SAFEWAY WILL ASSUME CONTROL OF TRACY WAREHOUSE OPERATIONS

DAVID GHITELMAN

PLEASANTON, Calif. -- Safeway here said last week it will retake operational control by Aug. 10 of its distribution center in Tracy, Calif., replacing the DC's third-party operator, Tracy-based Summit Logistics, a subsidiary of U.K.-based Tibbett & Britten.

The move was hailed by the Teamsters union, which represents the more than 800 workers at the facility, but analysts said it points out the failure of Safeway's efforts to outsource distribution, a strategy that was instituted at least in part, they said, to insulate the company from the union.

A Safeway spokesman told SN the company is taking advantage of an option in the facility's management contract "for a variety of strategic reasons." He said the company had decided that "we could operate it efficiently."

Union officials praised the decision and hope it will lead other national chains to bring all aspects of their distribution in-house. Jim Hoffa, the Teamsters union's international president, said, "While many grocery companies have been moving to third-party operations, it is clear that Safeway recognizes that they can be more efficient operating their own facility, providing better service to their stores, and maintaining good relationships with their employees."

Hoffa added, "We look forward to showing the rest of the industry that a company and a union can work together and be the most efficient and competitive operation around."

The Safeway spokesman observed, "We are looking forward to a productive relationship with the Teamsters."

Analysts told SN they expect Safeway to have a difficult time maintaining labor peace at the distribution facility.

Gary Giblen, senior vice president and director of research at C L King Associates, New York, said, "If the union is happy, there has to be some reason for a company's management to be nervous."

He noted, "Safeway has a long history of contentious relations with labor at its Northern California distribution facility." He added that a major reason for bringing Tibbett & Britten in to run the Tracy facility in 1996 was that it "insulated the company from the union."

Andrew Wolf, equity analyst, BB&T Capital Markets, Richmond, Va., pointed out that the insulation has become increasingly frayed. In 2000, the distribution center was the scene of an occasionally violent 47-day strike by the Teamsters. Eventually, the workers accepted a contract that included a reduction in benefits and hourly wages from the third-party operator's last pre-strike offer.

Union members weren't the only ones who felt the financial impact of the strike. Safeway said the strike cost it $114 million, dropping earnings per share by 13 cents in the quarter ended Dec. 30, 2000.