Smaller chains gamble with strategy in supermarket talks.

The biggest winners in a contract dispute that appeared headed towards a supermarket strike late last week might not be union members or Albertsons, Ralphs and Vons, the three big chains engaged in the negotiations.

They could be the two smaller rivals to the Big Three--chains that are also unionized but broke from past practice and chose a middle ground between the two warring sides.

In the months leading up to the start of contract talks, Stater Bros. Markets and Gelson's Markets signed "me-too" agreements with the United Food and Commercial Workers as they sensed the severity of take-backs being demanded by the larger chains and the degree of resistance being offered by the unions.

The agreements allow the smaller chains to benefit from any concessions won by the larger ones at the negotiating table, without suffering the consequences.

"(The big chains) have deep pockets and they can financially endure a strike, which we cannot," said Jack Brown, chief executive of Stater Bros. He negotiated side by side with Albertsons, Ralphs and Vons when the last contract was signed in 1999. "I was not willing to put at risk our over 14,000 jobs and the future of the company by taking a strike."

As of Oct. 9, workers from the UFCW's Local 770, which covers most of Los Angeles, had rejected management's offer with a 98 percent majority and authorized a strike that was set to begin as early as Oct. 11. Results from the six other locals in Southern California were expected on Oct. 10.

Insurance policy

By signing the agreements, Gelson's and Stater Bros. have a guarantee that their employees will not walk off the job at their 174 stores.

Union leaders who were preparing for a walkout late last week have said they plan to urge customers to patronize these stores rather than cross picket lines or visit non-union stores such as Superior Super Warehouse, Trader Joe's Co. and Whole Foods Market Inc.

The deals also allowed the unions to concentrate on the largest chains, which have been seeking aggressive concessions as they face increasing competition nationwide from discount grocers like Wal-Mart Stores and Costco Wholesale Corp.

Stater Bros. had been at the bargaining table for each contract session over the last 35 years. But executives at the Colton-based company say they recognized how much the industry had changed.

In 1980, the region had 12 locally owned chains--some larger and some smaller than Stater Bros. Since then, there has been massive consolidation--including Kroger's 1999 purchase of Portland-based Fred Meyer Inc., which owned Ralphs and Food 4 Less.

From the mergers and buyouts emerged the big three chains with annual revenues of $51.8 billion (Kroger), $35.6 billion (Albertson's) and $32.4 billion (Safeway).

By comparison, Stater Bros.' 157 Southern California stores generated $2.8 billion in revenues last year.

Consolidation has had such an impact that the Food Employer Council Inc., the bargaining arm for the chains, disbanded last year because it was no longer needed.

"We used to negotiate everything together because we had everything in common," said Brown, who was the council's last chairman. "But we no longer had a big brother to lean on if we fell on hard financial times."

Risky tactic

Stater Bros. signed its agreement in April, and Gelson's in July, after the big three notified the UFCW they would demand employees begin paying a portion of their health and pension premiums in the upcoming contract.

Gelson's officials did not return calls.

While the two chains will benefit from any concessions won by the larger chains, they also aren't demanding that these benefits be cut. The union seized on their neutral stance--and the grocers' growing size disparities--to carve the smaller chains away from the negotiating table. The tactic is meant to add pressure on the most recalcitrant employers without unnecessarily placing more union workers on strike.

"We don't strike them because they aren't making any proposals to cut our health care and pension," said Kathy Finn, director of collective bargaining research for UFCW's L.A.-based Local 770. "They can stay open. That's the purpose they serve."

Daniel Mitchell, a UCLA professor of management and public policy, said me-too agreements have been used for decades to provide a safety net for smaller operators while the bigger operations do the heavy lifting during contract negotiations. But they come with risks for those who sign them. "They've signed onto a contract whose terms they didn't negotiate and whose terms they don't know yet."

A company that signs a me-too agreement, for example, might have an older workforce that forces it to pay more money per person than a larger operation into a pension to meet a target agreed upon during negotiations. Also, the me-too company might have to pay a higher ratio of overtime costs because its business plan dictates that its stores stay open longer.

"The same contract, item by item, could still turn out to be more costly for one company than another," he said.

Getting ready

In the event of a strike, Stater Bros. was preparing last week to increase overtime and add staff to handle any related surge of business.

Meanwhile Albertson's Inc., Vons, a unit of Safeway Inc., and Ralphs, a division of Kroger Co., were hiring and training temporary replacement workers and planning transfers of non-unionized store managers and assistant managers from outside the region to work locally in the event of a strike.

They have also signed what UFCW officials calls a "suicide pact," meaning that if the union targets one chain for a strike, the other two would lock out their employees.

Although the agreement is designed to maintain competitive balance, not all the parent companies would suffer the same fate.

Kroger's revenue stream would be damaged less because the company also owns around 120 Food 4 Less stores employing 5,000 workers throughout Southern California.

Those workers, who are under a separate UFCW contract that doesn't expire until next February, would remain on the job should Ralphs' employees walk off the job.

"Negotiations on that contract have not even started yet," said Terry O'Neil, spokesman for Ralphs. "Consequently, they have nothing to do with whatever comes out of this--whether it's an agreement or a work stoppage."

A number of other smaller chains, including Super A Markets and Hows, and some single-store owners have signed agreements with the UFCW agreeing to operate under the terms of the expired contract until a new one is signed. Those stores would not he targeted for a strike by union leaders.

In the end, one big factor will be customers, and whether they honor picket lines at all. Grocery store workers in Southern California have not walked off the job since 1978. "There are a whole generation of shoppers who have never had to cross a supermarket picket line," said Brown. "It will be interesting to see what they do."