Safeway Sees Gains in Labor Pact
Safeway Inc. Chief Executive Steven Burd said Wednesday that its new labor contract in Southern California should lower the pay gap by one-third between it and non-union rivals such as Wal-Mart Stores Inc., helping to free up capital to expand and remodel Safeway’s stores.
Speaking at the Goldman Sachs Global Retailing Conference in New York, Burd told analysts that the deal ratified by members of the United Food and Commercial Workers union in February would lower Safeway’s wage and benefit costs by as much as $4 an hour for food clerks by the end of the three-year contract.
About 89% of the cost savings will come from lower wages and benefits for new hires, Burd said, adding that morale and service levels remain high at the company’s Vons and Pavilions stores in Southern California.
Employees “feel good that we found a way to get [the pay gap reduced] that doesn’t impact them in any serious way,” he said.
Since the California supermarket strike ended in February, Safeway’s Vons and Pavilions stores in Southern California have failed to regain shoppers lost during the 4 1/2 -month dispute. The sales decline helped cut Safeway’s profit by 4% in its second quarter.
Burd said he hoped to revive the chain’s slumping sales with improved service, and better produce and meat offerings.
Safeway has been renegotiating its labor contracts around the country to bolster profit and better compete with largely non-union rivals such as Wal-Mart and Costco Wholesale Corp. Safeway is currently renegotiating a labor contract with its grocery workers in Northern California; that pact expires Saturday.
About 67% of Safeway’s stores are operating under a restructured contract, Burd said. He expects that percentage to swell to 96% by the company’s fourth quarter.
Some of these savings will be funneled back into store expansion and remodeling. The company plans to spend $1.2 billion to $1.4 billion in the next year opening 40 new stores and remodeling 120 of its 1, 812 stores.
Safeway shares fell 11 cents to $20.86 on the New York Stock Exchange.
