|
|
Get Four
|  | FEBRUARY 12, 2004
Time for Safeway's Burd to Fly Away? The grocery chain's CEO has led the bitter battle with striking workers. Even if he wins the fight, the fallout could make him the ultimate loser For the last four months, three national supermarket chains -- Safeway (SWY ), Albertson's (ABS ), and Kroger (KR ) -- have been locked in a showdown with 71,000 unionized workers in Southern California. But as the strike that began on Oct. 11 drags on, it's beginning to look as if the industry's aggressive stance could backfire: It has prompted calls for the ouster of Safeway CEO Steven A. Burd, who has led the campaign on behalf of the three outfits. The dispute already has inflicted heavy net-income losses on the grocers, including more than $100 million at Safeway, analysts say. Equally damaging, Burd's bold attack has enraged employees, prompting Wall Street concerns that morale woes could persist long past the dispute's resolution. "There are people on the Street who want a change" in management, says J.P. Morgan Securities analyst Stephen C. Chick, who on Feb. 2 downgraded Safeway shares to a sell. DOWNWARD MOBILITY. Burd declined requests for an interview. In response to inquiries from BusinessWeek, Safeway directors said they "fully support Burd and the approach he and his management team have taken with the labor dispute." The industry's goal is to bring its health-care costs more in line with those of nonunion Wal-Mart Stores (WMT ). The retail giant's medical plan covers fewer than half its workers, and its sales clerks earn less, on average, than the federal poverty level. Burd and his peers have demanded that their current workers pay health premiums of $15 a week per family, up from nothing under the old contract. Although that may not seem like much, the companies also want to shift workers to a 401(k)-style health plan that would place part of the burden of future medical-cost inflation on employees, the union says. This has infuriated workers, members of the United Food & Commercial Workers (UCFW), who see it as part of a long-term effort by Burd to shove supermarket employees into the ranks of the working poor. "All I want is medical insurance to take care of my baby. Is that so much to ask?" says Cynthia Hernandez, 27, a Safeway striker and single mother of two. FORMER HERO. The irony is that the grocery workers might not have dug in their heels with quite the same passion -- five UCFW locals have exhausted their strike funds -- if Burd had been savvier about playing off existing workers against new hires. The industry's proposal calls for the companies to contribute just $1.35 per hour worked for medical coverage for new employees, says the UCFW, vs. the $3.85 now paid for current workers -- a 65% cut. Safeway disagrees with the union's calculations, saying they are "based on a fuzzy set of assumptions and worst-case scenarios." Safeway's proposal still offers "a premium benefit provided at low cost" to the worker, says a spokesman. Since industry turnover averages roughly 10% a year, Safeway could be all but off the hook for health coverage for close to one-third of its workforce within the next three years thanks to attrition alone. If Burd had focused on future workers and asked less of current ones, they likely wouldn't have fought so hard on behalf of employees who have yet to be hired. Burd, 53, a former management consultant, won accolades when he took over 12 years ago for leveraged buyout firm Kolhberg Kravis Roberts & Co., which had bought the struggling grocery chain in 1986. (It went public again in 1990, and today KKR owns no stock, though four KKR directors still sit on Safeway's board and collectively own 3% of the stock.) Burd had slashed costs by shutting underperforming stores and introducing higher-margin private-label items. The resulting turnaround faltered after a late-1990s acquisition spree, however. Burd shelled out $3.6 billion to buy two regional chains, Dominick's Finer Foods and Randall's Food Markets. Their sales plummeted after Safeway narrowed product selection and introduced private-label goods that were unfamiliar to locals. Safeway ended up taking more than $1.2 billion in writedowns in 2002, when it lost $828 million on revenues of $32 billion. The bad news cut the stock price nearly in half from early 2002 levels. Analysts expect Safeway to post a profit when its 2003 numbers come out on Feb. 12. Despite the strike, its shares are up some 10% on mid-December, to about $22. RAY OF HOPE. Burd also angered some shareholders -- and inflamed the strikers -- by handing out nearly $10 million in stock options to 11 senior executives last December, in the middle of the walkout. He did so to keep them from bolting after he had lost four top officers in the previous 14 months. It was "the wrong message to send workers and shareholders" when the company was asking workers for cutbacks, says California State Controller Steve Westly, who sits on the board of California Public Employees' Retirement System, which owns $77 million in Safeway stock. Safeway might yet come out ahead if it can settle the walkout soon. After weeks of not talking, the two sides met with a federal mediator on Feb. 11, so it's possible that a resolution could be days away. If the industry gets much of what it wants, Safeway could save some $300 million over the next three to five years, figures Morningstar analyst Mark Hugh Sam, eventually outweighing the $100 million lost so far. Even so, observers such as Sam suggest that Burd might have to go anyway, if only to restore morale. In that case, he would have achieved the perfect Pyrrhic victory.  By Ronald Grover in Los Angeles and Louise Lee in San Mateo, Calif.
BW MALL
SPONSORED LINKS
Get BusinessWeek directly on your desktop with our RSS feeds.
Buy a link now! Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2004, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
Printer-Friendly Version
