High stakes for supermarkets, unions

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 -- including Baltimore -- are set to expire early next year.

If, in the end, grocery store clerks prevail on the retailers to continue to pay for health-insurance coverage, union negotiators in other areas will have an advantage.

But if Safeway -- which is based in Pleasanton, Calif., and has about 6,000 workers in Maryland -- is able to successfully shift most of the costs to workers, "it's going to be like raw meat for the chains here," said Bill Barry, director of labor studies at Baltimore County Community College.

At the center of the dispute with the United Food and Commercial Workers Union is the growing influence of Wal-Mart Stores Inc., the world's largest retailer. Based in Bentonville, Ark., Wal-Mart is squeezing retailers' profit margins on products ranging from toys to groceries.

The company, the parent of the Sam's Club wholesale grocery chain, plans to open food stores in California next year.

And as supermarkets prepare to battle Wal-Mart, they are struggling to find ways to keep costs low without cutting payrolls. Self-checkout machines and weekly specials, however, can only go so far.

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

The latest round of talks with a federal mediator ended in impasse on Dec. 19. Workers have been on strike 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 members nationwide, including about 50,000 locally.

The strike "has profound implications for consumers that go beyond just having your supermarket picketed on a Saturday afternoon," said John Brouder, managing consultant with Boston Benefit Partners, an employee benefit consulting firm that works with employers and labor unions.

Baltimore area eyed

Locally, striking California workers have picketed some Safeway supermarkets in the Washington area to bring national attention to their cause. Contracts in the Baltimore-Washington region expire in March, and union leaders have told members to expect a strike if the California dispute is not resolved and management here wants workers to make similar concessions.

The Washington pickets have received a good response so far, and there are plans to expand the campaign to Baltimore soon, said Jill Cashen, a local UFCW spokeswoman. The union also represents employees at Giant 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, and what they might end up being here. It's difficult to speculate on what's going to occur in March."

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

At Giant, the Landover-based subsidiary of Dutch grocer Royal Ahold N.V., spokesman Barry Scher said officials are monitoring developments in California.

"As a matter of course, we always follow labor contract discussions involving the food industry, and other industries, too," he said. "It provides us with an opportunity to follow issues and how they are resolved."

The Teamsters union added its support to strike last month, stopping work at 10 distribution centers in Central and Southern California. The pressure on the companies is stepped up, said Brouder of Boston Benefit Partners.

"The stores have been facing an economic loss, but they still have food on the shelves," he said. "If it gets to the point where there's no food on the shelves, then I think the real question is: 'Are they going to settle? Is there ground for compromise?'

"The next two weeks are going to be telling," Brouder speculated. "It's also going to tell what's going to happen in the Baltimore-Washington area.

"Both sides claim to be hunkering down for a long job action," he said. "If the California job actions are still ongoing, as other affiliates of the companies have contracts come up they're probably going to have to take the same strong stand.

"Both parties will," Brouder added. "It's conceivable you could see this sort of job action go from coast to coast."

'Wal-Mart is the killer'

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

But with its move in recent years into groceries, Wal-Mart has become a direct competitor to Safeway, Giant and the other chains, putting pressure on those companies to cut costs and offer lower prices.

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

Health-insurance costs are at the center of the California dispute. In the early 1990s, the supermarket operators changed the way they financed health benefits – contributing to a trust fund to ensure that benefits would be available to workers.

But the change also meant that the trust could be operated with a smaller cash reserve, and the supermarket chains withdrew hundreds of millions of dollars from that reserve fund.

Meanwhile, health-insurance costs have skyrocketed in recent years, and the supermarket chains have proposed doing away with the trust fund altogether. This would make workers responsible for paying for any increased benefit costs.

"Over the last four years, we've seen the return of very significant health-care inflation," Brouder said. Health-care costs generally have grown at three to four times the inflation rate, and "lots of employers have been making people pay more for insurance," he said.

Cashen, of the UFCW, sees the issue differently.

"Safeway is pushing an agenda in California and across the country to eliminate health benefits for workers at its stores," she said. "Chief Executive Officer Steve Burd has publicly proclaimed this is a priority for them."

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

"Hopefully, [the settlement] sends a message that when an employer is looking to sit down and negotiate and work out an agreement, you can bring an end to disruption."

Wake-up call for unions

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

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

While the Baltimore area has greater union penetration than much of the country, "that balance has been tipped," Barry said.

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

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

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

"These new, non-union, lower-cost retailers are trying to take our customers away – not with better service or better-products – but with lower operating costs and a constant emphasis on advertised pricing specials," he said. "These tactics ultimately hurt us and other established local food stores by challenging our ability to grow our business and continually provide good jobs."

Cost issues loom

Safeway has declined to estimate the strike's potential cost.

Mark Hugh Sam, an equity analyst at Morningstar Inc. in Chicago, said the company could lose about $40 million per month. That amount, he added, 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 in California in particular and throughout the supermarket industry is the competitive pressures placed by the continued expansion of Wal-Mart."

Giant expects health-care costs will rise 24 percent next year," Scher said. And even as costs rise, Giant, like other supermarket chains, is under relentless pressure to cut prices. The retailer's efforts include stepped-up promotional activities in recent months to attract and keep customers, he said.

Mustering support

If local supermarket employees end up on strike, public support could be tough to muster. Many people at the Safeway stores being picketed in the D.C. area seemed unaware of the California dispute.

But store managers aren't taking any chances. One Safeway store in Bowie in Prince George's County that recently was picketed had a sign immediately inside the store saying, "Safeway employees here are not on strike."

"I don't think they're going to get that much sympathy here," said David C. Martin, professor of human resource management at the Kogod School of Business at American University in Washington. Shoppers in the Baltimore-Washington area can shop at such non-union chains as Sam's Club, Food Lion or Costco Wholesale Corp.

Yet Jackie Mills, a union worker from California in town just before Christmas for the Washington effort, said local shoppers' reaction to the strikers' presence at the stores has been "really, really good.

"They're really surprised," she said. "They heard about this in California and the other states. They didn't realize they were going to be affected by it."