Union Negotiations Slow: Safeway

PLEASANTON, Calif. The three by seven negotiating process between local labor unions and the big three Southern California supermarket operators may result in new contracts being reached well after the current deals expire on March 5, according to Steve Burd, president and chief executive officer of Safeway here. I don't think you should look at March 5 as any kind of magical date, Burd told analysts

PLEASANTON, Calif. — The “three by seven” negotiating process between local labor unions and the big three Southern California supermarket operators may result in new contracts being reached well after the current deals expire on March 5, according to Steve Burd, president and chief executive officer of Safeway here.

“I don't think you should look at March 5 as any kind of magical date,” Burd told analysts in a conference call reviewing quarterly financial results last week.

Unlike the joint negotiations held during the last round of contract talks, Safeway, along with Ralphs and Albertsons, and seven locals of the United Food and Commercial Workers, are engaged in “coordinated bargaining,” during which only one local and one employer can speak at a time, Burd said.

“What that means is we are engaged in a three-by-seven metric set of negotiations. So when a retailer is negotiating with a single local, you have the two other retailers and the other locals in the room. And the rules of the game are that the retailer that's negotiating is free to talk. And the local that's negotiating is free to talk. And everybody else has to sit quietly and listen,” Burd said. “That creates a pretty elongated process.”

Should negotiations pass the deadline, it would not be an unusual occurrence for Safeway, which has exceeded the expirations dates in nine of its last 20 negotiations, Burd said.

Asked whether the elimination of two-tier wages in the new contract between union locals and Stater Bros. would impact Safeway's negotiations, Burd replied “No,” saying Stater Bros.' 15% market share was “not enough of a market presence to be meaningful.”

Safeway is bracing for new competitors on both ends of its home state, with Save Mart expected to take over a number of Albertsons locations in the Bay Area shortly and Tesco acquiring new sites for its new Fresh & Easy banner in Southern California.

Burd said he did not expect Save Mart would wind up operating all 132 of the stores it agreed to acquire from Albertsons LLC late last year. “I also believe they will make a name change of some kind. And I think that's something we will benefit from.”

Burd said he was very familiar with the retail sites being acquired by Tesco to build its Fresh & Easy chain, noting the stores would serve varied economic and ethnic neighborhoods but appear to be focusing on younger shoppers. “The most common denominator is going for a very, very young demographic that probably is in the 29- to 35-year age group,” Burd said. “I think Tesco feels that people in that age group don't cook, and therefore, they will be susceptible to [prepared] meals.”

Safeway reported net income of $307.9 million for the fiscal fourth quarter ended Dec. 31 — a 77% increase over 2005's fourth quarter, which had included charges for a labor buyout and store closures in Texas. Total sales climbed 3.8% to $12.5 billion in the quarter, with identical-store sales, excluding gasoline, increasing by 3.5%. Gross profits increased 2 basis points to 29.13% of sales and by 17 basis points excluding fuel, reflecting sourcing savings and more profitable sales mixes, Burd said.

For the year, Safeway earned $870.6 million, or $1.94 per share, on sales of $40.2 billion. Sales increased 4.6% for the year, and profits were up 55.2%. Identical-store sales, excluding fuel, increased by 3.3% for the year.