-op.”

Paul Roberts: proberts@seattletimes.com; on Twitter: @Pauledroberts.