INDEPENDENTS REPORT: The enemy of my enemy

There's probably not much I can tell you about Wal-Mart that you don't already know, but for the sake of this article, let's review:

-Fortune magazine ranks Wal-Mart as the largest company in the United States, with $259 billion in total revenues. The next-largest grocery competitor is Kroger, which is ranked 19th, with $54 billion in revenues.

-Wal-Mart's $259 billion in 2003 sales exceeds the gross domestic product of the bottom 238 countries in the world.

-A nonunion company, Wal-Mart employs 1.4 million people, which Fortune reports is three times the number employed by the nation's next-largest employer.

-The mass merchant sells 25 percent of all the food in the United States, with sales per day averaging $710 million. Its pricing strategy is to charge 15 percent to 20 percent less than competitors on core grocery items.

-According to ACNielsen, 82 percent of all families in the United States made a purchase at Wal-Mart in 2003, and 55 percent of U.S. families visit a Wal-Mart each week.

These statistics are staggering, particularly given that Wal-Mart doesn't yet have a presence nationwide and is projected to open 1,000 more supercenters over the next five years.

Furthermore, Retail Forward, a Wal-Mart watcher and global management consulting and market research firm in Columbus, Ohio, predicts that the chain's U.S. grocery and drug sales will top $162 billion by 2007. By 2008 Wal-Mart will own 35 percent of all grocery sales and 25 percent of all drug sales in the country. Not surprisingly, the same source also projects that by 2007 the supermarket industry is expected to lose another 2,000 stores as a result of competing with Wal-Mart.

Meanwhile, according to BusinessWeek, nearly 13,000 union-affiliated businesses have closed since 1992, as a result of failing to compete successfully with Wal-Mart supercenters -- which is undeniably a major concern of organized labor leaders and workers. The AFL-CIO is painfully aware that its total paid membership has declined by more than 1 million members since 1991. United Food and Commercial Workers (UFCW) membership has dropped to 1.087 million in 2003 from 1.203 million in 1979. Similarly, during the time it's been affiliated with the AFL-CIO (1987-2003), Teamster membership has decreased to 1.217 million members from 1.891 million.

There's little doubt that supermarket owners, managers, associates, and, yes, union leaders are searching for some measure of comfort in their struggle to survive the biggest business juggernaut in history. It's my opinion that all retail and wholesale union leaders worth their salt also should be examining their organizations' strategies to prevent further declines in membership.

'The real threat'

According to nationally recognized management labor attorney Glenn Olcerst, the UFCW and Teamsters' "Beat Back Wal-Mart" initiative and a constitutional resolution that calls on every UCFW local to develop plans to organize and "adopt a Wal-Mart" are a good start. Olcerst says, however, that much more can and should be done by union leaders to battle Bentonville. He writes:

"Each union that represents members working in any aspect of the grocery industry should find every way to partner with the company whose employees they represent, to ensure that the operator is able to compete against Wal-Mart in ways that allow it to survive and grow. Traditional union tactics and strike strategies -- which drive customers straight to Wal-Mart -- are simply self-defeating.

"The past two decades are replete with examples of unrealistic union requests, which have resulted in union stores closing and in corporate stores being franchised and operated on a union-free basis. Precious time, money, and resources, which currently are used to arbitrate many thousands of clerk-work types of grievances, would be better spent targeting the real threat: Wal-Mart.

"Given Wal-Mart's dramatic growth, all small unionized supermarket operators that remain are at a crossroads. It will be to the benefit of all unions that represent supermarket employees to find ways to help those companies to survive, compete, and grow.

"Unions and employers should together educate members/ employees about Wal-Mart. Members/employees should be reminded immediately that the next time they shop at a Wal-Mart, they also should apply for jobs, since soon those may be the only jobs available to them.

"Furthermore, union negotiators must convince supermarket operators to raise wage rates where necessary, to attract and retain employees who will provide the kind of service that might have a chance of keeping customers from going to Wal-Mart. In return, unions should agree to remove the kind of work-rule restrictions that make it more difficult to operate cost-effectively and efficiently. For example, provisions which might inhibit pulling personnel from one department to another, or which disallow managers from performing unit work to service customers, should be eliminated. Similarly, contract provisions that prohibit vendors from assisting the store by stocking their products give an advantage to Wal-Mart.

'A unified front'

"Additionally, department managers should not be unionized and must be afforded the opportunity to operate their departments as profit centers with complete loyalty to the storeowner and no obligation to abide by union bylaws. Corporate employees, executives, and specialists should be allowed to work and train in the store as a learning experience and on an as-needed basis.

"Where a number of unionized stores are being operated in a given market, thought should be given to contract provisions that allow for the transfer/layoff of full-time jobs in the event that a Wal-Mart supercenter or other nonunion competition causes a drop in sales volume. This is necessary so that the individual store remains viable and is not closed.

"In regard to hiring associates, an extended probationary period should be granted to assure both the company and the union that the best employees are retained and awarded benefits. Buyout proposals for the higher-paid senior employees should be combined with new-hire provisions that include Sunday work without a premium pay rate, and perhaps a separate benefit package.

"Regarding health care benefits, co-pays at some level, especially for retirees, must be permitted. Rising prescription costs need to be controlled by providing a real penalty for employees who don't use generics when available, or brand drugs within a formulary. Finally, unions must agree to allow third-party operators to lease space within a store if the lessee's business adds value and attracts customers to the supermarket, and outsourcing of functions such as cleaning/maintenance of floors should be allowed if it makes financial sense."

According to Olcerst, in order to stay alive, unions must be willing to grant their operators whatever flexibility might be necessary to positively and effectively address what's happening in the marketplace. "Partnering is the best way to help the store -- and members' jobs -- to survive," he says. "The solution lies not in fighting one another, but in mobilizing as a unified front against the utmost threat to traditional supermarkets and family-owned businesses -- Wal-Mart."

Glenn Olcerst is a partner at the prestigious Pittsburgh law firm of Marcus & Shapira. Olcerst participates in retail and wholesale negotiations on behalf of Giant Eagle and also negotiates in the steel and fiberglass industries. He can be reached by telephone at (412) 338-5218 and by e-mail at [email protected].

Independent Retailing Editor Jane Olszeski Tortola can be reached at [email protected].
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