By Randy Tucker
Enquirer staff writer

SPECIAL REPORT: GROCERY WARS

• Who'll bag the shoppers? • Shoppers weigh price, inventory vs. hectic nature of 'big boxes' • Kroger has never been on this track before • Kroger tilts with non-union giants

Wal-Mart's vast, non-unionized work force earns wages and benefits that can be less than half of what Cincinnati-based Kroger and other unionized competitors pay their workers.

With such a dramatic disparity in employee costs, it's no surprise that Wal-Mart Supercenters can sell a box of Cheerios for the price of generic cereals at most traditional grocery stores.

Consequently, Kroger and other conventional supermarket operators are demanding greater employee contributions for health coverage and other benefits so they can cut costs and remain competitive.

The pressure to lower employee costs is so great that Kroger officials said they forfeited $246 million in profits last year to secure health-care concessions in a strike and lockout involving about 70,000 workers at Kroger, Albertson's and Safeway stores in Southern California.

The 141-day California strike continued to eat into Kroger's earnings in the first quarter this year, reducing profits by 25 percent, or $71.6 million.

The supermarkets ratified a new three-year labor contract with the United Food and Commercial Workers union in February that would have workers assume more health care costs.

But issues of wages, health-care and pension benefits remain a major concern as Kroger and its peers continue to battle Wal-Mart and other low-cost operators across the country.

"We have to consider the competitive situation in every market," Kroger CEO Dave Dillon told investors in a conference call to discuss the company's first-quarter performance.

"In some markets, it's important for us to reduce the health-care costs. In others, it's only necessary to moderate the costs."

Unlevel playing field

That's because Kroger and other unionized grocers' cost structures are so out of line with Wal-Mart and other discount players, such as bigg's - the No. 3 grocer in Cincinnati - and Target, which sells food in its SuperTarget format.

Kroger, for example, spent more than $1 billion last year to provide health-care benefits for more than 80 percent of its full and part-time employees.

Fewer than half of Wal-Mart workers are insured under the company plan.

When it comes to wages, Kroger pays its non-management workers between $11 and $14 an hour, while Wal-Mart's national average is $9.64 - nearly 40 percent less than Kroger.

Kroger could raise grocery prices to cover higher costs and boost profits, but then it would risk losing customers to Wal-Mart, which, because of its low overhead, already charges prices that are 15 percent to 30 percent below most conventional grocers.

"It's not like Kroger is trying to sock it to their employees and not pay their workers so they can charge lower prices,'' said Sheila McNeely, an industry analyst who follows Kroger for Fitch Ratings credit-rating service in Chicago. "The unionized workers need to understand that there's an 800-pound gorilla out there waiting to take your customers and perhaps your jobs."

Bargaining power dented

While "giving-in'' is a term that makes union officials bristle, there's no denying that Wal-Mart's rapid expansion across the United States has compromised the supermarket union's bargaining power and forced more conciliatory negotiations, McNeely said.

On the other hand, Kroger and other supermarket chains have been forced to take less of a hard line in their negotiations because they simply can't afford another costly strike like the one in California, she said.

That spirit of compromise was reflected in recent negotiations with the local union representing about 9,500 workers in eastern Tennessee, southern Kentucky and northern Alabama, where Kroger reached a new four-year pact with union workers without a hint of the work stoppages that plagued them in Southern California.

Kroger and union officials are to sit down at the bargaining table again to negotiate a new labor contract covering about 9,000 workers at 74 supermarkets in Cincinnati that expires Oct. 9.

And while a strike or lockout can't be ruled out, both sides agree that it's in their best interest to come to an agreement quickly.

"The interest of both the unionized employer and the unionized employees are at stake in dealing with Wal-Mart,'' said John Marrone, a spokesman for local 1099 representing Cincinnati grocery workers.

Juggernaut bowls over chains

According to Retail Forward, a Columbus-based consulting firm and retail think tank, for every Wal-Mart Supercenter that opens in the next five years, two other supermarkets will close.

Retail Forward estimates that Wal-Mart has already helped push more than two-dozen national supermarket chains into bankruptcy over the past decade.

And Wal-Mart's Supercenter expansion already has forced at least one major supermarket chain in Greater Cincinnati into retreat.

Florida-based Winn-Dixie Stores Inc. said in April it would shut down its 21-store Thriftway chain in Greater Cincinnati at least in part because of Wal-Mart's aggressive expansion plans here.

The competitive threat is so great that the UFCW has taken its own action to stop Wal-Mart's incursion into Greater Cincinnati.

Last year, the union hired local attorney Tim Mara to take a look at Wal-Mart's plans to build supercenters in Deerfield Township and Milford.

"They hired me back in October to take a look at the application and take a look at the sites to see if there was anything there that they could use to defeat the Wal-Mart proposals,'' Mara said. "That was the extent of my work for them.''

The union never followed through with its own campaign to oppose Wal-Mart. Community groups in Deerfield Township, Milford and Harrison subsequently hired Mara to fight the retail giant.

But the union's actions demonstrate that Wal-Mart "has scared all traditional grocers and their employees,'' Marrone said.

"When you have a company that's so powerful, sometimes you have to sit up and take action,'' he said. "You can't just sit there and wonder about your future."

E-mail rtucker@enquirer.com