Collective Bargaining in the Era of Grocery Industry Restructuring Richard W.Hurd Professor of Labor Studies Cornell University July 2, 2008 As UFCW international and local leaders know traditional local market dynamics, which formerly from first hand experience, there have been dramatic were the critical factor in the character of negotiations. changes in the retail grocery industry over the past 15 Unions appropriately adopt structures and shape years. Of most direct relevance to the collective bargaining strategies in reaction to the economic bargaining environment, the absolute size of key realities in the industries where they represent corporations has increased and economic power in workers. In retail food, the compelling economic unit the industry has become more concentrated. used to be the local market area. Employers' Influenced by the spread of Wal-Mart's grocery profitability was based on their ability to compete operations, established companies like Kroger, successfully in the geographic market areas where Safeway, Supervalu, and Loblaw have pursued they operated. All of the major unionized companies aggressive merger and market expansion strategies. started in specific local geographic markets, and from Further complicating the situation has been the the earliest days of the industry in the early part of success of other alternative format grocers (such as the 20th Century into the 1990s, they would conduct Costco, Trader Joe's, Whole Foods, and BJ's), and collective bargaining on a market by market basis. the entry and expanding influence of global As long as their labor costs were competitive within corporations. Clearly, the competitive nature of the their market areas, the companies typically would not market has been irrevocably altered. be aggressive bargainers. Even as they entered new Another aspect of the change in the collective local markets through organic growth or acquisitions, bargaining environment has been the decline in the the companies continued the practice of market relative strength that the UFCW brings to the by market collective bargaining. In this economic collective bargaining table. While the UFCW's total environment, the UFCW local union in each market membership numbers have marginally slipped over could effectively bargain for its members. the past decade, the power of the key industry However, in the context of the industry transfor- employers, as noted above, has vastly increased. As mation that is underway early in the 21st century, a result, the UFCW's "core industry power" in retail neither the union's traditional decentralized bargaining food has ebbed. structure nor its locally driven bargaining strategy ap- These evolving economic realities have provided pears to be the appropriate response to the current the rationale for corporate labor relations strategies industry structure. While local unions were at one that are hard-nosed, antagonistic and transcend time capable of inflicting serious economic pain on (Continued) 1 GROCERY INDUSTRY RESTRUCTURING, (Continued) recalcitrant grocers (or delivering concent ra t ion along with a the opportunity for economic stagnant UFCW membership gain to cooperative grocers), As the major translate into greater leverage corporate growth has insulated in the collective bargaining many of the key actors in the companies have arena for unionized companies. industry from the impact of direct See Chart 1 below. union action that is limited to the grown, the balance Of most direct relevance to local level. It is unlikely that of power in collective the UFCW is the absolute growth traditional approaches can still of these companies in relation to deliver sustainable economic bargaining has been the lack of growth of the UFCW. advantage to UFCW members shifting cut 'ay from Kroger's growth (measured by even in those geographic markets total annual revenue) is up 179 with high union density. The the UFCW. percent over the past ten years. question UFCW leaders have Other unionized firms have started to address is how to recorded similar growth: Loblaw confront national employers as a at 244 percent; Ahold at 183 unified international union that brings more union percent; Supervalu at 156 percent; and Safeway at 88 power to the table. percent. As the major companies have grown, the balance of power in collective bargaining has been Company Size and shifting away from the UFCW. The shift is due to the fact that as the major chains have extended their Market Concentration geographic reach, each local market area has come The largest grocery retailers have all grown to count for a smaller part of the companies' substantially over the past ten years. Most dramatic is revenues and profits. Therefore, each local Wal-Mart's 700 percent increase in grocery sales. Only bargaining agreement now represents a smaller share 20 years after opening its first super center, Wal-Mart of each company's operations, and union leverage is is now the top U.S. grocery retailer with over 22 reduced proportionally. percent of the national market, nearly double the share of Kroger which ranks number two. Needless to say, Wal-Mart's entry into retail food changed the The Local Impact competitive landscape, and the traditional companies of Corporate Restructuring that are still in a position to compete with Wal-Mart In the new economic landscape of grocery have responded with aggressive growth and retailing, the UFCW's relative standing has declined acquisition strategies. Naturally, with all of the in individual markets and overall. The day-to-day largest firms expanding, economic power in the market is now much Chart 1: UFCW Membership Levels Fail to Keep more concentrated. The top five U.S. grocers Pace with Growth of Core Industry Leaders account for over half of 2,500,000 total sales. Although UFCW • Core Industry Leaders spared from the massive direct competition with 2,000,000 Wal-Mart, Canada ' s largest grocers also have embraced the growth and acquisitions strategy in part to prepare for the Wal-Mart onslaught they expect. As a result, market concentration has grown in Canada as well. 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Increased firm size Core Industry Leaders include: Kroger, Supervalu, Safeway, Wal-Mart, Tesco and greater industry 2 appearance of the bargaining relationship with the revenues has encouraged companies to become employer looks the same, with the same UFCW aggressive in negotiations and even to initiate battles locals and usually the same basic contracts (although in local market areas where the UFCW used to be the terms of the agreements have changed). But, the strong. consolidation of the companies has shifted power and leverage away from the union. A few examples The New Economic Landscape— demonstrate the new reality. In New England, Stop & Shop is now owned by How Should the UFCW Respond? Ahold. When the UFCW bargained with the Wal-Mart's entry into retail food and its rapid independent Stop & Shop prior to 1996, it had the expansion changed the competitive landscape. ability to shut down the entire company. By contrast, Threatened by new competition from Wal-Mart and Stop & Shop accounts for only 28 percent of Ahold's the other alternative format grocers, the major chains total revenues in the U.S. (and an even smaller share have responded with a centralized, systematic of global revenues). The union still has the ability to reevaluation of the full range of business practices: bargain with Stop & Shop, but mergers and acquisitions, finance, it is not possible for local(s) store format, marketing and labor representing 28 percent of a relations. The successful chains company to exert as much We question UFCW have pursued an aggressive leverage as when it represented strategy of market expansion with 100 percent. leaders bare started a simultaneous determination to In Philadelphia, the story secure cost savings that would is similar for Acme. Long the to address is bow allow them to compete more market leader in the Philadelphia effectively. This determination has area, the Acme chain became a been a tremendous driver of the smaller and smaller part of larger employers as a companies' offensive against labor acquiring companies over the unified international standards established by the years. Then, two years ago, UFCW. The market expansion Acme became part of newly union that brings initiatives and other revised national company, Supervalu. business practices have been Acme now only accounts for 5 more union power successful; the major companies percent of Supervalu's revenues. to the table. are in robust financial shape and Likewise, Dominick's in Chicago in control of their markets. was independent until 1995, but Despite this, they continue to now represents only 5 percent of argue that the significant nation- Safeway's revenues. In Southern California, the story wide power of Wal-Mart leaves them no alternative to for Ralph's is the same. Local UFCW bargaining used seeking continued reductions in cost. Low-wage, non- to impact 100 percent of Ralph's operations, but now union Wal-Mart provides the most convenient—albeit Ralph's represents only 6.5 percent of Kroger's total greatly exaggerated—rationale for the attack on UFCW revenues. Even in Kroger's home city of Cincinnati, contracts and standards. Each contract negotiation the union's position has weakened. With Kroger's presents the companies with an opportunity to wrest rapid expansion over the past decade, the revenue savings that will enlarge profits and fund the generated in the Cincinnati market now has an ongoing market battles against Wal-Mart and other new impact that is 60 percent less than in 1995. competitors. As long as the companies achieve a large Although the details vary by geographic market enough future stream of cost savings at the collective area, the experience is the same. The relative power bargaining table, the new industry dynamics make of each UFCW bargaining unit in the major chains localized actions—even lengthy strikes—a potentially has been seriously eroded by the growth of the cost effective proposition. chains and the UFCWs failure to grow. So vast is the The transformed economic realities of the retail corporate growth that in most instances an individual grocery industry have made it imperative for the bargaining unit accounts for no more than half the UFCW to re-examine its collective bargaining structure revenue of ten years ago. For the former independent and strategy. The increased coordination and local grocers that have merged or been acquired, bargaining union cooperation that has been promoted by the units have lost far more leverage. The reduced national union in recent rounds of negotiations is potential impact of local union direct action on total fully appropriate and a step in the right direction. As (Continued) 3 GROCERYINDUSTRYRESTRUCTURING, (Continued) Tloe increased coordination and local union cooperation, in recent rounds of negotiations is fully appropriate and a step in the right direction. suggested by The Committee on the Future of the ties and is expected to further address these issues at UFCW in its report One Union—One Voice, there is a their upcoming convention in August 2008. clear economic imperative to "promote comprehensive Two of the most important issues that the union bargaining strategies," based on "strategic com- will address are how the union intends to maximize prehensive bargaining plans," and incorporating "com- and allocate future resources for organizing efforts in prehensive contract mobilization.. .to bring maximum core industries, including retail grocery, and how they pressure on employers." The situation is extremely can solidify the coordination and cooperation that serious, however, and suggests an even more is needed at every level of the union as it confronts dramatic realignment of strategy collective bargaining in a and structure with an emphasis on centralized corporate environment. centralizing collective bargaining The economic reality is that all efforts through greater coordinated Tloe UFCW is in unions today, including the local/international cooperative UFCW, must devote substantially strategic planning and execution. a position to build more resources toward organizing Although the challenges are on the process set and growth-focused initiatives substantial, they also present an and better coordinate their exciting opportunity. Intense eco- in motion by The approach to collective bargaining nomic pressures and centralization Committee on the if they expect to level the playing of corporate strategy decisions are field in the industries in which not unique to the retail grocery Future and develop they operate. The ones that do will industry, but rather are typical in be well positioned for the future. the evolving global economy. In 21st century struc- The UFCW is in a position this context, non-union firms and tures and strategies to build on the process set in multinational corporations have motion by The Committee on the been the innovators in employee that re-establish the Future and develop 21st century relations, while unionized firms union's bargaining structures and strategies that have reacted by mimicking their re-establish the union's bargaining strategies, attempting to impose power. power. Decisions reached as non-union standards on their the UFCW works to refine its unionized workforce. Although the approach to strengthening bar- specific experiences vary, the gaining power have the potential developments faced by the UFCW in the U.S. and to influence union practice well beyond the retail Canada are similar to those in other unionized grocery industry. If the UFCW rises to the challenge, industries, including hotels, telecommunications, it can set the standard for the entire labor movement airlines, automobile manufacturing, general services in adapting to economic change, and ultimately have contracting, and entertainment. a positive impact on the future of unions and the The UFCW has worked hard to restructure and role of working people in the economies of the U.S. realign its operations to maximize future opportuni- and Canada. U N I T E D F O O D A N D C O M M E R C I A L W O R K E R S I N T E R N A T I O N A L U N I O N 4