Grocery Strike, Union Negotiations Highlight Changing Industry
By Michael Barbaro and Neil Irwin
Washington Post Staff Writers
Tuesday, February 17, 2004; Page E01
In a conference room in Ocean City, Md., almost two years ago, the heads of the nation's four largest grocery chains delivered a stern message to officials of the biggest food workers' union.
Grocery workers will have to sacrifice some of their generous wages and health benefits, the executives said, if their employers -- Royal Ahold NV, Safeway Inc., Kroger Co. and Albertson's Inc. -- are to have any hope of competing with Wal-Mart Stores Inc. and other low-cost rivals.
"The message was that things had to change," said the president of the United Food and Commercial Workers Local 400, C. James Lowthers, who attended the meeting. "They said they have to keep costs down."
But the executives' approach is playing out in very different ways at the negotiating table. In California, 70,000 grocery workers have been on strike for four months. In New England, on the other hand, 37,000 others this weekend settled a contract, averting a strike.
In the weeks ahead, the biggest groceries in the Washington area, Safeway and Ahold-owned Giant Food LLC, will renegotiate a contract that expires March 27. The open question is which direction the local talks will follow -- the sharp acrimony of California or the compromise in New England. The result will determine the future of 19,000 local grocery jobs that have long offered a reliable path to the middle class.
Across the country, major supermarket chains trying to stay competitive with nonunion rivals are pushing for workers to pay for more of their health care and agree to lower wages for new employees. One major reason for the labor tension: Wal-Mart is pushing aggressively into the food business.
The discounter pays an average wage of $8 an hour, compared with $10 for the average grocery worker nationwide, according to Retail Forward Inc., a Columbus, Ohio-based consulting firm. Its labor costs are 30 percent less than those of unionized grocery stores such as Giant and Safeway, Retail Forward found.
At union supermarket chains, one of the fastest-rising expenses is health care. Giant and Safeway estimate that for every $3 they spend on health care for employees, Wal-Mart and three other low-cost retailers -- BJ's Wholesale Club Inc., CVS Corp. and Kmart Holding Corp. -- spend on average $1.
Health care for most Washington area workers at Giant and Safeway costs the companies, on average, $635 a month for full-time workers and $286 for part-timers, nearly double the cost in 2000, the companies said. In 2003, Giant and Safeway paid $180 million for health care for local workers, up from $112 million in 1999.
"We're in real danger," said Harry Burton, the lead contract negotiator for Giant and Safeway. "It's one thing to have one of the highest compensation packages. But when high gets to the point of being so high it makes you noncompetitive, you have taken something wise and turned it into an imprudent risk."
Unions fear that a reduction in benefits for grocery workers would be the start of a battle to steadily erode benefits across the economy.
Union grocery workers are torn. Their jobs have long offered those without college degrees or advanced skills entrance into the middle class. The average wage at Giant and Safeway is about $16 an hour -- $33,000 a year, including overtime pay but not benefits. They don't want to change the health benefits or standard of living that they have grown accustomed to, but are wary of an extended work stoppage like the one in California.
That tension plays out at a Giant store in Greenbelt. Delanto Hayes, 24, works at the store's pharmacy. He and his wife are expecting their second child in March and are paying off a house, two cars and bills for their 3-year-old's preschool. For Hayes, paying health care premiums, at any cost, would stretch the family's finances too far. "It's already kind of tight now," he said. "I don't see where I can cut back."
Kathy Buchanan, 46, another pharmacy worker at the store, lives with her mother. She has no mortgage payments or major debts. She says she understands why her co-workers would vote for a strike, but she's willing to pay more for health care to keep her job. "They say we would have $100 a week in strike pay but we could draw unemployment," she said. "I don't want to draw unemployment. No one in my family ever did that."
The situation is driven by fundamental changes in the grocery business. Americans are buying more of their food from nontraditional sources -- big-box discounters such as Costco Wholesale Corp., neighborhood convenience stores, and gourmet grocers such as Whole Foods Market Inc.
Giant's and Safeway's shares of the market are shrinking. The region's two biggest supermarket chains sold 48 percent of the groceries in the Washington area last year, compared with 52 percent a decade ago, according to the trade publication Food World.
Of the 20 competitors to Giant and Safeway in the Washington area, about 14 are nonunion, said Jeff Metzger, Food World's publisher. "It isn't a level playing field anymore because of the union verses nonunion issue," he said. Those nonunion competitors generally pay little or none of employees' health care costs and frequently have lower wages too.
Union officials argue that Giant and Safeway overstate the threat from discounters. Wal-Mart controls less than 3 percent of the grocery business here, according to Food World. That share could increase, however, if Wal-Mart were to open Supercenters, which have grocery departments larger than many stand-alone supermarkets, in the Washington area. Retail Forward figures that each Supercenter that opens results in the closing of two nearby supermarkets.
In Southern California, where the strike and lockout have been going on for four months, 29 percent of Safeway stores are within 10 miles of a Wal-Mart Supercenter, up from 15 percent two years earlier, according to FTN Midwest Research Securities Corp., a stock research firm based in Cleveland. That's part of the reason Safeway has been unyielding in its negotiations there, according to some analysts.
There are no Supercenters near Washington now, but Wal-Mart is expanding them aggressively -- 40 are planned nationwide in the next five years. A Wal-Mart spokeswoman would not say Friday whether any are planned for Washington.
"The fact of the matter is that Giant and Safeway's major competitors [in the Washington region] are all unionized," said Lowthers, the Local 400 leader. "That is the key argument that drives contract negotiations."
Early Sunday morning, Ahold's Stop & Shop Supermarket Co. subsidiary settled a contract with five unions in New England that would increase wages and leave the company's health care program largely untouched, negotiators said.
The outcome there may shed light on how tough its sister company Giant will be in its talks here; executives of Stop & Shop are to take over management of Giant in the months ahead.
In what the union said was a surprise move, Stop & Shop backed down from its demand that workers pay 20 percent of their health care premiums. They now pay none, only modest co-payments for medicine and visits to doctors. The company also gave up on a proposal to allow employees to opt out of the health care plan, which could dramatically reduce Stop & Shop's costs. Union leaders complained it would drain the program's accounts.
"We scored a big victory on health care," said the president of UFCW Local 371, Brian A. Petronella.
But Stop & Shop won some victories of its own. Under the contract ratified this weekend, new part-time workers will wait two years to qualify for health benefits, up from one year. Those part-time workers will also be paid differently. It now takes a part-time worker three years to reach an hourly wage of $9.50; under the new contract, it will take six years, Petronella said.
Faith Weiner, a spokeswoman for Stop & Shop, said yesterday the company will hold down health care costs by limiting its premium payments over the life of the three-year contract. She called it a "favorable contract" for the workers and the company. "We were willing to be flexible to reach our objectives," Weiner said.
Stop & Shop's approach contrasts sharply with the hard line taken by Safeway, Albertson's and Kroger in Southern California, where talks deadlocked over who should pay for spiraling health care costs. When grocery workers decided to picket Safeway stores in the region, Kroger and Albertson's locked out their workers in a show of solidarity.
Here in the Washington area, Safeway and Giant are jointly negotiating a contract for 19,000 grocery workers. Those employees are anxiously waiting to see which company's labor philosophy will win out.
The two chains have signed an agreement to lock out workers if the UFCW attempts, as it did in California, to strike just one of the supermarkets at the bargaining table.
Like Stop & Shop workers, those at Giant and Safeway pay no health care premiums and receive pensions. Neither Giant nor Safeway has made a specific offer yet, according to the companies and the union. But both companies have pledged to bring down health care and pension costs.
Lowthers said Local 400 would reject any proposal that asked workers to pay 20 percent of their health insurance premiums. "It is not going to happen here," he said.
The acrimony between grocers and the union is a relatively new phenomenon; traditionally, the industry's labor relations have been far more peaceful than those in other heavily unionized industries, such as airlines and shipping.
Before Safeway was sold through a leveraged buyout in 1986, the Magowan family that built the chain used the motto "Safeway Offers Security." Safeway is now run by Steven A. Burd, a former management consultant who is immensely unpopular in organized labor circles for what is considered to be efforts to destroy the union.
The homegrown Giant Food, founded in 1936 and long run by the late Israel "Izzy" Cohen, had its own ownership shift when it was sold to Dutch food giant Ahold in 1998.
Becoming part of bigger companies has given the grocers more flexibility in labor negotiations. Safeway said last week that the Southern California work stoppage reduced its fourth-quarter earnings by $102.9 million.
Losing that much money might devastate a small local retailer; it is less of a problem for a company like Safeway, which has enough stores elsewhere to be able to sustain the loss if executives think doing so is in the company's long-term interest. Ahold, by contrast, remains mired in debt from its accounting scandal, which forced the company to take a $3.1 billion write-off.
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