UFCW Would Prefer to Bargain With Kroger CEO
As union leaders seek an end to the bitter supermarket strike and lockout in California, they would like nothing more than to bargain with just one grocery executive: David Dillon.
Dillon is the relatively new chief executive of Kroger Co. Its Ralphs chain owns the most stores affected by the clash -- 300 -- compared with 259 Albertsons Inc. stores and 293 Safeway Inc. Vons and Pavilions stores. The three supermarket companies are bargaining as a single unit with the United Food and Commercial Workers union.
Unlike the CEOs of Safeway and Albertsons, Dillon has spent his whole career in the grocery business. Approachable and low-key, Dillon also stands in contrast to Safeway Chief Executive Steven Burd, whom the union sees taking the harshest stance in demanding concessions from the union on wages and benefits.
In fact, Dillon steers a company that, until now, had enjoyed perhaps the best relations with the UFCW.
“We’d love to sit down and negotiate with him directly” because the union “has always been able to work out our differences” with Kroger’s management, said Rick Icaza, president of Local 770 in Los Angeles, one of seven UFCW locals involved in the strike and lockout, now in its 15th week.
It’s highly unlikely Icaza will get a one-on-one with Dillon. Indeed, the length of the impasse and the three chains’ solidarity suggest that Dillon, 52, is no less steadfast than Burd or Albertsons CEO Lawrence Johnston.
Dillon himself, in his first interview since the strike began, discounted the notion that he alone could break the logjam. He said Kroger was resolute in seeking concessions, though he embraced a softer tone than Burd.
“Strikes are not good; no one ever wins them,” Dillon said by phone from Kroger’s corporate headquarters in Cincinnati. “I don’t like the impact that it’s had on our employees or our customers or on our company for that matter.”
At the same time, he noted that “issues like this don’t get resolved unilaterally. Even if we were the only company involved in this, we couldn’t just walk in and say, ‘Here, it’s solved.’ ”
To prosper against growing competition from Wal-Mart Stores Inc. and others expanding in the grocery business, he said, Kroger must keep prices low and can do that only by reducing costs.
“In Southern California, over the years we’ve gotten lulled into a false sense of security with the cost structure” negotiated with the UFCW, Dillon said. Now, more people are shopping at places “from Trader Joe’s to Costco to Wal-Mart” stores that “don’t have these kinds of embedded costs,” he said.
Kroger’s employees -- whom Dillon calls “associates” -- should keep getting “good wages, quality healthcare and a fair pension,” he said. “Ralphs has always provided its associates with those three things and ... that will not change. For me, the keyword here is balance.”
The union rejects outright the supermarkets’ proposal that Dillon calls “good” and “fair.” The UFCW contends that the stores’ latest offer, among other things, would shift so much of the cost of healthcare to employees as to make it unaffordable, given that many grocery employees work part time and earn less than $30,000 a year. The union also is opposed to management’s proposal for lower wages and benefits for new hires.
Dillon had been on the job less than four months when the union struck Vons and Pavilions on Oct. 11. The next morning, Kroger -- the nation’s largest supermarket chain -- and Albertsons locked out their union workers in Southern and Central California. About 70,000 workers have been idled since then in what has become the longest supermarket strike in UFCW history.
Dillon declined to comment on the two sides’ contract offers and the status of negotiations. No formal talks between the stores and the union are scheduled.
Although he hasn’t been CEO for long, Dillon was Kroger’s president for several years and held numerous other management posts.
He’s the great-grandson of John Dillon, who founded the Dillons grocery chain in 1921 in Hutchinson, Kan., where the younger Dillon was born and raised. By the late 1970s, the business had evolved into Dillon Cos., with several other regional grocery chains under its umbrella.
David Dillon, after marrying his high school sweetheart and finishing college, joined the company in 1976; six years later it was acquired by Kroger. Dillon was named Kroger’s executive vice president in 1990. Five years later he became Kroger’s president, and last June he succeeded Joseph Pichler as CEO, a job that paid a salary of $1.3 million in 2002, according to the most recent figures available.
California is Kroger’s biggest market, with more than 450 grocery stores, which account for about 18% of its supermarkets. Kroger, which also owns convenience stores, jewelry stores and food-processing plants, has annual sales of $52 billion.
Dillon is described by colleagues and analysts as down-to-earth, affable and a good listener. He prefers being called by his first name, enjoys making unannounced visits to his stores and, given his background, can comfortably chat with any worker in any department.
But there’s nothing laid-back about Dillon’s focus on Kroger’s bottom line and its market share, analysts said. Kroger is a huge player in a tough industry where a store must hustle to earn just 2 or 3 cents for every dollar of sales.
Kroger generally gets the best marks from Wall Street analysts, who say Kroger’s management, execution, marketing and cost-cutting strategy eclipse its rivals’ efforts.
The strike is hurting all three chains in terms of lost sales and profits -- Ralphs lost as much as $145 million in sales in just the first four weeks of the dispute, according to its most recent figures.
Even so, Kroger’s stock is down only 3% since the strike began and has moved steadily higher lately. Its shares closed Monday at $18.73, up 8 cents, on the New York Stock Exchange.
Safeway’s stock also is down only slightly, and Albertsons’ shares are up 15% since the strike began. And investors haven’t appeared to put heavy pressure on Dillon and the other CEOs to quickly settle the dispute.
After the strike ends, “we would expect [Kroger] to lead its peers in earnings growth,” analyst Lisa Cartwright of Smith Barney told clients this month.
It also leads in labor relations. It’s “not an accident” that the UFCW chose Ralphs when it decided to remove pickets from one chain for shoppers’ convenience early in the strike, said Gary Giblen, research director at investment firm CL King & Associates in New York.
But relations between Kroger and the union have been wearing thin lately. This month, pickets returned to some Ralphs stores in Orange County and elsewhere, amid union members’ frustration with Kroger’s continued firm stance in the contract talks.
The union also alleged in a lawsuit that Ralphs had hired back dozens of its locked-out workers using false names and Social Security numbers. Ralphs executives denied the chain was knowingly hiring back employees.
If the strike and lockout drag on much longer, Kroger’s labor relations could further deteriorate. That’s why Dillon might be the one who finally presses for a solution to end the dispute, Giblen said, and his views carry considerable weight given Kroger’s status as the country’s largest grocery chain.
“It’s to their benefit to bargain as a unit” with Safeway and Albertsons, but “the Kroger way is to be cooperative and not be totally anti-union,” Giblen said.
“If there’s going to be a breaking of ranks, it’s going to be Kroger.”
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At a glance
* David Dillon
Title: Chief executive
Born: March 30, 1951, in Hutchinson, Kan.
Education: Bachelor’s degree in accounting and business administration from University of Kansas; law degree from Southern Methodist University in Texas
Career: Joined family business, Dillon Cos., in 1976. After Kroger bought Dillon Cos. in 1982, was named Dillon’s president in 1986. Elected Kroger’s president in 1995 and its chief executive in 2003.
Personal: Married, three grown children
* Kroger Co.
Headquarters: Cincinnati
Founded: 1883, by Barney Kroger
Stores: 2,530 supermarkets in 32 states under two dozen banners, including Ralphs, Food 4 Less, Kroger, Fred Meyer and Dillons. Also owns 798 convenience stores, 445 jewelry stores and 41 food-processing plants.
Employees: 290,000
Source: Kroger
Los Angeles Times
