High stakes for supermarkets, unions

Special to SunSpot

As the supermarket showdown in California wears on,labor unions across the country are at a crossroads.

Negotiations to end a months-old strike against two grocery store chains owned by Safeway Inc., Vons and Pavilion are at an impasse. Meanwhile,contracts for workers in other regions -- includingBaltimore -- are set to expire early next year.

If, in the end, grocery store clerks prevail on theretailers to continueto pay for health-insurance coverage, unionnegotiators in other areas will have an advantage.

But if Safeway -- which is based in Pleasanton, Calif., andhas about 6,000 workers in Maryland -- is able to successfullyshift most of the costs to workers, "it's going to belike raw meat for the chains here," said Bill Barry,director of labor studies at Baltimore CountyCommunity College.

At the center of the dispute with the United Food andCommercial Workers Union is the growing influenceof Wal-Mart Stores Inc., the world's largest retailer.Based in Bentonville, Ark., Wal-Mart issqueezing retailers' profit margins on productsrangingfrom toys to groceries.

The company, the parent of the Sam's Club wholesalegrocery chain, plans to open food stores in Californianext year.

And as supermarkets prepare to battle Wal-Mart, theyare struggling to find ways to keep costs low withoutcutting payrolls. Self-checkout machines and weeklyspecials, however, can only go so far.

More broadly, the California labor struggle isconsidered a microcosm of the current state of the nation's economy and for that reason it is beingwatched by both union leaders and industry officials.

The latest round of talks with a federal mediatorended in impasse on Dec. 19. Workers have been onstrike at the Safeway-owned stores since Oct. 11. In addition, Albertson's Inc., a grocery chain based in Boise, Idaho, and Ralphs, owned by Cincinnati-based Kroger Co., bargain with Safeway. They locked out their union workers the next day.

Kroger does not have stores in Maryland. Acme Markets Inc., an Albertson's subsidiary, has stores in Fallston, Chestertown, Stevensville, Elkton and Havre de Grace. The UFCW has 1.4 million membersnationwide, including about 50,000 locally.

The strike "has profound implications for consumersthat go beyond just having your supermarket picketedon a Saturday afternoon," said John Brouder, managingconsultant with Boston Benefit Partners, an employeebenefit consulting firm that works withemployers andlabor unions.

Baltimore area eyed

Locally, striking California workers have picketedsomeSafeway supermarkets in the Washington area tobring national attention to their cause. Contracts inthe Baltimore-Washington region expire in March, andunion leaders have told members to expect a strike ifthe California dispute is not resolved and managementhere wants workers to make similar concessions.

The Washington pickets have received a good responsesofar, and there are plans to expand the campaign toBaltimore soon, said Jill Cashen, a local UFCWspokeswoman. The union also represents employees atGiant Food Inc. and Super Fresh here.

"Every contract is different," said Craig Muckle,public affairs manager for Safeway's Eastern region."I don't know what the issues are on the table, andwhat they might end up being here. It's difficult tospeculate on what's going to occur in March."

While some stores are being picketed, "customers arestill coming in," Muckle said.

At Giant, the Landover-based subsidiary of Dutchgrocer Royal Ahold N.V., spokesman Barry Scher saidofficials are monitoring developments in California.

"As a matter ofcourse, we always follow labor contract discussionsinvolving the food industry, and other industries,too," he said. "It provides us with an opportunity tofollow issues and how they are resolved."

The Teamsters union addedits support to strike last month, stopping work at 10distributioncenters in Central and Southern California. The pressure on the companies isstepped up, said Brouder of Boston Benefit Partners.

"The stores have been facing an economicloss, but they still have food on the shelves,"he said. "If it getsto the point where there'sno food on the shelves, then I think the real questionis: 'Are they going to settle? Is there ground forcompromise?'

"The next two weeks are going to be telling," Brouderspeculated. "It's also going to tell what's going tohappenin the Baltimore-Washington area.

"Both sides claim to be hunkering down for a long jobaction," he said. "If the California job actionsare still ongoing, as other affiliates of thecompanies have contracts come up they're probablygoing to have to take the same strong stand.

"Both parties will," Brouder added. "It's conceivableyou could seethis sort of job action go from coast to coast."

'Wal-Mart is the killer'

The steady advance of Wal-Mart, with its cheap pricesand low wage-and-benefit packages, has so far not hada big effect on the Baltimore region, where shoppershave a number of alternatives.

But with its move in recentyears into groceries, Wal-Mart has become a directcompetitor to Safeway, Giant and the other chains,putting pressure on those companies to cut costs andoffer lower prices.

"The same issues that we're seeing in California we'regoing to see here," said BCCC's Barry. "It's theWal-Martingof America. … Wal-Mart is the killer."

Health-insurance costs are at the center of theCalifornia dispute. In the early 1990s, thesupermarket operators changed the way they financedhealth benefits – contributing to a trust fund toensure that benefits would be available to workers.

But the change also meant that the trust could beoperated with a smaller cash reserve, and thesupermarket chains withdrew hundreds of millions ofdollars from that reserve fund.

Meanwhile, health-insurance costs have skyrocketed inrecent years, and the supermarket chains have proposeddoing away with the trust fund altogether. This wouldmake workers responsible for paying for any increasedbenefit costs.

"Over the last four years, we'veseen the return of very significant health-careinflation," Brouder said. Health-care costs generallyhave grownat three to four times the inflation rate, and "lotsof employers have been making people pay more forinsurance," he said.

Cashen, of the UFCW, sees the issue differently.

"Safeway is pushing an agenda in California and acrossthe country to eliminate health benefits for workersat its stores," she said. "ChiefExecutive Officer Steve Burd has publicly proclaimedthis is a priority for them."

But Cashen pointed to a recently reachedsettlement between Kroger and workers in West Virginia, who also had been striking over health-carebenefits. They are protected in the final agreement,reached Dec. 9 and approved two days later.

"Hopefully, [the settlement] sendsa message that when an employer is looking to sit downand negotiate and work out an agreement, you can bringan end to disruption."

Wake-up call for unions

BCCC's Barry says unions should view the Californiastandoff as a wake-up call to increase their ranks.

"For a long time, Wal-Mart was not a competitor forthe unionized grocery stores," he said. As a result,"unions have been kind of slow about getting out toorganize."

While the Baltimore area has greater union penetrationthan much of the country, "that balance has beentipped," Barry said.

At Giant Food, its structure includes "tiers"of employee benefits, with newer workers receiving lower wages and fewer benefits than those with moreseniority, Barry said.

Ahold, Giant's parent, could face pressure to cutcosts at the grocery chain as it recoups from a $1.1 billion accounting scandal at its Columbia-based USFoodservice Inc. subsidiary, Barry said.

Meanwhile, Scher, the Giant spokesman, said theadvance of Wal-Mart and other "big-box" retailers inthe grocery business is having some impact.

"These new, non-union, lower-cost retailers are tryingto take ourcustomers away – not with better service orbetter-products – but with lower operating costs and aconstant emphasis on advertised pricing specials," hesaid. "These tactics ultimately hurt us and otherestablished local food stores by challenging ourability to grow our business and continually providegood jobs."

Cost issues loom

Safeway has declined to estimate the strike'spotential cost.

Mark Hugh Sam, an equity analyst atMorningstar Inc. in Chicago, said the company couldlose about $40 million per month. That amount, headded, is "not a lot for a company like Safeway," with$800 million in free cash flow.

The health-care issue, however, is "huge," he added."What exacerbates Safeway's problems inCalifornia in particular and throughout thesupermarket industry is the competitive pressuresplaced by the continued expansion of Wal-Mart."

Giant expects health-care costs will rise 24 percentnext year," Scher said. And even as costs rise, Giant,like other supermarket chains, is under relentlesspressure to cut prices. The retailer's efforts includestepped-up promotional activities in recent months toattract and keep customers, he said.

Mustering support

If local supermarket employees end up on strike,publicsupport could be tough to muster. Many people at theSafeway stores being picketed in the D.C. area seemedunaware of the California dispute.

But store managers aren't taking any chances. OneSafeway store in Bowie in Prince George's County thatrecently was picketed had a sign immediately insidethe store saying, "Safeway employees here are not onstrike."

"I don't think they're going to get that muchsympathy here," said David C. Martin, professor ofhuman resource management at the Kogod School ofBusiness at American University in Washington.Shoppers in theBaltimore-Washington area can shop at such non-unionchains as Sam's Club, Food Lion or Costco Wholesale Corp.

Yet Jackie Mills, a union worker from California intown just before Christmas for the Washington effort,said localshoppers' reaction to the strikers' presence at thestores has been "really, really good.

"They're reallysurprised," she said. "They heard about this inCalifornia and the other states. They didn't realizethey were going to be affected by it."

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