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Supervalu union employees wonder about future

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Northside Cub
The Cub Foods store on West Broadway in north Minneapolis. Supervalu, the parent company of Cub Foods and other grocery chains, said Friday, Nov. 16, 2012 that it plans to freeze pay for non-union members.
MPR File Photo/Jessica Mador

Supervalu is freezing pay and cutting back on retirement plan contributions for some 10,000 non-union workers. Meanwhile, the struggling grocery giant continues to talk with several parties  interested in buying some or all of Supervalu's stores. 

All this has the grocer's union workers thinking a lot about what their future could be under a new owner.  

"We are watching who might be engaged or putting forward an offer on it," said Bernie Hess, director of special projects for local 1189 of the United Food and Commercial Workers, one of the unions representing Supervalu workers in Minnesota. "Not only in Minnesota are we watching but in all the other states, where there are collective bargaining agreements in place."

The company has one of the biggest blocks of private-sector union employees in the state, employing more than 5,000 union workers at distribution centers and company-owned Cub Foods stores. Overall, Supervalu has union contracts covering some 84,000 employees nationwide.

Cub Foods shopper
Shopper Lindsay Peterson at Cub Foods in St. Paul, Minn., on January 20, 2011.
MPR Photo/Nikki Tundel

Supervalu owns and operates about 1,500 grocery stores across the county, including 44 Cub Foods stores in Minnesota. But the company has been taking on water for years. 

Analysts say Supervalu is a mid-market grocer that struggles to compete with high-end stores on service and quality, or match the low prices of discounters like Walmart and Target.

Over its past four fiscal years, Supervalu sales have fallen from $45 billion to $36 billion. And that tailspin is making Supervalu a tough sell. 

"So far, nobody has come to the plate and offered to buy everything," said John Dean, a grocery industry consultant. "I think they'd like to hang on to some banners and divest others. But the ones they'd like to sell are the ones people don't want to buy."

UNION WORKERS PAID HIGHER

It's a good bet that a lot of potential buyers would want to roll back union wages and benefits, bringing them in line with the labor costs that non-union Target and Walmart pay.

For instance, a full-time union employee at a Cub Foods store in the east metro can make as much as $49,000 a year, not counting overtime pay. Workers also get pension and health benefits plus the protection of an array of work rules set out in their contract. Part-timers can make $14 an hour.

University of Minnesota business professor John Budd said a hedge fund or other investor group might be one type of buyer. 

"The worst-case scenario for the unions is that Supervalu gets sold to some ... organization that just wants to make money off the assets, make money by wringing costs out of the situation," Budd said.

Other grocery chains are also potential buyers. But Morningstar analyst Michael Keara expects most of Supervalu's stores won't be attractive due to poor performance and eroding market share. And even at stores that perform well, Keara says the presence of unions can be a deal breaker.

"The competitors that have the wherewithal to finance that kind of deal, they really don't want to deal with the union labor structure," Keara said. "Traditional supermarkets overlaid with a union cost structure tend to be a little more expensive."

COMPANY TRYING LOW-PRICE TACK

Supervalu relies on groceries to make money. But Keara said Walmart and Target tend to set low prices on groceries, hoping that will lure people to stores to buy lots of other things. 

"Who are they going to take that share from?" he said. "Where are they taking those dollars from? Probably the supermarkets."

Supervalu has been cutting prices to try to regain lost business. 

Bloomberg Industries analyst Jennifer Bartashus said that move was long overdue. She said Supervalu has not done well in her price comparison studies, including a recent review of the chain's Acme stores in mid-Atlantic states. At Acme stores in Philadelphia and New Jersey, prices were nearly 20 percent higher than at Walmart.

Supervalu's company-owned Cub Foods stores in Minnesota are considered good performers. In the Twin Cities, Cub is still No. 1 with a 20 percent market share. 

But according to Arizona-based Metro Market Studies, Target, Walmart, and Sam's Club combined now command 27 percent of metro-area grocery sales.

University of Minnesota labor professor John Remington said with so many powerful non-union competitors, Supervalu's union employees should realize that "those union stores are their friends."

And Remington said unions need to help keep those stores competitive -- under current or new owners -- if they want to preserve the jobs of union members.

Table: Twin Cities grocery market share

 

Source: Metro Market Studies