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Tentative grocery deal sends stocks up

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San Diego Union Tribune

Wall Street breathed a collective sigh of relief yesterday over a tentative labor agreement between the major Southern California supermarket chains and their union workers, lifting grocery-store stocks higher despite a broader slump in the retail sector.

The contract agreement, expected to be approved by union workers in a vote Sunday, has dispelled fears of a repeat of the devastating 141-day strike and lockout in 2003-04 that cost the grocery industry about $2 billion and delivered a major blow to the union’s prestige.

Details of the deal forged late Tuesday between the United Food and Commercial Workers and the grocers ? Ralphs, Albertsons, and Vons ? were not released, but labor observers in contact with the union and management say it gives workers improved wages and health care benefits.

Observers also speculate that the deal will allow new hires placed in a lower wage and benefit tier after the 2004 contract to eventually gain equal footing with veteran workers.

Some Wall Street analysts said the deal has something for both sides, undoing some concessions that rankled employees in the previous contract while helping the grocery industry to control costs, improve morale and stabilize its work force.

?These deals, when they take this long, are almost always a win-win,? HSBC Global Research analyst Mark Husson said.

?We only know what the unions have said about the settlement, so the devil is always in the details,? Husson added. ?But the market is glad there is a settlement. These retailers are now profitable in Southern California. They have recovered to around the levels before the strike, but it took at least two years to get to those levels.?

Meredith Adler, an analyst with Lehman Brothers, said ?the true terms and what it means to the bottom line? may never be known.

A Texas grocery union in recent negotiations with Kroger, Ralphs parent, apparently made concessions on work rules, the often inflexible procedures governing overtime, seniority and outsourcing tasks to nonunion workers that can be costly for management, Adler said.

?The workers wanted better health care and better wages, but we don’t know what they gave up,? Adler said. ?So we’ll see articles that will say the union won, and the retailers won’t argue that because it’s not in their best interest to beat their chest. They want their workers to come to work and they want them to feel good.?

Kroger shares rose 19 cents yesterday to close at $29.10, while Vons parent, Safeway, rose 93 cents to close at $35.98 and Albertsons parent, Supervalu, rose $2.17 to close at $49.67.

Labor and Wall Street observers said the pain suffered by both sides in the 2004 contract dispute paved the way for a more amiable outcome this round.

?The grocery-store chains wouldn’t have taken the ugly path they took three years ago if they didn’t have to have discipline about bottom-line economics,? Adler said. ?On the other hand, there is also a greater recognition of the cost of a strike.?

The 2004 strike ended with a contract that created a longer wait for health care benefits and a two-tier wage system for an estimated 65,000 Southern California grocery workers. Employees hired since then, who constitute more than half of the work force, don’t receive the same wages or benefits as those hired under previous contracts.

While the old contract was a major defeat for the union, aspects of it ? including higher-than-anticipated turnover ? have also haunted the grocery industry, say some observers.

?Two-tier systems historically have not done well. They tend to create a lot of disgruntlement within the work force and, when tried, are usually abandoned fairly quickly,? said Ken Jacobs, chairman of the University of California Berkeley Center for Labor Research and Education.

?If what we’re hearing in terms of health care eligibility and the two-tier system are true, the workers made real gains back in this contract,? Jacobs said. ?And it looks like the companies have stepped back from their experiment in the direction of Wal-Mart’s low-wage retail model.?

Harley Shaiken, a professor of labor issues at the University of California Berkeley, said the supermarket chains approached the 2004 contract negotiations with ?tunnel vision.?

?It was all about how to hammer down labor costs,? Shaiken said. ?But the flip side of that is you damage morale and you increase turnover, both of which are very costly in a service-related industry.?

The threat of a potential new competitor ? service-oriented British retailer Tesco has announced it will open as many as 100 stores in Southern California, Arizona and Las Vegas ? may have spurred the companies to cut a better deal for workers, said some observers.

And the grocery industry boogeyman – competition from big box retailing giant Wal-Mart ? hasn’t materialized in any meaningful way in Southern California, they say.

?The (Wal-Mart) gun the supermarket chains thought was there isn’t there,? Wall Street analyst Adler said. ?It’s not that it is gone, but it isn’t held to their heads at the moment.?