Supermarkets Still Feel Pain of Long Strike and Lockout

Nearly 10 months after the end of the bitter Southern California grocery strike and lockout, the three companies and the union that waged the longest labor standoff in U.S. supermarket history are still in turmoil.

Profits at Albertsons Inc., Safeway Inc.’s Vons and Pavilions stores and Kroger Co.’s Ralphs are being pinched by the price cuts they’ve made to woo shoppers alienated by the 4 1/2 -month dispute.

The stocks of all three companies have fallen since a new contract was signed in February.

The chains maintain that they’ll rebound, largely because the two-tier contract allows them to give new hires significantly lower wages and benefits than veteran workers.

Safeway, for one, doesn’t want to wait for attrition to realize the payoff. The Pleasanton, Calif.-based company plans to offer buyouts to roughly one-third of the 22,000 people who work at its 293 Vons and Pavilions stores in Southern and Central California to hasten their replacement with new hires.

People familiar with the buyout program said Safeway was prepared to spend up to $50 million on it. So if 1,000 workers accepted, they would receive $50,000 each.

“They want to get rid of the old-timers and bring in a new class of citizens,” said Rick Icaza, president of United Food and Commercial Workers Local 770, which represents 4,266 Vons and Pavilions employees in the Los Angeles area.

As it is, the two-tier system is breeding discord between experienced workers and new hires who aren’t happy about being paid less to perform the same tasks. Turnover among new hires is unusually high, union officials said, and some new employees are chafing at paying union dues that average nearly $50 a month.

The stores dispute that there is a turnover problem.

For their part, longtime union members say the old esprit de corps is gone.

“It hasn’t been the same here since the strike,” said Marguerite, a checker at a local Vons who, like other workers interviewed recently, declined to give her last name. “People’s attitudes have changed about their jobs. There’s just not the same kind of loyalty.”

Shoppers said that once-favorite stores seemed unfamiliar. “You get used to people and then they’re gone,” said John Burt, a retired building inspector, outside a Glendale Vons that he has patronized for decades. “It’s a completely different outfit.”

The Safeway buyout plan -- and the knowledge that the company’s goal is to thin the ranks of experienced, higher-paid workers -- is likely to hurt morale even more, employees said.

So far, Ralphs and Albertsons haven’t proposed buyout programs, union officials said. Ralphs spokesman Terry O’Neil said the chain “has no plans” to do so. Albertsons didn’t respond to calls for comment.

Financial analyst Andrew Wolf of BB&T; Capital Markets in Richmond, Va., said Albertsons and Ralphs might end up following Safeway’s lead: “From a profit perspective, it makes a lot of sense.”

Under the contract, a new cashier earns $8.90 an hour, tops out after about six years at $15.10 an hour and must wait one year before becoming eligible for health benefits.

Cashiers hired under the previous contract, which expired in October 2003, were immediately eligible for health benefits. They started at $9.78 an hour and topped out after about two years at $17.90, which remains their pay rate under the new pact.

The Safeway buyout plan is being negotiated with the union and Safeway spokesman Brian Dowling declined to disclose possible terms.

Buyouts aren’t unusual when companies need to trim labor costs. Safeway already has offered buyouts elsewhere in the country.

People familiar with the talks between Safeway and the union said the buyout would be offered to roughly 7,000 of the 22,000 employees at Vons and Pavilions stores in Central and Southern California. The expectation is that 750 to 1,150 of those offered the package would accept it.

During the strike, the union said its members’ annual incomes averaged less than $30,000 a year. But some experienced employees could earn considerably more, and overall the Southern California grocery workers had been among the best-paid in the country.

Mike, a produce manager at another Southland Vons, said the rumored terms of Safeway’s buyout fell short for many of his peers. “Everyone I’ve talked to said they wouldn’t take it,” he said. Jackie, a bakery clerk at the store, wasn’t so sure: “If you give them a good deal, some will take it.”

Safeway’s incentive is easy to understand, said Mark Husson, an analyst at HSBC Securities in New York. Citing data provided by the chain, he said that veteran Vons employees earn an average $16.08 an hour while new employees average $10.43. The stores’ contributions to healthcare benefits for new workers also are considerably lower than those for longtime employees.

“About 75% of the future savings that Safeway will get from the new contract come from [hiring] new employees,” a key way of cutting costs when Safeway is struggling to boost its profit, Husson said.

The labor dispute began Oct. 11, 2003, when the UFCW struck Vons and Pavilions. Ralphs and Albertsons, which were negotiating jointly with Safeway, then locked out their union employees. About 59,000 workers were idled at 852 stores from the Mexican border to Mammoth Lakes.

Throughout the contract negotiations, the stores insisted they had to slash their labor costs to compete with nonunion, lower-cost mass-merchandisers, notably Wal-Mart Stores Inc., that are aggressively expanding their grocery operations.

The impasse badly damaged both sides. The stores lost an estimated $1.5 billion in sales as many shoppers took their business to Trader Joe’s, Costco and other grocery stores. Union members struggled with dwindling strike pay, and many had to take part-time jobs or simply quit the grocery business.

The three companies also face a potential work stoppage in Northern California, where they are negotiating a new contract with the UFCW. In July, both sides agreed to extend the current contract as they kept talking, but Tuesday the union set a Sunday deadline for reaching a new pact.

Although the companies have seen their Southern California sales recently near pre-strike levels, the promotional costs to drive the extra traffic trimmed their profits, offsetting much of the labor savings from the new contract.

Safeway has warned Wall Street that it doesn’t expect its Southern California profits to return to pre-strike levels until 2006, Husson said. This month, Safeway said it expected earnings next year of $1.41 to $1.51 a share, well below the $1.67 a share analysts had forecast.

Albertsons, based in Boise, Idaho, recently said its 2004 earnings might slip to the low end of its forecast, though its third-quarter sales in Southern California were higher than in the third quarter of 2002, before the strike.

Discounting also has hurt profit margins at Kroger. The Cincinnati-based company, the nation’s largest conventional grocery chain, posted a 29% gain in third-quarter profit but that fell short of analysts’ expectations.

Kroger Chairman David Dillon also warned analysts not to look for a quick financial rebound. Asked if the Southern California strike and lockout constituted a failure, he said that securing lower pay scales for new employees at Ralphs was worth the battle and that “the time to look back at Southern California is going to be years down the road.

“The benefits are there, and they are significant and they will grow over time,” Dillon said. “That was the whole idea.”