Grocery Chains Sharing Costs to Offset Strike Toll
By DAVID GREENBERG
Unionized grocery workers’ biggest gambit in the five-week old strike the decision to pull their picket lines from Ralphs stores in a divide-and-conquer tactic appears to have been neutralized in advance by the three major grocery chains.
As part of their pre-strike “mutual assistance pact,” the chains secretly reached a revenue-sharing agreement that will funnel extra income generated by crowded Ralphs stores to the two others, according to Chicago-based industry analyst Mark Hugh-Sam of Morningstar Inc.
“There is a monetary component to the (chains’) agreement,” Hugh-Sam said. “It’s not just that if one gets struck the others would lock out. The benefit is that if one of the picket lines was removed, then there would be a benefit to the other parties and they could compensate the others.”
None of the chains has publicly admitted the existence of such an agreement.
However, they are common and permissible under multi-employer bargaining guidelines of federal antitrust laws, said Charles Cerankosky, managing director of equity research for Cleveland-based McDonald Investments Inc. “They can’t conspire to fix the price of tuna fish, but they can determine how
the costs of settling a contract will be shared,” he said.
Hugh-Sam said he received word of the so-called “pain-sharing” component of the pact from Julie Hong, an investor relations official with Safeway Inc., which owns the Vons and Pavilions chains.
Hong did not return calls seeking comment.
Albertsons Inc. spokeswoman Stacia Levenfeld, and Terry O’Neil, spokesman for Kroger Co.-owned Ralphs, both refused to say whether a revenue-sharing agreement exists.
Safeway Chief Executive Steven Burd, who has spoken out about the need to reduce labor costs, made no specific mention of any pact during an Oct. 16 third quarter conference call with investment analysts.
“In terms of bargaining partners, we bargained with Kroger and Albertsons now a number of times,” said Burd. “We’ve set some objectives on the front end of this thing. My view would be that this is as strong partnership as we have ever had. And I think we all view this exactly the same.”
Divide and conquer?
Talks by both sides resumed for three days last week under federal mediator Peter Hurtgen. There was no indication of whether progress had been made but it marked the first time that there had been discussions since the strike at Vons egan on Oct. 10. Ralphs, sister chain Pavilions and Albertsons subsequently locked out union workers the next day.
The United Food and Commercial Workers Union’s decision to pull the picket lines from Ralphs was meant to put more heat on Vons and Albertsons, because those two chains have taken the most intransigent positions in demanding the union accept significant concessions in health care, pension and pay. It also provided relief to customers after honoring the picket lines at all three chains for several weeks.
Cerankosky said he believes a monetary agreement was already in effect before the union pulled the picket lines off Ralphs on Oct. 31. “It’s always part of multi-employer bargaining units,” he said. “It’s not just revenues. It’s costs of reduced business as well.”
Just prior to the withdrawal of pickets from Ralphs, analyst Mark Husson at Merrill Lynch & Co. estimated that the work stoppage was costing the grocery chains between $34 million and $50 million per week in lost revenues. None of the companies has reported earnings for any period that encompass the strike. However, on Nov. 13 Albertsons withdrew its earnings guidance for the remainder of 2003, citing uncertainty over the duration of the strike, which has affected 859 Southern California Albertsons, Ralphs, Vons and Pavilions stores.
For their part, union representatives were downplaying the importance of revenue sharing, saying that they suspected such an agreement was in place all along.
“We’re not surprised,” said Barbara Maynard, an L.A.-based labor consultant working for the UFCW. She refused to speculate on how revenue sharing affects the union’s strategy of isolating Vons and Albertsons.
In early talks in September, union negotiators said they asked for a copy of the chains’ mutual assistance agreement but were refused. Last week, union officials were concentrating their efforts instead on fending off takeaway proposals at the bargaining table. They were also attempting to spread their pickets to other parts of the country.
“It’s just one more tactic they have to try to withstand the strike,” said Kathy Finn, director of collective bargaining research and education at Local 770 in L.A. “Whether there is revenue sharing or not, these three have an unholy alliance to take away our benefits.”
Finn said UFCW lawyers are looking into the legality of the strategy. Labor attorneys said it’s unlikely any violations will be found, however.
Mutual assistance pacts have been used in labor disputes for decades. Unions generally had had difficulty proving they existed because management was reluctant to reveal too much of its labor-fighting strategy.
One notable exception was the revenue-sharing pacts forged by the airlines dealing with periodic strikes that occurred during the 1970s and before. If unions struck one airline, the others agreed to pick up parallel routes and channel the additional profits back to the targeted airline.
Information about the deals was easier to come by because the industry was straddled by regulation and largely controlled by the federal Civil Aeronautics Board.
“The airlines were so heavily regulated that everything they did came under scrutiny,” said Daniel Mitchell, a UCLA professor of management and public policy. “In other industries, it is sort of sub rosa. The employers don’t want to talk about what they are doing.”
Airline industry mutual assistance pacts ended in 1978 with passage of the United States Airline Deregulation Act, which included union-friendly language barring future revenue sharing agreements.
While legal, the failure by public companies to disclose such agreements in quarterly and/or annual filings with the Securities and Exchange Commission would raise concerns if there were a “material effect” on the parent companies’ earnings, generally a 10 percent difference.
“I find it very unusual they would be sharing revenues,” said an SEC lawyer who requested anonymity. “If I’m an investor of one company and I find out they are sharing revenues with a competitor, I would be furious.”
In spite of the chains’ countermoves, the unions’ strategy can still be a factor in the strike. Ralphs, for example, could still benefit from the added business because it gives the chain a chance to expand its customer base.
Problems could also arise in determining how much money Albertsons and Vons deserve. Details of how revenues will be shared have not been disclosed, although Hugh-Sam said a formula is in place.
“It sounds simple but it turns out to be complicated,” said Mitchell. “How do you figure out how much extra business you’re doing and what the profits are? They will have to negotiate it.”