Safeway Takes a Hard Line
Safeway Inc. Chief Executive Steven A. Burd vowed Thursday not to give in to demands by striking supermarket workers, declaring that the contract offer from the three big chains was “as good as it gets.”
Taking a hard-line stance “is an investment in our future,” Burd said, adding that Safeway was prepared to take on debt to avoid giving strikers what they wanted. He predicted that the supermarket giant’s expenses would go up by more than $130 million in three years if it didn’t bat- tle rising employee-related health-care costs now.
“It’s nasty business, and we wish we didn’t have it,” he said in a conference call with analysts about Safeway’s fiscal third-quarter profit, which was down sharply. But the cost of the strike, he said, was “a very small number compared to accepting business as usual.”
Burd’s comments were the first from a supermarket chief executive since the United Food and Commercial Workers union struck Safeway’s Vons and Pavilions stores late Saturday. Albertsons Inc. and Kroger Co.’s Ralphs, which bargain jointly with Safeway, locked out their workers after the Safeway strike began.
Union leaders said Burd’s comments were more likely to stiffen their members’ resolve than weaken it.
“Now these men and women fighting for their futures realize the man at the top of their company does not care about them,” said Greg Conger, president of UFCW Local 324 in Orange County.
Greg Denier, UFCW communications director, said the hard-line strategy could backfire in an industry so dependent on good relations with customers.
“What he’s trying to sell Wall Street is that the short-term loss will result in long-term gain from lower wages and the elimination of benefits,” Denier said. “But he’s antagonizing the workforce and alienating the customer base. If this goes on, they won’t come back.”
The strike was called over employer proposals to cut health care and pension benefits and create a substantially lower tier of wages and benefits for new hires. The proposed contract -- rejected by 97% of voting union members -- also would allow stores to shift union work to outside vendors and to open nonunion stores.
Top wages for store employees range from $7.40 for baggers to $18.19 for meat cutters. Union officials say the average is about $12 an hour and that most workers are part time.
All employees receive fully paid family health benefits. The grocery chains say workers must start shouldering some of these costs, citing escalating health insurance expenses and competition from nonunion stores. Under the proposal, workers would among other things have to contribute to premiums, paying at least $780 a year for family coverage.
“They’re not going to see a better offer than this,” Burd said Thursday. “This offer does a marvelous job of protecting existing employees. They still have Cadillac benefits when it’s over.”
Burd acknowledged that the strike might be “quite impactful” to the 1,702-store chain’s bottom line but would not reveal sales declines at the 289 Safeway stores affected by the strike.
He declined to speculate on how long the strike might last.
“There are no talks,” he said. “There are no plans for talks. There is nothing going on.”
UFCW officials also held firm, saying it was up to the markets to change their offer and call the union back to the table.
At a rally in Hollywood, a host of union presidents, elected officials and community leaders pledged support and promised to walk picket lines this weekend. The next few days are considered crucial, as shoppers’ sympathies with strikers may be tested after a week of inconvenience.
Six members of the Los Angeles City Council and two state legislators revved up the crowd in front of a Pavilions store at Melrose Avenue and Vine Street, several with tales of their own days as supermarket clerks.
Councilwoman Jan Perry said she turned away Albertsons representatives at her office Wednesday. “I told them until you respect your workers, we’ve got nothing to talk about.”
Miguel Contreras, the top official in the Los Angeles County Federation of Labor, said the Rev. Jesse Jackson planned to visit picket lines this weekend and that AFL-CIO President John Sweeney would join them early next week.
Teamsters officials said shutting down the markets’ distribution centers, where about 8,000 of the union’s members work in the warehouses or as drivers, remained a possibility.
Safeway analysts expressed concern about the strike’s long-term effects and about the possibility that strikes would spring up nationwide; Safeway is negotiating contracts in other areas including Portland, Ore.
“Anytime a strike hits the radar, there is a financial risk and it is real,” said Jason Whitmer, an analyst with Midwest Research in Cleveland. “But at the end of the day, the stock will recover. I’m surprised the stock hasn’t been hurt by the strike.”
Burd made his remarks while explaining to Wall Street why Safeway’s third-quarter profit had dropped 28%, continuing a downward trend of recent quarters reflecting a lackluster economy and write-downs of poorly performing recently acquired assets. Grocery store chains are feeling increased pressure from giant discounters such as the nonunion Wal-Mart Stores Inc. chain.
Safeway’s earnings fell to $202.5 million, or 45 cents a share, in the three months ended Sept. 6, from $281.3 million, or 60 cents, a year earlier.
One key indicator, the company’s “identical-store sales,” which excludes results from new or closed stores and sales of gasoline at stations situated at some of its stores, declined 1.5%. Overall, sales increased 3.6% to $7.8 billion. The results included an $800,000 loss from the firm’s Chicago-based Dominick’s chain, which management is trying to sell. It bought Dominick’s for $1.8 billion in 1998 but expects to sell it for less.
Safeway’s shares fell 72 cents to $23.34 on the New York Stock Exchange on Thursday.
