California grocers’ labor agreement win for both sides

DATELINE —The United Food and Commercial Workers are boasting that the labor agreement with Kroger, Safeway and Supervalu in Southern California is a big win, while the supermarkets are generally discussing it as a win/win situation that keeps their labor costs down while allowing the companies to provide substantial wage increases. However, Steve Burd, Safeway’s chairman and ceo, may derive more satisfaction from the agreement reached than any other party.

The cause Burd has championed nationally—changing benefit plans to make them more consumer-oriented and cost efficient—was written into the contract, elevating the profile of his cause and himself.

In its response to the July 24 ratification of the new contract by United Food and Commercial Workers Union employees, Safeway emphasized the health plan as the critical element in the contract. The newly inked labor agreement restructured the health plan that had previously existed and now emphasizes wellness programs, preventative care and behavioral change as a way to improve health and hold down medical costs for all involved.

The plan creates a “health reimbursement account” that employees can use to pay for medical costs; provides for 100% coverage of preventive care services such as annual physicals, colonoscopies, mammograms, prostate cancer screenings, well-child care and childhood immunizations; and offers low- and reduced-cost educational programs covering issues such as weight management, smoking cessation and the impact of cholesterol. It also offers reduced prescription drug co-pays for maintenance drugs that treat a host of conditions ranging from hypertension and high cholesterol to diabetes and asthma, while further providing a 24-hour nurse call-in line and/or medical decision support line.

The contract shortens eligibility waiting periods to six months from date of hire for employees and children dependents, with labor contributions fixed at $7 for employee only, $10.50 for employee and children and $15 for employee plus spouse and children, with employer contributions rising from $2 per hour worked in 2007, to $3.47 per hour worked in February 2011.

Commenting on the contract, Burd said, “This new agreement provides employees with the best wages, benefits and working conditions in the Southern California retail market, while making certain [that] Vons has the tools to thrive in a highly competitive environment. This contract also contains some unique and groundbreaking reforms in the health care plan. We know from experience [that] these changes will create an improved health plan for our employees that focuses on improving their health through prevention and wellness while simultaneously helping control escalating health care costs.”

Kevin Herglotz, a spokesman, pointed out that Safeway already provides just the type of benefits program offered in the new union contract to its nonunion employees, and therefore understands the advantages. By providing the HRA as a first-line response to health costs, the benefits package encourages employees to consult with the call-in line and consider alternatives before making health care decisions, encouraging them to analyze costs and benefits in a way that favors sensible conclusions, particularly on everyday expenses, Herglotz said.

“The plan utilizes health care dollars more efficiently, and gets employees to focus on generic drugs, for example, rather than premium, resulting in cost savings,” said Herglotz. Over the seven years that Safeway non-union employees have participated in the consumer-oriented benefit plan, the various health-related costs incurred by employer and employee have been restrained, and even reduced, in the more extreme cases by about a third, Herglotz said.

JPMorgan analysts Carla Casella and Virginia Chambless, in a research note, opined that the new contract provides large wage increases to many current employees, but potentially reduces employer labor costs over the next two years because of $240 million contribution savings on health-insurance through March 2009. They pointed out that the costs for Kroger, Safeway and Supervalu will rise after that time.

Another bonus of the new contract that Casella and Chambless remarked upon is its four-year length, which extends it beyond the customary three years. This provides more stability to both employers and workers, the analysts said, in the face of impending market entry by Tesco and expanding Wal-Mart and Target food operations.

“We think the wage and benefit structure makes the contract relatively unproblematic if applied to Tesco, should the United Food and Commercial Workers succeed in organizing Tesco stores after the company opens in Southern California in November. However, pension liability would still be a major concern,” the analysts stated.

Supervalu took a broader point of view on the new contract. “From our perspective, the No. 1 thing wasn’t one piece, but [rather] the whole contract. We really were excited to be able to give a raise,” said Supervalu spokesperson Stephanie Martin.

From the Supervalu point of view, the health care piece, a longer contract length and, particularly, the reduction of labor costs were all important elements in the mix, as was, at least by implication, the ability of the supermarkets involved to present themselves as providing working Californians with a boost.

Success in coming to an amicable agreement with their workers is something that the supermarkets will inevitably remind consumers of as they face pressure from Tesco, Target and Wal-Mart.