Could union grocery stores survive a strike?
Could San Diego County’s union grocery stores survive two strikes in a decade?

After losing $2 billion during the 2003 strike, the Albertsons, Ralphs and Vons grocery chains recovered much of their market share, and they’re still dominant locally.

But times are tough, and the shopping landscape has changed.

These days, customers have less money and more choices than ever, including newcomers such as Fresh & Easy and expanded grocery sections at big-box stores like Target and Walmart. And there’s less sympathy for striking workers amid 10.5 percent unemployment, observers say.

Analysts disagree over whether a strike would cause merely a short-term dip in revenue or threaten the very survival of the union chains.

The big risk is that customers who won’t cross the picket lines at one of the 136 stores affected by the strike in San Diego County will try out a competitor — and stay.

Members of the United Food and Commercial Workers have authorized their leaders to stop work, if necessary, over a proposal by the chains to reduce their healthcare benefits. Both sides say they want to avoid taking that drastic step and will meet Monday in an attempt to hammer out an eleventh-hour deal.

The grocery chains are worried about losing customers like Santee resident Barry Mester, who won’t shop at his local Vons if there’s a strike. Despite not “knowing what their beef is,” Mester said he would take his business to Costco, where he already has a membership, and Henry’s Markets.

“A strike hurts the people,” he said. “It’s inconvenient, and you’re put into a position to make a choice” as a consumer.

Burt P. Flickinger III, managing director of Strategic Resource Group in New York, believes a strike would cause permanent damage to the grocery chains if customers like Mester see no reason to return to their old habits.

New options include Target, which has expanded fresh food sections at four county stores and plans to unveil four more this fall; and Fresh & Easy, which has opened 13 county stores since 2007. Walmart has fought for the right to add superstores. There are also other unionized grocery stores such as Costco and Stater Bros.

Despite the competition so far, Albertsons, Ralphs and Vons hold 59 percent of market share in San Diego County, down from about 70 percent before the 2003 strike. However, that’s high compared with 39 percent market share in the Southern California region, Flickinger said. It’s not clear exactly why that has happened, but he believes San Diego County has more union-member residents who support union stores. He also noted that the city of San Diego has staved off competition by not allowing “superstores” until recently.

The grocery stores are more vulnerable today to that competition, he believes. With many customers cutting back, price is more important than it was eight years ago. Non-union competitors pay workers around $10 an hour, compared with an average of $14 or $15 for the union chains, allowing them to keep prices lower. Even customers who have supported union stores on principle could find it difficult to resist the deals at discounters, he said.

It’s true that the union supermarket chains are making money. For example, profits for Safeway, which owns Vons, were up 3 percent in the most recent quarter compared with the previous year. But the chain is struggling with food cost inflation and losing some customers to discount stores, according to its financial disclosures to investors.

All the grocery chains’ credit ratings are poor, with their bonds currently rated “junk level,” Flickinger said.

“With any more profit pressure or pressure on their financial foundation, the sustainability and survival of one and possibly two of the retailers is in question for the future,” Flickinger said.

But Miro Copic, marketing professor at San Diego State University, believes a strike would cause only a short-term dip in revenue because the union grocers have invested heavily in multiple neighborhood stores, which gives them a competitive advantage.

Grocery customers generally won’t travel more than five miles, so the chain with the most outlets tends to win, he said. “When everything goes back to normal, the proximity issue will still save the supermarkets,” he said.

The union grocery chains have done what they can to prepare for a strike, hiring temporary workers in an attempt to have their stores fully staffed. They may not suffer as badly as in 2003 if customers are willing to cross the picket lines because some don’t support the decision to strike amid high unemployment, Copic and Flickinger said.

The main danger of a strike is not the short-term revenue loss, however, but the risk that it could strengthen the competition for the long term.

“If there’s a strike and shoppers switch to the competition, the competition makes more money and has more money to open new stores,” Flickinger said.

And the numbers could add up quickly. Each big-box store can bring in a substantial amount of revenue: anywhere from $300,000 to $700,000 a week in sales for a typical Southern California store.

An Albertsons, Vons or Ralphs might ring up $200,000 to $400,000 a week, he said.

The competition is so fierce that even the low-price leaders are battling it out in their weekly ads — putting extra pressure on the union stores’ market share. “In our pricing studies in San Diego, Target is meeting and beating Walmart on prices in key food retail categories and items,” said Flickinger.

“People will still go to (union grocery stores) for their promotional items,” he predicted, “but they’ll also go to other retailers that have everyday low prices, too.”

Union-Tribune staff writer Elizabeth Aguilera contributed to this report.

As posted on San Diego Union Tribue – Aug, 28th 2011 – Read the complete article here:

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