Are Grocery Chains More Competitive?
By George Anderson
In every negotiation in recent years with the locals of United Food and Commercial Workers (UFCW) in markets around the U.S., management at Albertsons,
Kroger and Safeway have argued that they needed wage and benefit concessions from the union to remain competitive with Wal-Mart and other non-union competitors.
Last week, employees at Safeway stores in Colorado and Wyoming voted to approve a new labor deal believing it would result in higher premiums and
less comprehensive medical care for themselves while lowering the wages of new hires.
The Safeway deal follows a similar agreement approved by workers at Kroger-owned King Soopers and City Market in the region a few weeks earlier.
Albertsons and the UFCW have yet to reach an agreement on a new contract.
Moderator’s Comment: Are Albertsons, Kroger and Safeway more competitive with Wal-Mart and other non-union competitors in markets where they have new
labor deals? Of the three grocery chains, which do you think is in the strongest competitive position and why? –
George Anderson – Moderator
Competition is a function of go-to-market offering, not labor contracts. Crappy stores with no union aren’t more competitive than great stores with unions.
First, the strongest of the three is Kroger. While they are not the brightest bulb on the Christmas tree as far as being a retailer, they do hold very strong market share positions in several major markets, such as Columbus, Indianapolis, Cincinnati, Louisville, Denver, Atlanta, Nashville, Little Rock, Houston, Phoenix, and Memphis, to name a few. Kroger has not been slaughtered and humiliated the way Albertsons and Safeway has in similar markets. Kroger has not totally destroyed acquisitions to comical levels the way Safeway has. Sure, Smith’s and Fred Meyer have taken a step down in class, but are not total flops like Randall’s and Dominick’s. Some of these Kroger market shares are well into the 30s% and 40s%. Kroger does a good job with new stores and remodels. Safeway and Albertsons don’t quite have those big market share numbers except in a few isolated markets. Both of those companies operate high price, minimum labor, low service level stores which have become easy marks for us BrainTrust panelists to make sport of. They are also both in a retreat phase in several states like Texas.
Would these three be more competitive if they hae a better labor deal? No. There are plenty of examples of regional non union chains that are successful while paying higher wages and benefits than the unionized chains. Am I wrong here but usually isn’t labor about 7% of sales? So even with a totally volunteer workforce, these chains could still not be price competitive with Wal-Mart since Wal-Mart often has about a 20% price advantage. Their problems go beyond labor. Most of their problems are a result of being publicly held and their first commitment is to Wall Street rather than the customers and employees. They can’t grow like Publix or Wegmans that just bust into a new market. The big three are forced to grow by overpaying for existing chains and then milking them until they are destroyed.
David,
Your comments could not be more true about Dominick’s and Safeway. Safeway has destroyed everything about Dominick’s. Again, I say, the only savior is Roundy’s with Bob Mariano, who has a love for Dominick’s and knows the loops about the Unions in Chicago.
Thank you.
…and sorry…..I really didn’t answer the main question about Unions….but my main point is….if you are going to run high-priced stores run by Unions, you have to have strong stores. You can’t have crappy stores and high prices…..and that’s especially the case with Safeway/Dominick’s. Let’s all hope that the speculation is correct about Roundy’s buying Safeway. We need Bob Mariano back here in Chicago!
If the “days of increasing wages and benefits” are over, we face a pretty dismal future. These are, after all, consumers, and this view of the future, certainly not limited to retail grocery workers, is a recipe for a death spiral in spending power that will fundamentally erase the shopping power of American workers.
I have anxiously awaited some sign that the Big Three grocers are doing something, anything, with their increase in competitiveness based on lowered wage and benefit costs.
Is it showing up in pricing? Not hardly. The average gross margin of ABS and SWY both increased, though Kroger, to their credit, has lowered pricing and margin somewhat.
Is it showing up in capital expenditure? No, all three of these companies are reporting capital spending as just about what it was before the strike – or lower. The rate of new stores and remodels is quite a bit lower than it was three or four years ago.
Is it showing up in new and improved customer service? Pardon my hysterical laughter, but I don’t see it at all. Stores that had good managers and good service still do. Stores that were terrible still are terrible. In fact, it’s amazing it isn’t worse, considering the general attitude among the workers. I see at least several hundred grocery stores a year. It’s not much different.
Is it showing up in improved localized responsiveness? Better assortment decisions? Hmmm…harder to analyze, but comparable and ID store sales don’t show much improvement not attributable to inflation. Randall’s and Dominick’s are still in revolt from Safeway’s centralization. Albertsons is systematically removing most of what made Shaw’s a better chain than its new owners.
No, I’m sorry to say I conclude that the workers took a hit pretty much for nothing except corporate profitability, which is not being invested wisely at all. It just delayed by a year or two the inevitable need these companies have to execute a new compelling business plan or die a slow lingering corporate death.
Labor contracts may not be the only factor affecting competitiveness, but they are a critical one. But it can’t just be about squeezing the life out of employees to compete with other sweat-shop like players in the market. The labor needs of retail stores are changing. The challenge for union and management alike will be to agree on how the workforce needs to change to remain competitive and thrive in the coming years. As we’ve all discussed here, greater emphasis on customer service and training pay off for retailers. Those concepts need to be recognized in labor contracts as well. A better trained albeit smaller workforce will pay off for both sides.
I personally have experienced the wrath of the big chain mergers here in Chicagoland, being a shopper at all three and heavily involved in a store design department for another retail chain here in Chicago.
It’s very unusual….Dominick’s has lost its share of being number one since Safeway bought them, Jewel-Osco has thrived from the customers that have left Dominick’s and Kroger has entered Chicago on Dominick’s loss, having opened many Food 4 Less stores in former Dominick’s stores that were once 80,000 sq. ft. Omni Superstore powerhouses!
My name is “omnisuperstore” because it shows my love for a once famous division of Dominick’s that was similar to, but more upscale than, Cub Foods.
Once Safeway took over Dominick’s, many of the former Omni’s closed while smaller, older strip center Dominick’s stayed open. It doesn’t make sense why they didn’t focus on the exposed ceiling Fresh Store power houses, but instead focused on the smaller, older stores with drop ceilings and old decor.
Stores that once had bright lighting and decorative displays were remodeled to Safeway’s company standard which included exposed strip lighting and elimination of the Fresh Store layout with a HUGE produce department. In fact, the once Fresh Store concept was deeply separated because Safeway moved the Deli and Bakery to one end of the store and the Produce to the other, which no longer was what former CEO Bob Mariano envisioned with the fresh store concept. A fresh market includes all fresh entities under one area: Deli, Bakery, Breads, Produce, Cafe, and Seafood….and Safeway moved them to opposite ends of the store. Plus the produce lost any sense of unique lighting as general fluorescent strips were placed above it.
Products changed on the shelves to mostly Safeway Select brand….which were not at all fitting for customers in Chicago.
We hear it over and over again about Safeway here in Chicago…..Unions are the biggest issue, but the elimination of Omni and the Fresh Stores is the biggest impact. You have to have great presentation in order to make your stores unique and if you look like Wal-Mart or like you are from the 1970’s, you aren’t going to gain customers. You have to create a great concept similar to Marsh’s lifestyle concept, Jewel’s new produce department, Whole Foods, etc. to bring the customers in over Wal-Mart.
Safeway is finally getting a clue though….they opened their New Lifestyle format which brings new hope to their store decor at least.
As far as Albertsons’ Jewel Osco division, their stores are constantly busy and their decor keeps on improving and improving.
Food 4 Less took over the Omni Concept here in Chicago and really caters to the more value oriented customer, and really has made a big impact here. Safeway needs to bring back the Omni Superstore concept if it wants to compete directly with Wal-Mart or Meijer….but if not….they definitely need to rid themselves of the plain vanilla format and make their stores vibrant and colorful with exciting lighting! I hope some of you agree as well.
Jewel-Osco is #1 here in Chicago…..but if Wal-Mart opens many supercenters here, the market is going to really change. And did anyone hear that Marsh is coming here? What is going on with that?
The challenge facing all US workers is the fact that the number of “labor units” required to produce the same volume of Gross Domestic Product is declining. As more corporate consolidations occur and improved automation increases the span of management control, the number of workers required goes down. Union employees still benefit from representation that should enable them to cushion the fall in compensation, but the days of ever increasing wages and benefits are over.
The unions are wise to realize that “some job is better than no job” and that the success of the organization that employs their members must be a primary concern. More collaboration between management and unions to improve results can only benefit everyone. In addition to wage concessions, employers and unions must open up a dialog on how they can improve operating results through better procedures, equipment, and performance. Management must be open to suggestions and unions must be ready to accept change. Only if both sides have a common vision will they avoid wasting resources on infighting that can only benefit the competition.
There is no question in my mind that a more competitive labor agreement is a key component for all unionized operators. However, while this is an important step, there is more than just the cost/flexibility of the workforce that needs to be fixed with these chains. I hope that we will see these efficiencies returned to the shopper in the form of better service and more exciting food options.
I don’t want to change this into a Dominick’s debate, but you are correct omnisuperstore. You have one shot at recovery and I think Bob Mariano is it. He has basically replaced Roundy’s with the Dominick’s of the 1990s, with both people and stores. So getting back to Chicago would be a natural fit. Morale has been a problem at Roundy’s with both original Roundy’s employees and retailers. I think over the next couple of years, most of both will be gone and he will have his “Dominick’s North” well in place. I hear a lot of bad things about Roundy’s but I think most of my contacts have a biased view from having their “cheese” moved. Dominick’s would be a good fit to this growing organization. Hang in there and be patient. Eventually, Steve Burd will no longer be able to hold on to the rope as Safeway becomes the next Winn-Dixie. Or better yet, send your resume North.