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Grocers to get tough with unions

In the next few weeks, U.S. grocery chains will begin renegotiating key labor union contracts. Albertson's, Kroger and Safeway are expected to get tough with the UFCW, attempting to drive down costs to compete with Wal-Mart, which has a strict anti-union policy. Morgan Stanley Equity Research indicates that major grocers pay 20-30 percent more in wages and benefits to their workers than Wal-Mart.

Items of contention include increased employee co-payments for health insurance and caps on healthcare payouts, as well as restructuring of seniority-based pay raises. But the labor unions are not eager to discuss reductions in benefits. Although no major supermarket chain has had a major strike in two years, union leaders have warned they may be inevitable if retailers push too hard. Safeway set a precedent for tough treatment last November, when it put its 113-store Dominick's division on the block after UFCW refused proposals for wage and benefits concessions for the chain's employees.

Supermarket labor contracts are negotiated with local union officers, and agreements cover all of a chain's stores in a particular metro area, with contracts lasting between three and four years. Most major chains have hundreds of contracts in place at any given time, which means it will take time for retailers to make significant headway on changing their labor cost structure. Even if unions make concessions,"The rolling contract expirations alone will mean any meaningful change could take several years to attain," notes Morgan Stanley's Mark Wiltamuth in his report on the upcoming negotiations.

Morgan Stanley estimates that 33 percent of Kroger employees will be affected by contract renegotiations in 2003, 17 percent at Kroger and 13 percent at Albertson's. Safeway is renegotiating contracts in Arizona, Washington, Oregon, Southern California and British Columbia. Kroger has contracts up for renewal in Peoria, Ill.; Portland, Ore.; Memphis; Charleston, W.V.; Indianapolis and Southern California. Albertson's is renegotiating contracts at all its Jewel Foods stores in Chicago and Southern California.

The largest impending UFCW renegotiation will occur October 5 in Southern California. The dealings, which include Albertson's, Safeway, Kroger and several other grocers, will impact more than 69,000 workers in Southern California. Wiltamuth says the grocers will likely negotiate as one entity in Southern California and will sign strike/lockout agreements, which dictate that if one retailer takes a strike, all grocery stores will lock out union employees and share the resulting losses.

Several landlords could be adversely impacted if unions resist concessions. Strikes, bad publicity and slowing sales and profits for retailers could translate into falling occupancy rates and lower rents. Kroger is a major tenant in the portfolios of several large public landlords, including Equity One, Heritage Property Investment Trust, New Plan Excel, Pan Pacific, Regency Centers and Weingarten. Safeway is a major tenant for Federal Realty Investment Trust, Pan Pacific, Regency Centers and Weingarten, and Albertson's is a major contributor of annual rent revenues for Pan Pacific and Regency Centers.

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