PEACE TERMS

ELLIOT ZWIEBACH

For labor-management relations, 1999 should be a relatively peaceful year. For Kroger Co., Cincinnati, 1999 could a very interesting year. During the course of the year Kroger will be involved in negotiations involving six of the 10 largest United Food and Commercial Workers Union contracts that expire this year and five of the 12 largest Teamsters union contracts.

Late summer and early fall will be an especially active period for Kroger, with four of the six UFCW agreements -- in Memphis, Tenn.; Cincinnati; Charleston, W. Va.; and southern California -- all expiring within the first nine days of October. Possibly more challenging is the fact that all five Teamsters agreements -- in Atlanta; Roanoke, Va.; Louisville, Ky.; Dallas and Houston -- will all expire the same day, April 30.

All this comes in a year in which Kroger will be consolidating its operations with Fred Meyer Inc., Portland, Ore., in a merger expected to close this spring. That merger will give Kroger ownership of Ralphs Grocery Co. in southern California, which will be part of the industry's largest contract negotiations this year.

Kroger officials declined comment for this story.

According to Gary Giblen, a New York-based securities analyst with NationsBanc Montgomery Securities, San Francisco, "The higher the percentage of a company's work force that comes up for negotiations, the more uncertainty there is -- though in general, each region looks pretty reasonable for Kroger."

While Kroger's plate is certainly full, the outlook is very positive, Giblen said. "We're in the midst of a wonderful era of labor harmony, and Kroger has had very strong labor relations the last few years as it's gone from minimal new-store growth to more new-store growth, which creates more jobs.

"And both labor and management at Kroger have a common enemy, the supercenters, and that produces harmonious relations between them to some degree."

Besides Kroger, other major players who will be negotiating contracts with the UFCW this year include Safeway, Pleasanton, Calif., for both Dominick's and Vons Cos. in southern California; Meijer Inc., Grand Rapids, Mich.; Bruno's, Birmingham, Ala.; and Cleveland-based Tops Friendly Markets (formerly Finast), a division of Ahold USA.

Among the top Teamsters contracts, Safeway reached early agreement with the union, prior to the closing of the Vons Cos. acquisition in November, on a contract that expires March 31.

Jonathan Ziegler, a San Francisco-based analyst with Salomon Smith Barney, New York, said the early signs point to a peaceful labor year. "Albertson's settled early with the Denver clerks, and that's a very positive sign for the rest of the year," he said, "because it could serve as a model for other negotiations.

"Safeway [which acquired Dominick's Supermarkets, Northlake, Ill., last November] certainly won't want to make any problems in the Chicago-area negotiations, and I believe everything else looks relatively smooth."

Representatives of labor and management also told SN they are basically optimistic about the peaceful outcome of most negotiations.

However, they said those talks will not be without controversy, citing the following among the issues likely to come up for discussion:

The escalating costs of health care.

Conflicts in some areas over the number of full-time vs. part-time workers.

The length of new contracts.

Industry consolidation.

Wages.

Even the healthy state of the economy will create issues, observers said.

"The healthy economy makes labor tight, especially in the middle of the U.S., which gives the union more power because wages must reflect the tight labor situation," Giblen said. "But that tends to benefit part-time and short-tenure positions, more so than senior clerks, who already have good wage levels."

It may not be that simple, Marv Russow, president of UFCW Local 227 in Louisville, Ky., told SN. "For the past 10 or 12 years we've agreed to hold down starting rates, and now we feel we have to address that issue," he said. "And any increase at the bottom end means the people at the top will want a similar increase." The Louisville clerks will be negotiating with Kroger for a new contract; the current agreement, covering 9,000 workers, expires April 11.

For retailers and union members in Cleveland, it's "us vs. them," said Bob Duvin, a labor lawyer and chief negotiator for the Cleveland industry, with traditional operators fighting to survive against a host of alternative formats, including supercenters, limited-assortment stores and membership clubs -- "all of them non-union, all of them low-cost and all of them huge in terms of the market power and financial resources behind them."

According to Chuck Cerankosky, a securities analyst with McDonald & Co., Cleveland, "The healthy economy is a mixed bag. Labor demand remains high, and there are some labor shortages, but with the food-away-from-home sector taking share away from the food-at-home sector, the supermarkets must find ways to hold on to quality people and make sure those people are productive."

Bob Potter, president of UFCW Local 951, Grand Rapids, Mich. -- which is negotiating a new contract for more than 26,000 Meijer employees, has some doubts about the longterm economic outlook. He said his union will be seeking a three-year contract with Meijer, instead of the current four-year agreement that expires April 24, "because it's harder to forecast the economy at this point, and we think it may become more volatile in the next few years.

"We've seen enough changes in the industry over the last three years to make us feel that early longterm forecasts are more difficult to make, and a three-year contract is closer to my comfort level," Potter said.

According to Russow, with unemployment down to 2.5%, Local 227 members in Louisville "see themselves as irreplaceable," and that's making the union bolder in its negotiations with Kroger.

After making concessions to Kroger in the 1980s, when the company sought relief from rising inflation, the Louisville clerks and meatcutters are interested in getting back some of what they've given up, Russow said. "We took some wage freezes in the 1980s and only minor increases in the early 1990s, and we also lost some benefits in the 1980s through concessions, and the membership says we should get those back now that things are good.

"But it's harder to get them back once you've given them up," he conceded.

In Denver, UFCW Local 7R has already negotiated a new agreement with Albertson's, though it has not yet commenced talks with King Soopers, a division of Kroger, and Safeway; the contracts for all three chains expire July 10. The union hopes to reach the same agreement with the other two operators as it did with Albertson's, Stan Kania, secretary-treasurer of Local 7R, told SN.

Denver experienced a seven-week strike against King Soopers and a sympathy lockout by Safeway three years ago, Kania noted, "and labor relations between the union and those chains have been strained ever since."

The Albertson's contract ensures that employers will continue to maintain their level of contributions to the health and welfare fund, Kania noted; however, he said he expects King Soopers to propose that employees make co-payments, a proposal the union is against.

Wages will also be an issue in the Denver talks, along with pension and insurance contributions, Kania said. "We got a great wage increase from Albertson's, although not all we wanted. We were looking for increases of 50 cents an hour in each year of the contract, but we got 30 cents a year over a five-year contract."

The five-year agreement with Albertson's is a year or two longer than the contracts Local 7R has generally negotiated, Kania said, adding that the union could look for similar longterm agreements with Safeway and King Soopers. "It means five years of labor peace, and Albertson's was happy with it," Kania said. "We proposed it and they accepted it."

Representatives of Safeway and King Soopers (Kroger) declined comment on the upcoming negotiations.

In southern California, spokesmen for both union and management agreed that health and welfare protection is likely to be a primary issue.

John Sperry, president of UFCW Local 324 in Orange County and spokesman for the seven southern California locals whose contracts covering nearly 70,000 workers expire Oct. 3, said many health-maintenance organizations have continued to raise prices, and while both sides are aware of the rising costs, "we differ on how those costs should be paid. And although we have maintenance-of-benefits built into our contracts, we both must find ways to keep costs down," Sperry said.

Bill Bailey, president of the Food Employers Council -- a consortium that represents supermarket managements in labor negotiations in southern California -- said the two sides discuss the issue informally when they meet at monthly trust fund meetings, "but it takes on greater urgency when the contract rolls around.

"Right now we're paying 100% of the employees' costs. But when that number starts to escalate on a maintenance-of-benefits basis, it puts pressures on wages and the pension fund," Bailey said.

The answer is not necessarily employee co-payments, he noted. "We're continuing to look at all aspects of controlling and offsetting costs, starting with the proposition that we can't afford to pay maintenance of benefits.

"In the past we've used excess reserves from the trust funds to recapture or offset new costs, but we have no excess reserves now, so when health and welfare or wage demands hit the table, it all represents new costs to the employer. As a result, the employers need to continue to cut expenses, and we have to discuss where the money is going to come from if the union wants to increase the health and welfare or pension contributions."

In Grand Rapids, Potter, the president of UFCW Local 951, said, "The membership seems to be satisfied with the benefits levels they receive [from Meijer], although costs are going up and we certainly need to cover those costs. But we believe the primary direction of our negotiations will be to increase wages."

Union members at Meijer earn $13 to $14 an hour at the top tier and $10 an hour in the lower bracket, Potter said. The union hopes to achieve wage increases of 15% over the term of the new contract, he added.

In Louisville, Russow said the union expects to ask Kroger for wage increases of 8% to 10% a year in each year of the anticipated three years of the new contract, compared with increases of 3.5% to 4% achieved in the last round of talks, he said.

On the question of wages in southern California, Sperry said he expects the union ultimately to achieve the industry's norm of 3.5% to 4.5% in increases, "depending on the length of the contracts and how many years the increases are spread over."

Sperry said that in the last round of negotiations, the industry got "a fair settlement," which was reached nearly a year before the contracts' expiration, "and we hope to resolve all issues prior to the expiration this time." However, this year, the industry is somewhat at the mercy of regulatory agencies that are still reviewing Kroger's merger with Fred Meyer and Albertson's merger with Salt Lake City-based American Stores Co. (which includes Lucky Stores), he acknowledged.

Bailey said he expects the southern California industry to sign four-year contracts instead of the more traditional three-year agreements "because having a contract in place longer -- and securing longterm labor peace -- is probably in the best interests of companies going through mergers. And from the standpoint of employees, a longterm contract would reassure them that, whatever happens, there's a contract in place."

One of the major issues in negotiations in Denver will be a clerk's ability to move from part-time to full-time status -- an issue that was not resolved to the union's satisfaction during a seven-week strike-lockout three years ago, Kania said.

"In the past, an employee who worked 40 hours a week for four consecutive weeks could become full-time once a full-time position opened," he explained. "But under the agreement we negotiated in 1996, even if someone works 40 hours a week for four weeks, if there are weeks when a full-time employee is out sick or on vacation or a leave of absence, those weeks don't count toward a part-timer's four consecutive weeks, which makes it virtually impossible for someone to move to full-time. As a result, hardly any of our members has been able to achieve a full-time position over the last three years."

Scheduling is another union concern in Denver, Kania said.

"In the past clerks with seniority could bid a shift once and hold that shift as long as they liked," he explained. "Now management writes a general schedule two weeks ahead, and nothing is automatic -- everyone has to pick the days he wants to work for each new schedule, which makes it easier for management but more difficult for employees to plan ahead beyond the current schedule."

In Charleston, W. Va., members of UFCW Local 347 have been dissatisfied with the level of part-time benefits, said Willie Baker, vice president and director of the UFCW's Mid-Atlantic region, which encompasses West Virginia. Local 347's contract with Kroger, covering 4,700 employees, expires Oct. 9.

"Although a contract with Super Fresh was ratified late last year, some younger, part-time members opposed it [because of the part-timers' benefits package], so we're particularly interested in what the members think as we approach negotiations with Kroger this year."

Baker said he anticipates "some potential problems" seeking a better benefits package, "and we expect some resistance from Kroger, but we think we can make a legitimate attempt to keep our work force contented, because when your work force is happy, it works better and more effectively."

Consolidation will have a particular effect on negotiations in southern California and, to a lesser degree, with Dominick's in the Chicago area, observers said.

"In southern California we'll be negotiating with three national players -- Kroger, Safeway and Albertson's -- plus Stater Bros.," Sperry said, "and if there's a strike here, the chains' losses can be spread out over a vast area whereas before, when you were dealing only with local chains, this operating area was their bread and butter."

Russow, of Louisville Local 227, said that with Fred Meyer merging into Kroger, there's a strong likelihood that Kroger may add new formats, "and that's raising concerns about Kroger's future directions and the kind of company it will become."

One of the post-consolidation issues facing Local 1540 in Mount Prospect, Ill., is not knowing what to expect from Safeway, the new owner of Dominick's, William Dzik, president of the local, told SN. He said the union is concerned that Safeway, which acquired Dominick's last November, may not be familiar with all parts of the contract, which expires Nov. 6.

In addition, Dzik said he's unsure what Safeway is like across the negotiating table. "So we've touched base with locals in other parts of the country that deal with Safeway, and the comments we've gotten are all over the board, with some telling us everything tends to go smoothly while others say Safeway is tough."

One industry observer said Safeway has an opportunity to reduce its costs at Dominick's with the previously completed conversion of Omni combination stores to the Dominick's Fresh format, which has a multitiered contract rather than the single tier at Omni.

Labor Slate

Following are the 10 largest UFCW contracts expiring this year based on size of bargaining unit.

Bargaining Unit Size

Contract /Location Exp. Date UFCW Local (Number of Union Members)

Kroger Co. /Louisville,

Ky. 4/11 Local 227 9,000

Meijer /Grand

Rapids, Mich. 4/24 Local 951 26,350

Denver-area grocers 7/10 Local 7R 7,200

Cleveland-area grocers 9/12 Local 880 10,000

Bruno's /

Birmingham, Ala. 9/25 Local 1657 5,400

Kroger Co. /

Memphis, Tenn. 10/2 Local 1529 6,400

Southern Calif. grocers 10/3 7UFCW locals * 69,850

Kroger Co. /Cincinnati 10/9 Local 1099 6,500

Kroger Co. /

Charleston, W. Va. 10/9 Local 347 4,700

Dominick's (Safeway) /

Northlake, Ill. 11/6 Local 1540 8,000

Seven UFCW locals in southern California include 770 (Los Angeles), 324 (Orange County-Long Beach), 1167 (Colton-Riverside), 1428 (Pomona), 135 (San Diego), 1036 (Santa Barbara) and 1442 (Santa Monica).