US Foods to close Severn distribution center

US Foods to close Severn distribution center

US Foods said Wednesday that it would close a distribution center in Anne Arundel County in June, eliminating the last local footprint of a once-mighty Maryland company, after failing to reach an agreement on concessions with unionized workers at the facility.

The decision to shift operations to facilities in Virginia and Pennsylvania brings home a long-running fight between US Foods and its unions across the country. It also represents a major loss for the Severn area, where the Illinois-based food distributor employed about 350 people last June, when it first announced "tentative" plans to close the center.

US Foods attributed the closure to declining sales in the Washington area. The company, which has $4.7 billion in debt and recently filed to go public, also said it could not strike a deal with unions over cost savings needed to keep the facility open.

"Moving forward with a closure is always a very difficult decision; however, we need to better align our distribution network so we can more cost-effectively serve all of our customers throughout this important market," John O'Carroll, US Foods' Northeast region president, said in a statement.

US Foods wanted $8 million in annual concessions from the unions, including switching from pensions to a 401(k) and an average pay cut of $5.75 an hour for warehouse workers — demands that were too large, said Denis Taylor, president of Teamsters Local 355, one of two Teamsters locals that together represent about 180 workers in Severn.

"There's no possibility that we could meet the company's demands," he said. "It's just not possible."

The company's position would amount to a loss of about $40,000 in wages and benefits for a worker each year, according to the union. The average wage for a driver or warehouse worker at the US Foods center is about $24 an hour, Taylor said.

Members voted this winter to authorize a strike, which is now "likely," he said. He said union members at other US Foods facilities locations may strike in sympathy, but he doesn't know if it will keep the center open.

"What it will say to the company is that we are not going to stand idly by while they destroy all of these good-paying jobs," Taylor said. "They're not negotiating in good faith and haven't from the very start."

US Foods is the successor of the former Columbia-based US Foodservice, one of the largest companies in the Baltimore region in the 1990s.

Dutch grocer Ahold acquired the company in 2000 for $3.6 billion. In 2007, after an accounting scandal and turnaround, Ahold sold US Foodservice to private equity firms Clayton, Dubilier & Rice and Kohlberg Kravis Roberts & Co. for $7.1 billion.

At the time, the company employed more than 27,000 people, including 500 in Columbia. The Severn distribution center had 560 employees at that time, according to the International Brotherhood of Teamsters.

Under new ownership, the company relocated to Illinois and was rebranded as US Foods. The employee count has shrunk to 25,000 people in 48 states, with fewer than 500 in Maryland.

The firm remains the country's second-largest food service distributor, with $23 billion in sales last year. Its parent company filed plans to go public in February, after regulators blocked a merger with Sysco Corp., another larger food distributor.

US Foods has had a fractious relationship with its unionized workforce, about 4,700 of its employees, with recent strikes in Arizona and California. Fourteen union agreements covering 1,600 people are up for renegotiation this year, according to the company's filings with the U.S. Securities and Exchange Commission.

The contract with Severn workers expired last year but had been extended temporarily while waiting for a decision about the Sysco merger, Taylor said.

US Foods told the unions it planned to close the location in June 2015, just days before bargaining was scheduled to begin, he said. Since then, the two sides have met a handful of times.

The company said it remains willing to negotiate, but the union has not offered a cost-saving proposal. The firm, which did not respond to follow-up questions after its initial statement, expects to incur about $50 million in charges for withdrawing from a pension plan with the Baltimore closure, according to its SEC filings.

Taylor said the union hopes to bring political pressure to bear on the firm to keep the 363,000-square-foot facility open. He said the center remains profitable but sales volume has declined because US Foods has redistributed the business to its other non-union facilities.

Officials from the state Commerce Department and Anne Arundel Economic Development Corp. said those groups reached out to US Foods last year, concerned about the possibility of closure. But the "issue at hand was related to management-labor agreements," said Rosa Cruz, a spokeswoman for AAEDC.

The organization and the Anne Arundel Workforce Development Corp. "stand ready to provide any assistance to favorably resolve this issue," she said.

US Foods, like many large employers, is required by law to provide advance warning of major layoffs. The state has not received a formal notice, said a spokeswoman for the Department of Labor, Licensing and Regulation.

nsherman@baltsun.com

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