The expenditures that many traditional food retailers incur in union wages and comprehensive benefit packages make it more difficult for supermarkets to price their products competitively when rivals like Wal-Mart do not have the same obligations. That situation is slowly evolving, however.
Pressure to level the playing field is coming from several areas. The United Food and Commercial Workers Union has been tackling Wal-Mart's labor structure through legal and public-relations channels, and supermarkets have been approaching the problem by developing their own labor-efficient formats and reducing their worker expenses at the store level.
One component of labor costs that requires particular focus is the health coverage that supermarket companies provide for their workers. Many traditional food retailers offer an attractive array of medical benefits, including fully paid health insurance, despite costs that are rising at about 14% per year. Although supermarkets shouldered the increasing burdens of health care coverage during the fast-growth years of the last decade, now they must find ways to lower those costs in an environment that won't allow them to increase revenues by raising their retail prices.
As detailed in an article that begins on Page 46, many operators are trying to find ways to preserve the health care benefits they offer their workers without eroding their own bottom lines.
One course they are pursuing involves sponsoring preventative care programs, such as those that Food Lion has implemented. Another involves working on the legislative level to encourage more government controls of such rising components of the health care cost equation as prescription drugs.
For many supermarket companies, the primary method of mitigating the rising cost of health insurance will be through negotiations with unions. On this matter, some companies already have made some progress in gaining concessions.
The unions need to cooperate on this issue because another alternative for supermarkets is to reduce the number of full-time workers who staff their stores, filling more posts with part-timers who don't qualify for the same benefit packages as full-timers. That's not an attractive alternative for the unions, nor does it benefit society at large to add to the rolls of the underinsured.
Based on early feedback from a survey on the matter that is being conducted by the Food Marketing Institute, supermarkets appear to be making the right moves. They are looking for other areas to reduce expenses in order to maintain strong health care benefits, and they are asking employees to contribute more in the form of co-payments and deductibles.
That's the way it has to be in the current economy. However, conditions will eventually improve and employment levels will rise. As those things happen, supermarkets should be prepared to continue providing compensation packages that exceed those of their rivals.
While alternate retail channels have advantages in labor costs, traditional supermarket operators need to maintain the edge they currently enjoy from having more professional, energized employees. Fortunately, there's enough wiggle room in the current compensation structure to allow supermarkets to cut their expenses without sacrificing their ability to attract and retain talented workers.