Tuesday, October 21, 2003

Wal-Mart competition a factor in strikes

By Gavin McCormick
The Associated Press

CROSS LANES, W.Va. - Looking for a root cause of the nation's three supermarket strikes? Check out Judy Ranson's shopping routine.

Ranson used to shop for the best grocery deals at three stores: her local Kroger, a Fas Check in Dunbar and Poca Supermarket in Poca.

Now she makes one trip a week, to a 5-year-old Wal-Mart Supercenter. Ranson spends about $90 and figures she saves $40 to $50 off what she'd pay at Kroger.

"Kroger's prices are too high on a lot of stuff," Ranson said, pausing as she wheeled her cart filled with food for her and her husband through the Wal-Mart parking lot. "I figure $100 ought to be enough to feed anyone for a week."

Officials at Kroger and the nation's other dominant supermarket chains cite competition from Wal-Mart and other box stores as a reason to hold the line on labor costs.

Those costs include health-care benefits that are the sticking point in United Food & Commercial Worker strikes of 3,300 workers at 44 Kroger stores in West Virginia, Kentucky and Ohio; 70,000 workers at three southern California chains; and 10,000 workers at three chains in Missouri.

"Box stores are a very real threat," Archie Fralin, a Kroger spokesman in Roanoke, Va., said. "Their lower labor costs make it imperative for us to manage costs. That's just a reality."

Wal-Mart doesn't break out earnings by division, so it's hard to calculate how much food it sells. But analysts say that in just 10 years, it has become the biggest player in the grocery business, last year eating anywhere from 5 percent to 15 percent of the industry's $680 billion pie.

Traditional supermarket sales have dropped about 3 percent in the past year, estimates The Food Institute, a New Jersey-based trade group.

"The supermarket chains are still profitable, but executives see their market share down more than 5 percent over five years, and they're frightened," said George Whalin, president of Retail Management Consultants in San Marcos, Calif.

Lower labor costs for nonunion workers make up part of the advantage of box stores.

Including pension and health benefits, Kroger estimates that it pays workers on average $6 an hour more in West Virginia than Wal-Mart. Burt Flickinger, managing partner of Strategic Resource Group in New York, said the difference in other parts of the country runs as high as $10 to $14 an hour for full-time workers.

At the Cross Lanes Kroger, striking UFCW workers say Wal-Mart's opening cost their store $100,000 in weekly receipts - between a third and a half of the store's income.

In response, workers say, Kroger has slashed the store's payroll from 86 to 45 full- and part-time workers.

"All we hear from management is 'Do more,'" said Kay Underwood, 49, a 29-year Kroger employee. "We did an employee survey, and the number of us on Paxil, Prozac, blood pressure medicines, you name it, has gone sky high. We're killing ourselves for this company."

Wal-Mart spokeswoman Christi Gallagher said labor costs are just one part of a low-price formula that includes better purchasing logistics and information systems.

Analysts agree that the Arkansas chain's famously efficient ordering and distribution systems give it an edge. They also say supermarkets have room to improve.

"Most big chains went on a buying binge of smaller chains in the 1990s, and many of those acquisitions have not been fully integrated," Mark Hamstra, editor of Supermarket News, said.

Neil Stern, a partner with Chicago retail analyst firm McMillan/Doolittle, said he sympathizes with both management and workers.

"No one can say these retail workers are making too much money," Stern said. "At the same time, these companies are operating on an uneven playing field in terms of labor costs, and that can't continue."

"Supermarkets have to do better at wringing the costs out of everything," he said. "But no matter what they do, in the long run they can't compete."

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