Wal-Mart, Driving Workers and Supermarkets Crazy

In February Wal-Mart will open its first grocery supercenter in California, offering everything from tires to prime meats, and that could be a blessing for middle-class consumers. The reason is simple: Wal-Mart’s prices are 14 percent lower than its competitors’, according to a study by the investment bank UBS Warburg.

In February Wal-Mart will open its first grocery supercenter in California, offering everything from tires to prime meats, and that could be a blessing for middle-class consumers. The reason is simple: Wal-Mart’s prices are 14 percent lower than its competitors’, according to a study by the investment bank UBS Warburg.

But not everyone is rejoicing about Wal-Mart’s five-year plan to open 40 supercenters in California, stores combining general merchandise and groceries that are expected to gobble up $3.2 billion in sales. California’s three largest supermarket chains, Ralphs, Vons and Albertsons, are scared, and so are tens of thousands of supermarket workers whose union contracts have put them solidly in the middle class. The three grocers’ fears of fierce competition from Wal-Mart and their related drive to cut costs are widely seen as the main reason behind the week-old strike by 70,000 workers at 859 supermarkets in Southern California.

Wal-Mart has already helped push more than two dozen national supermarket chains into bankruptcy over the past decade. That list includes names like Grand Union; Bruno’s, once Alabama’s largest supermarket chain; and Homeland Stores, formerly Oklahoma’s largest. And unionized supermarket workers fear that Wal-Mart’s invasion will oust them from the middle class by pulling down their wages and benefits, which, taken together, are more than 50 percent higher than those of Wal-Mart workers. At Wal-Mart, the average wage is about $8.50 an hour, compared with $13 at unionized supermarkets.

“Wal-Mart’s superstores are going to have a devastating impact on California’s supermarkets,” said Burt Flickinger III, a retailing consultant, noting that union wages and prices are higher in California than in most of the country.

Eager to stay competitive against Wal-Mart, Albertsons, Vons (owned by Safeway) and Ralphs (owned by Kroger) have demanded a two-year wage freeze for current workers, a lower pay scale for new hires and greater employee contributions for health coverage. Those employees now pay no health insurance premiums, while Wal-Mart employees often must pay premiums of $200 a month and deductibles of up to $1,000 a year, if they qualify.

With Wal-Mart in mind, supermarkets have engaged in tough bargaining across the country. That has led to a 12-day-old strike by 10,000 supermarket workers in Missouri and a six-day-old strike by 3,000 workers at 44 Krogers in West Virginia, Kentucky and Ohio.

It is hard to underestimate the power of Wal-Mart. It has 1.4 million employees and had $245 billion in revenues last year, equaling 2.5 percent of the gross domestic product. Each week 138 million shoppers visit Wal-Mart’s 4,750 stores. Last year, 82 percent of American households bought at least one item there.

Wal-Mart sells 32 percent of the nation’s disposable diapers, and it is the largest customer for Walt Disney and Procter & Gamble. It has singlehandedly persuaded music companies to issue sanitized versions of CD’s. Its 1,397 supercenters account for 19 percent of the nation’s grocery sales, making it the largest grocery retailer. With Wal-Mart planning 1,000 more supercenters in the next five years, Retail Forward, a consulting firm, estimates that Wal-Mart’s grocery and drug sales will double to $162 billion, giving it 35 percent of the domestic food market and 25 percent of the drug market.

When Wal-Mart goes like gangbusters into an area, as it plans to do in California, competitors often feel panic. In Dallas, its share of the grocery market has soared to 16.4 percent from 8.5 percent in the past two years, according to TradeDimensions International.

“We have been in business for 68 years, and in that period of time, we have seen dozens of competitors come and go,” said Jack Brown, president of Stater Brothers, a supermarket chain in the Orange County and San Diego areas. “However, Southern California has never seen as big a competitive threat as the Wal-Mart supercenter.”

Many factors explain Wal-Mart’s ability to charge low prices, including economies of scale, the pressures it puts on suppliers and its embrace of imports — it imported $12 billion in goods from China last year, one-tenth of American imports from China.

Another big factor is Wal-Mart’s relatively low wages. Its sales clerks average about $8.50 an hour, or about $14,000 a year, while the poverty line for a family of three is $15,060. In California, the unionized stockers and clerks average $17.90 an hour after two years on the job. Mr. Flickinger said wages and benefits for Wal-Mart’s full-time workers average $10 to $14 per hour less than for unionized supermarket workers.

“The strike out here involves workers who enjoy decent wages, vacations and health benefits,” said Kent Wong, director of the Center for Labor Research and Education at the University of California at Los Angeles. “These things were taken for granted, they made them part of the middle class, but now these workers are threatened with having these things taken away.”

A big savings for Wal-Mart comes in health care, where Wal-Mart pays 30 percent less for coverage for each insured worker than the industry average. An estimated 40 percent of employees are not covered by its health plan because many cannot afford the premiums or have not worked at Wal-Mart long enough to qualify.

“What this means is, if I’m a Wal-Mart employee and I hurt my hand and go to the emergency room, who’s going to pay for it? The taxpayer is,” said Mr. Brown, the supermarket executive. “Wal-Mart’s fringe benefits are being paid by taxpayers.”

Wal-Mart officials say that their expansion will be a boon for California consumers and that their wages and benefits are competitive. Why else, they ask, would 600,000 workers take jobs at Wal-Mart each year?

Greg Denier, chief spokesman for the United Food and Commercial Workers, said the fear of Wal-Mart’s supercenters is the main cause for the California strike, but he argued that the supermarkets have exaggerated the threat as a strategy to squeeze their workers.

“They keep saying they have to do this because Wal-Mart is bringing supercenters to California,” he said, “but it’s part of a national program to ratchet down wages and benefits.”

Yet Wall Street analysts and retailing consultants say the California supermarkets, like others across the country, risk being stomped by Wal-Mart.

Author: Steven Greenhouse

News Service: The New York Times

URL: http://www.nytimes.com/2003/10/19/weekinreview/19GREE.html?ex=1067140800&en=abefc0751d34d703&ei=5062&amp

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