CHICAGO (Dow Jones)--It bodes well for Kroger Co. (KR) that some of its workers ratified a four-year agreement without a work stoppage, but any cost savings the supermarket chain giant gets likely won't reach its bottom line.
The Cincinnati grocery chain announced Wednesday that a new, four-year agreement between it and the United Food and Commercial Workers Local 227 had been ratified. The new agreement covers about 10,000 employees in parts of Kentucky and southern Indiana. Nearly 80 stores are affected by the agreement.
The agreement is retroactive to April 11 and it expires March 29, 2008, Kroger spokesman Gary Rhodes said.
Wages for department heads and assistant department heads will increase 40 cents an hour in 2005, 35 cents an hour in 2006 and 45 cents an hour in 2007, said Gary Best, president of Local 227. Wages for other full-time workers will increase 40 cents an hour in 2005, 30 cents an hour in 2006 and 40 cents an hour in 2007. Wages for part-time workers will rise 25 cents an hour in each of the three years.
"In this day and age with the current economy, it was a fair and decent settlement that we could live with," Best said.
Kroger declined to comment on wage and benefits details.
It's good for Kroger that it was able to reach an agreement while also avoiding a bitter battle with the union, such as the one that took place earlier this year in Southern California, Sheila McNeely, analyst with credit rating agency Fitch Ratings, said. The Southern California market was unique in that wages and benefits in the stores there were above where they were in the rest of California, as well as the rest of the country, she said.
UFCW workers at stores run by Kroger, Albertsons Inc. (ABS) and Safeway Inc. ( SWY) in Southern California went on a nearly 20-week strike that ended in late February when workers ratified a new contract. That contract covers about 70,000 workers at 859 stores.
Other negotiations between supermarket chains and unions haven't been as contentious as those in Southern California for several reasons, including that the markets have been smaller, McNeely said. Also, the retail environment and job market in general "doesn't bode well for a fight" for either side, she said.
Still, any cost savings that Kroger realizes from the agreement "will really be designated to maintaining their business," McNeely said.
"So it's not like they're going to make a lot of money" from the new agreement, she said.
McNeely doesn't own shares of Kroger, and Fitch doesn't do investment banking work.
It's hard to tell which side got more of what it wanted in the latest agreement because so few details have been made public, C.L. King & Associates Inc. analyst Gary Giblen said.
The labor agreements between unions and supermarket chains that were negotiated during and after the strike in Southern California were "quite favorable to the union," Giblen said. Kroger works hard to get the best possible results but, in all likelihood, the supermarket chains aren't getting significant reductions in their health care costs, he said.
"Maybe the (supermarket chains) are gaining some small ground, but it's capturing grains of sand on a long beach of disparity," Giblen said.
The effects of the agreements don't show up in earnings results in one lump sum, Giblen said. That's because there are several contracts that the supermarket chains have to negotiate at any given time. Also, the chains can offset the negative effects from an agreement in a quarter by raising prices or taking other measures, Giblen said.
Giblen doesn't own shares of Kroger, and C.L. King & Associates doesn't do investment banking work for the company.
Several agreements are set to expire this year between the UFCW and Kroger, UFCW International spokeswoman Jill Cashen said. Those agreements cover 7,000 workers in Cincinnati, 1,000 workers in Myrtle Beach, S.C., 950 people in West Virginia and Ohio, and employees in several other locations.
The union also has multiemployer agreements expiring with Kroger, Albertsons and Safeway this year, Cashen said. Those agreements cover stores in Denver, Northern California and Las Vegas, Cashen said.