New California Labor Contracts Boost Wages, Benefits

ELLIOT ZWIEBACH

LOS ANGELES — Industry analysts said last week there's something for everyone to crow about in the new contracts between the three major chains and 65,000 Southern California members of seven locals of the United Food and Commercial Workers union.

The new labor agreements with Albertsons, Ralphs and Vons eliminate the second tier of employees introduced into the contracts three years ago by making all employees eligible to achieve the top pay levels; reduce the waiting time for full health care coverage; give union members their first wage increases in five years; and ensure longer-lasting labor peace by extending the contracts for four years instead of the more traditional three.

While union members will certainly benefit from most of the top-line terms of the contracts, “the employers got a deal and not a strike, and that is a win for them,” Andrew Wolf, an analyst with BB&T Capital Markets, Richmond, Va., told SN.

“While the two-tier system created a lower cost structure for the employers, it also created a disincentive for workers to stay on the job, and it resulted in a higher degree of turnover than the companies had anticipated. But by getting rid of the second tier and giving employees a better contract, there's a good chance the chains will lower their turnover rate — and despite an increase in total labor costs, perhaps it will all balance out.”

The wage increases, which amount to 3%, “were probably overdue, so that's a wash for the chains,” Wolf added. “But the employers could not afford to take a strike, especially with Tesco coming, because it would have softened up the market.”

Gary Giblen, executive vice president of Goldsmith & Harris, New York, saw the settlement as more favorable to the union. “For the chains to give up the two-tier system that has been a management keystone for decades is a big surprise and a big win for the union,” he said.

“The whole idea behind the second tier was that labor costs would go down over the long term as veterans retired, leaving the lower wage earners as the majority. But the rise in turnover and decline in morale was just too much.”

Giblen said the 3% wage increase is on the high side, “and reducing the waiting time to qualify for health care is also a big win for the union.”

However, in terms of the new health care package, which includes individual health reimbursement accounts, Giblen said he gives the edge to the employers. “Just as tenants who pay for their own utilities consume much less than when the landlord picks up the tab, the HRAs lead to more effective, less wasteful utilization of health care, to the benefit of employers and employees.

“Adoption of HRAs changes the cornerstone on health care benefits in food retailing for the better, and for the employers it helps offset the contract's sea change in eliminating the two-tier wage structure.”

Jonathan Ziegler, a Santa Barbara, Calif.-based analyst with Dutton Associates, El Dorado Hills, Calif., said he believes the union was the clear victor “because everything the chains won three years ago was unwound.”

“What they essentially bought by taking a strike last time was three years of more favorable economics, and now they're back to where they started, though all are more prosperous.”

Asked why the employers opted to give up what they gained three years ago, Ziegler said, “Because business is good right now, and they realized it took them almost 2½ years — nearly the full length of the contract — to win back the profits and sales they lost in the strike. And they recognized some erosion in their market share to direct competitors and other classes of trade that were not struck last time.”

Bryan Hunt, a high-yield analyst with Wachovia Securities, Charlotte, N.C., said the eventual outcome seemed clear early on, when both Stater Bros. Markets and Gelson's Markets signed contracts with the UFCW that eliminated the second tier and obligated the employers to pay more for health care. “So the table was already set in terms of expectations,” he pointed out, “and the operators had really limited choices with regard to the outcome.”

With the endorsement of the union leadership and about 30% of the membership voting, the seven locals voted to accept the contracts by a margin of 87%.

The new labor agreements are retroactive to last March 5, the date the previous contract expired.

“This is a win-win for both sides, not a lose-lose like three years ago,” Greg Conger, president of UFCW Local 324, told SN last week — a reference to the 141-day strike-lockout that ended in early 2004.

“We got most of what we were looking for going into the talks, and the employers, with our help, will be able to make improvements in health coverage without it costing them anything.”

While Conger said he believes elimination of the second tier will reduce turnover, “the ability to qualify for good health insurance sooner will probably be a greater factor in reducing turnover,” he added.

Union officials said the health care aspects of the new contracts — in terms of health reimbursement accounts, 100% coverage of preventive care and encouraging individuals to take care of their own needs early — will serve as a model in other markets for negotiations with Albertsons, Ralphs and Vons.

Contract Highlights

Under terms of the new Southern California contract:

Stater Bros. Markets, Colton, Calif., and Gelson's Markets, Encino, Calif., both negotiated three-year agreements, excluding wages, before the previous contracts expired. The union said it could reopen negotiations with those chains to add a fourth year of coverage or simply negotiate one-year agreements in 2010 so that all area contracts will expire at the same time in 2011.
— E.Z.