Grocers lose their Wal-Mart leverage

By Abigail Goldman
Times Staff Writer

April 12, 2007

Back in 2003 when a major grocery strike loomed in Southern California, the biggest unionized supermarkets insisted that they had to hold the line on workers' pay and benefits.

Their rationale: Wal-Mart was about to storm California with low prices and low wages, and supermarkets said they needed to stay competitive.

But the storm never came.

Now, with the prospect of another grocery strike at hand, some workers are accusing the big chains of crying wolf.

"They can't use Wal-Mart as an excuse," said Sharlette Villacorta, 35, a veteran clerk who manages the deli at an Albertsons in Los Feliz. "Wal-Mart is not affecting their bottom line."

Talks are to resume Monday between the grocers and the United Food and Commercial Workers on the contract that expired March 5 but has been extended twice.

Negotiations broke off April 4, but both sides have since signaled a desire to keep negotiating. A strike could occur as soon as next week, but is not considered imminent.

As promised, Wal-Mart in recent years opened some Supercenters, built distribution facilities and fought neighborhood and labor activists for the right open more. But it hardly stirred the Southland grocery scene.

In all, Wal-Mart has garnered less than 1% of the grocery dollars spent in Southern California and 3% across the state.

That hasn't stopped the big grocery chains, from continuing to warn of the threat of Wal-Mart's low-cost model.

"Wal-Mart served a useful purpose for the chains," said Harley Shaiken, an economist and UC Berkeley professor who specializes in labor issues. "Wal-Mart was the 800 pound gorilla at the bargaining table in 2003.

"In 2007, it's the 80 pound gorilla," he added. "It's still a presence, it will be an important factor, but it's obviously moving slower than projected."

Albertsons, Vons and Kroger, the parent company of Ralphs, control more than 50% of the grocery market in Southern California. Including Stater Bros. and Ralphs sister company Food 4 Less, the big unionized grocery chains control about two thirds of the market.

Wal-Mart kicked off the scramble in 2002, when it pledged to build 40 Supercenters across the state within six years. The supermarkets argued that their higher wage and benefit costs would make them unable to compete with the low-cost, non-unionzed discount chain.

To date, Wal-Mart has opened 22 California Supercenters, which combine mass merchandise and a full supermarket in a building that can be the size of two Home Depot stores. Nine Supercenters are under construction and nine others have been approved by cities.

A dozen more Supercenters are awaiting local approval, the company said.

Wal-Mart said its pace in California isn't slower than the company expected, although it acknowledges facing more litigation and a more organized opposition than elsewhere.

But analysts said that what's been built and promised so far is probably on the low end of Wal-Mart's hopes for tapping into the rich California market with the chain's most-profitable format.

Different regions throughout the state slowed the company's plans with strident public opposition, anti-big box zoning ordinances, high real estate prices or the tough labor market, analysts said.

At the same time, opponents across the country stepped up their criticism of the nonunion Wal-Mart's wages and benefits. Sales growth has slowed and the company last year said it would rein in the fast-paced domestic expansion that fueled the company's tremendous growth.

But Wal-Mart's slower expansion through California doesn't negate the issues it raises for the supermarket companies in the state and around the country, said Mark Husson, an analyst with HSBC in New York.

Upping the ante for the local negotiations, the contracts in Southern California become a template for the rest of the nation, Husson said.

"Wal-Mart is still out there, it hasn't gone away, it's just that the impact over the last three years hasn't been as bad as some feared in Southern California," Husson said. "But in the rest of the country, it's been every bit as bad as we thought."

Wal-Mart, which has 204 stores in California and employs nearly 71,000 people across the state, lists its average full-time hourly wage in California as $10.77.

But that figure does not break out pay among grocery employees and does not include part-timers who make up at least 25% of the workforce — all of which makes comparison to the UFCW contract difficult.

A new food clerk at a union grocery store starts at $8.90 an hour and maxes out at $15.10. Veteran food clerks, who as a result of the 2003 strike and lockout are on a different pay and benefit scale, can make as much as $17.90 an hour.

In a recent conference call with reporters, the grocers expanded the list of threats to their competitiveness, citing nonunion sellers including Target, Whole Foods, Trader Joe's and Tesco, the British food seller that has announced plans to expand on the West Coast.

But Wal-Mart was singled out for special notice.

"Wal-Mart sells almost twice the amount of food and grocery items as the grocery store chains," said Ralph's president, David Hirz. "With nearly 200 locations in California and plans for 40 Supercenters and expanded space at regular stores, competition is going to get even tougher in the next few years."

Wal-Mart will post $85 billion in grocery sales this year, Husson estimated, while next nearest competitor Kroger should post $66 billion in sales.

"These are national companies," said Adena Tessler, Rogers Group, a Century City public relations firm hired by the three major chains to speak about the contract talks. "They compete with Wal-Mart across the nation and that affects their bottom line everywhere."