Grocery talks clear big hurdle
Negotiators for the big grocery chains and store clerks have reached a tentative agreement on the thorny issue of health benefits, making it increasingly likely that Southland shoppers won’t endure a strike this summer.
Both sides are guarded in their public comments, noting that hurdles remain. But “we are closer than the rhetoric would lead one to believe,” said one person familiar with the talks.
The optimism at the bargaining table has filtered down to the rank and file. Workers hope to avoid a repeat of the five-month strike and lockout that hobbled supermarkets in 2003-04.
“I think it is less likely we are going to have a strike now,” said Hugh Evans, a union butcher at an Albertsons in Baldwin Hills. “The negotiations have gone on so long and I think that means they are at the table, really working hard to get an agreement.”
Talks began in January with strong rhetoric from both sides, including threats of worker strikes and employer lockouts.
But in recent days, negotiators have agreed on a plan to improve health insurance for the 33,000 “second-tier” workers who were hired after the 2004 accord and get reduced wages and benefits. Some believe a deal will be concluded before July 4.
As in 2003, healthcare coverage is the most contentious issue -- and resolving it is considered the key to a new pact. Both sides say they cannot publicly discuss details, however, because of a news blackout requested by a federal mediator.
Movement in the discussions comes against a backdrop of improving conditions for the large supermarket companies. Profits are healthy, and the rapid growth of archrival Wal-Mart Stores Inc. has stalled. In addition, the national chains have expanded their selections to better compete with nontraditional retailers such as Target Stores Inc. and Whole Foods Markets Inc.
Nonetheless, people involved in the talks expect more hard bargaining in the coming weeks. They still have to hammer out a pay hike for 65,000 employees, who have not had an hourly bump-up since 2002.
On the issue of healthcare, negotiators for the United Food and Commercial Workers union and the Albertsons, Ralphs and Vons chains have agreed in principle to reduce the time it takes new employees to qualify for insurance coverage to six months.
Under the existing pact, new workers must wait either one year or 18 months, depending on the job. Children of employees also would be covered in six months under the new accord instead of 30 months, and the waiting period for spouses would fall to 24 months from 30 months.
The sticking point now is a disagreement over the size of the reserve the plan needs in case expenses are higher than forecast or a greater-than-expected number of workers sign up for the insurance, according to people with knowledge of the talks.
That gap is now believed to be as much as $90 million. Still, that’s a relatively narrow difference considering that the health plan is likely to cost about $1.5 billion over the life of a four-year contract.
If this cost were split among the three chains and Stater Bros., a large regional player, the expense would be about $4 million to $6 million a year, depending on the size of the company.
“When spread over time, these differences look pretty small,” said Dave Smith, associate professor of economics at Pepperdine University’s Graziadio School of Business and Management.
“The fact that a strike has not occurred at this point indicates that both sides want to resolve this after considering the pain they suffered last time.”
A spokesman for the union cautioned, however, that differences still remained.
“People feel like we are close, but we can’t get the employers to fill that gap and we are running out of options. We are this close, but we need them to move,” said Michael Shimpock of SG&A; Campaigns, a Pasadena media and political consulting firm representing the union.
The union and the employers have agreed to help fund healthcare benefits with a portion of $500 million in reserves in a jointly operated healthcare trust fund. The union is willing to tap into almost half of the reserve, but the employers want to go as high as $350 million to subsidize health benefits.
Union officials say that taking any more than $230 million to $240 million out of the trust fund reserves would threaten the health plan’s solvency.
“It is great to offer a Cadillac of a plan, but if it runs out of funds, they will have to reduce benefits,” Shimpock said.
That’s what happened in Houston, where a healthcare trust fund financed by Ralphs owner Kroger Co. ran short on money in January 2006.
Trustees from the union and the company reduced benefits to workers. For 12 months, workers had 61% of their claims paid instead of the standard 80%. Full benefits were restored in January, and Kroger raised its contribution rate in March.
Meghan Glynn, a Kroger spokeswoman, said the experience in Houston was unlikely to be repeated in other markets, noting that Kroger had reached agreements with unions in Cincinnati; Columbus, Ohio; Detroit; Atlanta; and other markets where funding wasn’t an issue.
After cutting a deal on health, negotiators will turn their attention to wages. This year Stater Bros. independently agreed to raise hourly wages an average of $1.25 over three years, and that could become the starting point for pay talks with the three major chains.
The Stater Bros. deal with the UFCW created one pay tier for clerks with 20 steps, ranging from $9.20 an hour to $18.40. The lower-paid tier in the previous contract started at $8.90 and topped out at $15.10.
“The wage settlement won’t be what Stater’s offered lock, stock and barrel,” said one individual familiar with the strategy of the big grocery chains. “But the employers are aware that the workers have not had an hourly wage increase in a long time.”
Stater also agreed to increase its contributions toward health and pension benefits. But those contributions will be reduced to match any better deal for employers that the union might accept in talks with the three larger chains and have little bearing on current negotiations over health benefits.
A battle over healthcare benefits in 2003 sparked an acrimonious 141-day strike and lockout that drained the savings of workers and cost the employers $1.5 billion before it ended with the current contract agreement.
But since then, expected fierce competition from Wal-Mart in Southern California largely failed to materialize. On Friday, the giant discounter said it would scale back planned U.S. Superstore openings next year by more than 25% in a move to shore up its bottom line.
At the same time, the major grocery chains have demonstrated a resiliency in meeting other threats. Profit at Safeway Inc., which owns Vons, soared 55% to $871 million last year. Ralphs owner Kroger saw earnings rise 16% to $1.1 billion last year. Profit at Supervalu Inc., the corporate parent of Albertsons, jumped 119% to $452 million.
The Southern California contract for grocery workers was set to expire March 5 but has been extended twice. Either side must give 72 hours notice before canceling the contract, and neither side has done so.
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The issue: The contract between 65,000 grocery workers and Albertsons, Ralphs and Vons was set to expire March 5 but has been extended twice while the parties negotiate a new agreement.
The talks: The parties are close to an agreement to improve health insurance for about 33,000 new hires who get a lower level of benefits and pay than veteran workers.
What’s next: The union and the grocery companies need to conclude their accord on healthcare and reach an agreement on raises. Both sides agree that workers deserve increases in hourly wages, but they are likely to wrestle over the amount.