Supermarkets in transition
Grocery chains struggle to find their own niche amid stiff competition from big-box stores and upscale food outlets
"This publicly held supermarket model is going to get squeezed out," said David Livingston, managing partner of DJL Research, a consulting firm based in Pewaukee, Wis. "Probably over the next 10 years, you're going to see some big changes, a lot more exits out of the market."
Mark Millman, president of Millan Search Group, a national retail consulting firm based in Owings Mills, agreed.
"It will be very competitive over the next couple of years," he said. "They've got some real challenges ahead of them."
The underlying issue for supermarket chains -- union or not -- is this, observers say: relevance in an increasing competitive market.
"Supermarkets are kind of stuck in the middle," between big-box discounters like Wal-Mart Stores Inc. on the one end and upscale, premium-quality outlets like Whole Foods Market Inc. and Trader Joe's Corp. on the other, said Mark Hamstra, retail editor at Supermarket News, a New York-based industry publication.
Grocery chains like Giant Food LLC and Safeway Stores Inc. nationwide are "going through a transition phase," Hamstra added.
"All the supermarket chains are being very aggressive at taking costs out of their systems so they can compete on price, but at the same time they're also doing things to enhance their service and improve their products," he said. "It's still a work in progress."
Last week, about 29,000 members of Locals 400 and 27 of the United Food and Commercial Workers Union ratified four-year contracts with Giant and Safeway stores in the Baltimore-Washington region. The unanimous vote averted a strike, unlike in California, which lasted five months.
Under the agreement, current employees at the 340 stores will see their annual health-care deductibles double to $200, and co-payments on prescription drugs also will rise. Hourly salaries will rise $1.25 during the contract.
They also will continue earning time-and-a-half or double-time for Sunday duty.
New employees will have higher insurance co-payments and must wait longer before they are eligible for the same health benefits as existing workers. These workers also will start at $1 extra an hour on Sundays, eventually working up to time-and-a-half pay after five years.
The base pay for a Safeway worker under the old contract was $13.10 an hour, according to a Safeway spokesman.
The contract is "far better than most plans in retail," said Greg Denier, a union spokesman. "The issue of health care will continue to be a difficult issue in bargaining, and, more broadly, a difficult issue for workers."
Pleasing Wall Street
Besides the Wal-Mart influence, many grocers must answer to Wall Street. That also increases the pressure to cut costs and grow profits.
Giant Food, with headquarters in Landover, was acquired in 1998 by Royal Ahold N.V., the Dutch grocer. Ahold still is reeling from a billion-dollar accounting scandal at its Columbia-based U.S. Foodservice Inc. subsidiary. Ahold also is merging Giant's executive operations with those of another U.S. subsidiary, Stop & Shop Cos. of Quincy, Mass.
Safeway, based in Pleasanton, Calif. has been traded publicly since 1928. The company is experiencing its own "self-inflicted problems," including troubles at its Dominick's division, wrote Merrill Lynch analyst Mark Husson in a February report.