ANALYSTS: COMPROMISE ELUSIVE AS LABOR DEADLOCK GOES ON

Elliot Zwiebach

LOS ANGELES -- When will it end?

As the Southern California strike-lockout moves into its 14th week, with no talks scheduled, industry analysts told SN they have no more idea than anyone else how long it will last.

But they do offer explanations for why both sides seem so intractable.

"The union is holding tough so it doesn't have to yield in negotiations in other markets over the next two years, while the employers are taking the heat for the same reason," Jonathan Ziegler, principal in PUPS Investment Management, Santa Barbara, Calif., told SN.

Edouard Aubin, an analyst with Deutsche Bank Securities, New York, said the union and the employers see the Southern California dispute as a make-or-break precedent for negotiations going forward.

"From a financial standpoint, the UFCW, which was a net lender to other unions in the 1990s, is now a net borrower, and therefore its ability to finance another long strike elsewhere in the U.S. in 2004 is going to be constrained. That makes it important for the union to win this one."

Asked how they believe the dispute will be resolved, the analysts indicated it would require compromises on both sides.

"The cost per day of the strike is greater than what anyone thought, and it's lasted through the holidays and now into January with no exit strategy apparent," Gary Giblen, senior vice president and director of research for C L King Associates, New York, said. "It was thought at one point the duration would be determined by how long the workers' strike benefits would last, but those have been extended.

"At this point the total loss for the chains is beginning to exceed what they would save in health care costs, and the best settlement would be a 50-50 compromise, with the workers accepting a modest increase in their payout for health care along with some job losses and reduced hours.

"From the chains' point of view, although they turned down the union's compromise proposal in December, I believe the chains will end up with something significantly less satisfactory than their 'last, best and final' offer, and what will they have accomplished? With a little more diplomacy in October, they could have avoided all these costs and the post-settlement bitterness that is likely to follow, with productivity going down and internal theft going up."

"When it's all over, both sides will walk away with something," said Lisa Cartwright, an analyst with Citicorp Smith Barney, New York. "The union will end up having to pay for part of its health care coverage, but maybe it will get some other concessions -- a lump-sum wage payment, for example."

Chuck Cerankosky, an analyst with McDonald Investments, Cleveland, offered a similar prediction. "To reach a settlement, there will have to be major changes in the contract. The union may trade work rules for benefits, but there's no formula for the chains to operate with greater in-store labor costs."

Ziegler told SN the best the union may be able to achieve is some face-saving element built into the final settlement. "One solution would be to give up the 50-cent wage increase the employers have offered [before the strike-lockout began] and have that money go toward paying some of the health care benefit," he said. "And instead of the two-tier wage system the employers want, the contract could establish a schedule whereby new hires don't get health benefits for the first nine months or so of their employment."

The labor dispute began Oct. 11, when seven UFCW locals went on strike against Safeway's Vons and Pavilions stores; a day later union employees were locked out of stores operated by Ralphs, a division of Kroger Co., and by Albertsons. The union lifted pickets at Ralphs stores on Halloween, and the dispute subsequently spread to nine chain distribution centers when the Teamsters union began honoring UFCW picket lines in November

Several attempts by a federal mediator to bring the two sides together have proved inconclusive.

According to Cartwright, the situation will not be resolved "until one or two of the chains tell the others it's time to give in a little bit. If it were left up to Safeway, there would be no backing away from the final offer because that's how Safeway negotiates once there's a strike."

Cartwright said she thinks the dispute could last "for a few more months, though it seems likely the union will run out of cash at some point."

Cerankosky said he believes the chains can hold out indefinitely "because the longer the strike goes on, the more productive the replacement workers become and the more inured to the strike consumers become."

As the dispute has progressed, there's been no abatement in the anger that's apparently fueling both sides.

In the latest instance, the UFCW filed two lawsuits earlier this month against Ralphs, alleging the chain is hiring locked-out employees and encouraging them to use false identities. A UFCW spokeswoman told SN the union believes Albertsons is engaging in similar practices, "though we just don't have enough proof like we have against Ralphs -- at least not yet."

Gary Rhodes, a spokesman for Cincinnati-based Kroger, told SN, "It has been Ralphs' policy since the labor dispute began not to hire any locked-out employees, whether they are from Ralphs or Albertsons, or any striking employees from Vons."

In the lawsuits -- one filed at the state level, the other at the federal level -- the union is contending Ralphs has encouraged or permitted locked-out employees to work secretly "under false names and Social Security numbers" and threatened employees with retaliation for refusing to work under those conditions. The federal suit also accuses Ralphs of violating the Racketeer-Influenced and Corrupt Organizations (RICO) Act by engaging in such practices.

If the charges are proved in court, it could open the way for union members to become eligible for unemployment benefits they have been denied, Ellen Anreder, a UFCW spokeswoman, told SN.

"The state employment department treats a lockout the same as a strike and does not allow locked-out workers to collect unemployment benefits," she explained. "Those workers are available for work, but they're not being allowed to work because they've been locked out.

"However, if the chains are rehiring some workers while selectively locking out others, then they are engaging in selective layoffs, which would make our members eligible for unemployment benefits."

According to Anreder, the union believes at least 50 union employees have been covertly re-hired by Ralphs, based on statements and photographs from union members who said they recognized locked-out Ralphs employees working at different stores.

To confirm the reports, one of the seven locals asked two members to go undercover, Anreder told SN. She said a cashier and a meat cutter were rehired by Ralphs a few days after they told their store managers they were willing to work.