Albertsons’ Sales Losses Show Effects of Strike

The three supermarket chains whose Southern and Central California workers have been on strike or locked out for eight weeks may have lost more than half a billion dollars in sales since the labor dispute began, figures released Friday by Albertsons Inc. suggest.

In reporting its fiscal third-quarter financial results, Albertsons became the first of the three chains to put hard numbers on widespread anecdotal evidence that shows consumers have been steering clear of picket lines in favor of smaller markets or cutting back on shopping altogether.

Albertsons, the smallest of the three chains with 259 stores in the region, said it lost $132 million in sales from Oct. 11 through Oct. 30. Safeway Inc.’s Vons and Pavilions and Kroger Co.’s Ralphs have yet to disclose their losses. If they were similar, and the sales lost by Albertsons and Safeway continued at a comparable rate through November, that would put the combined drop in sales at more than $500 million.

The Albertsons data underscored the strain of the labor battle, which has idled about 70,000 union members who are making a fraction of their salaries walking picket lines.

Albertsons and Ralphs locked out their union employees after the United Food and Commercial Workers union struck Vons and Pavilions stores Oct. 11. The three chains are bargaining jointly with the union, and a key roadblock is the chains’ demand for cuts in health-care benefits.

Both sides held talks with a federal mediator Friday, and negotiations were set to continue through the weekend. The parties declined to comment on the talks’ progress, citing the mediator’s request that they not publicly discuss the matter.

Prices of the three chains’ stocks fell after Albertsons’ announcement. Some analysts said they were surprised at the magnitude of the dispute’s effect on sales. The head of one of the seven UFCW locals involved chided the supermarkets for sacrificing sales to gain a new labor pact to their liking.

“These numbers demonstrate how utterly senseless this strike is,” Local 770 President Rick Icaza said in a statement. “If Ralphs, Vons and Albertsons had been willing to spend that same amount of money, in combination with the unions’ effort to modify the plan to contain health-care inflation, we would almost certainly have avoided a strike.”

The supermarkets have staying power. Even if their sales losses totaled $1 billion, that would represent less than 1% of their combined $120 billion in annual sales nationwide.

And in a conference call with analysts Friday, Albertsons Chief Executive Lawrence Johnston gave no hint that the lost sales had tempered the company’s willingness to endure the strike and lockout.

“We are hopeful we can obtain a favorable outcome in this dispute,” he said, adding that Albertsons “cannot accurately estimate its magnitude or duration.”

The dispute centers on efforts by the supermarkets to curb their employee expenses, notably health-care costs, to better compete with Wal-Mart Stores Inc. and other nonunion mass merchandisers that are moving more heavily into groceries.

Veteran clerks and stockers in Southern California currently earn as much as $17.90 an hour, or $716 for a 40-hour week. Baggers earn a top wage of $7.40 an hour. The hourly rates are higher for Sunday and holiday work. Health benefits are fully paid.

The chains, supported by many Wall Street analysts, say they are willing to endure the costs of the dispute to win a cost-saving contract that sets the tone for other labor talks coming due elsewhere in the country.

Albertsons, based in Boise, Idaho, said the $132-million sales loss occurred in the last 19 days of its third quarter, which ended Oct. 30. Albertsons presumably lost at least that much in additional sales during all of November, when grocery purchases typically surge because of Thanksgiving, indicating the company’s forgone sales could have topped $250 million.

Safeway, with 293 Vons and Pavilions stores in Southern and Central California, probably also has seen a sales loss at least as high as Albertsons’, although the chain would not estimate its sales losses at this time. That could mean the sales lost by Albertsons and Safeway could be more than $500 million.

Ralphs too has lost sales, although the amount is harder to quantify because the union removed its pickets from Ralphs’ 300 affected stores Oct. 31.

A better picture of Ralphs’ situation is expected Tuesday, when Kroger reports its third-quarter results.

Although many shoppers have shifted to Ralphs, the chain has struggled to keep its shelves fully stocked. The Teamsters union’s support of the UFCW has disrupted deliveries to all three supermarkets.

Albertsons CEO Johnston also defended a mutual-aid pact among the three chains, in which Ralphs would share part of the windfall in business it has received since the UFCW removed its pickets.

California Atty. Gen. Bill Lockyer said this week that he was investigating the pact for possible antitrust violations.

The probe is “totally without merit,” Johnston said. “These kinds of agreements are common and have been utilized over the years in our industry and other places.”

In addition to the sales drop, Albertsons said the labor dispute eroded $70 million of its gross profit -- that is, profit before taxes, interest and other items -- in the quarter.

The size of the decline was surprising, said Mark Hugh Sam, an analyst with research firm Morningstar Inc. in Chicago.

But he noted that the three chains incurred expenses early in the dispute, such as costs for training replacement workers, that probably won’t be as high.

Hugh Sam also noted that even with the $70-million decline, Albertsons’ gross profit in the quarter was $2.5 billion. Albertsons and the two other chains still have plenty of financial heft to weather a longer strike and lockout, he said.

“The time is on the side of the companies, not the workers,” he said.

--- UNPUBLISHED NOTE ---

On February 12, 2004 the United Food and Commercial Workers Union, which had stated repeatedly that 70,000 workers were involved in the supermarket labor dispute in Central and Southern California, said that the number of people on strike or locked out was actually 59,000. A union spokeswoman, Barbara Maynard, said that 70,000 UFCW members were, in fact, covered by the labor contract with supermarkets that expired last year. But 11,000 of them worked for Stater Bros. Holdings Inc., Arden Group Inc.’s Gelson’s and other regional grocery companies and were still on the job. (See: “UFCW Revises Number of Workers in Labor Dispute,” Los Angeles Times, February 13, 2004, Business C-11)

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