By RUSS MITCHELL
erkeley, Calif.
DRAPED in a blue apron, a supermarket clerk squatted on a parking lot curb, taking a break from work at a Safeway supermarket in an affluent neighborhood here.
"I make about 10 bucks an hour," he said. "I don't know how they expect us to pay for health care out of that."
The clerk, who is single and in his 50's, said he had little money left after paying rent on a small apartment in what he called the "low-rent end" of nearby Alameda, where one-bedrooms bottom out around $800 a month. He is upset that his employer wants him to pay more for health insurance, but he said he would rather not give his last name because of "all the strike talk and all." Does he expect a strike? "Could be," he shrugged. "We'll see."
With bitter memories of a long strike still fresh, the supermarket industry faces a new showdown between labor unions determined to hang on to health insurance benefits and management that is girding to meet increased competition from low-cost rivals like Wal-Mart Stores.
The same issues were behind the four-and-a-half-month strike and lockout in Southern California that ended in February, attracting national publicity and leaving both sides exhausted. Nearly 60,000 union workers lost a third of their annual pay, while the parent corporations of the grocery chains - Albertsons, Safeway and Kroger - shed $1 billion in profits, much of it spent trying to lure customers back into their stores with price promotions.
Now the attention has shifted to Northern California, the next stop on a patchwork of regional negotiations. Scarred by the Southern California experience, both sides will try to avoid a strike. But compromise will be hard to come by.
Unionized supermarket chains have been paying 100 percent of most workers' health care premiums for decades, and Steven A. Burd, the chairman and chief executive of Safeway, says they have "become a runaway cost, not just for us, but for industry in general."
The days when supermarkets could tolerate the costs ended with the arrival of nonunion competitors, especially Wal-Mart, he added. Supermarkets need to deal with the issue "before we find ourselves in the same situation as the airline industry," rife with layoffs and bankruptcy, Mr. Burd warned. He likens the competition from Wal-Mart to airline industry competition from JetBlue. (Albertsons, the other major party in the Northern California negotiations, declined to comment.)
The issue is not unique to the supermarket industry. Negotiations between the United Auto Workers and Caterpillar Inc. are bogged down over who will pay for health benefits. In San Francisco, service workers are striking against major hotels; the top issue there, too, is health benefits.
Richard L. Benson, president of United Food and Commercial Workers Local 870 in nearby Hayward, placed more blame for the problem on nonunion chains and on the health care industry than on Safeway and Albertsons. But, he added, "we are not going to allow the solution to be 'pass the cost on to employees, and then let's move on.' "
The costs are substantial, and growing. While consumer inflation ticks along at 2 to 3 percent, driven mostly by volatile markets for oil, health insurance premiums have climbed more sharply. They increased 14.7 percent in 2003 and are expected to grow 12.6 percent this year, and although inflation is forecast to slow in 2005, double-digit increases will be the norm for years to come, according to Hewitt Associates.
"Employers can't take on 12 to 14 percent annual increases in health care," said Tom Beauregard, a health care consultant at Hewitt. "The cost increases we see are not sustainable."
As a result, employers - the main providers of health care coverage in the United States - are shifting more benefit costs to their workers. Hewitt reports that while employers' share of health care spending will hold steady this year, workers will see their average annual contribution for family coverage rise to $1,565, from $1,276.
In Southern California, Safeway workers accepted a two-tier wage and benefits system, similar to that in a deal reached in April, without a strike, at Giant and Safeway stores in Washington, D.C. Under the Washington plan, workers hired after the contract takes effect will for six years receive lower wages than veteran workers and fewer health benefits; part-time employees will begin paying $38 a week for family coverage. In Seattle, local unions rejected the two-tier system but agreed to pay a share of health premiums. Negotiations are continuing in Denver.
THE new contracts provide some cost savings for the supermarket chains, but not enough to compete effectively against nonunion rivals, said Jason Whitmer, an analyst at Midwest Research in Cleveland. "They need to be more competitive on cost to be more competitive on price," he said.
Supermarkets have still not fully recovered the market share they lost during the Southern California strike to discounters like Wal-Marts and Costco or to specialty markets like Trader Joe's and Whole Foods Market, he said. "Even Bed Bath & Beyond is selling food now," he said.
Union leaders acknowledge the need for the supermarkets to remain competitive, but they say Mr. Burd's comparison to the airline industry is an exaggeration. Safeway's financial performance is weakening, they say, but its returns regularly exceed its cost of capital, or the amount it estimates it could earn in another investment of comparable risk. (Albertsons and Kroger have not done as well in recent years, according to Stern Stewart & Company, a financial consulting firm in New York, though both still earn a profit.)
As President Bush and Senator John Kerry argue over health care at the national level, individual states are having their own debates. In California this fall, voters will be presented with Proposition 72, which would require companies with 200 or more workers to pay at least 80 percent of the health care premiums for employees and their families; companies with 50 to 199 workers would have to offer insurance only to employees. If they did not buy insurance on their own, employers would pay into a state-run system that would provide private insurance.
The measure was driven in part by two recent studies at the University of California, which concluded that the low wages and benefits at chains like Wal-Mart were forcing workers into welfare programs that cost the state nearly $3 billion. The Legislature's budget analysis group, however, said it could not estimate if the proposal would save the state any money.
Even under the kinds of programs that would be offered in Proposition 72, employers would continue to be the primary provider of health insurance. James C. Robinson, a professor of health economics at the University of California, Berkeley, said the focus on issues like premium payments missed the larger point: that health care costs would continue to rise, meaning that insurers and employers would need to offer a variety of health plan options with different benefits and costs.
"The employers' job is to make good options available to employees and the tools to help them decide," he said. "If you choose the higher-cost option, you'll pay more. If you choose the lower-cost option, you'll pay less. Just like everything in life."
The trouble, Professor Robinson says, is that most companies - Safeway and Albertsons included - do a minimal job of providing those options and tools. And employees wonder whether they can afford even the cheapest plans.
Posted by UFCW 227 at October 10, 2004 09:35 AM