business news in context, analysis with attitude

We've come in for some criticism of our commentary of the way the Southern California grocery strike negotiations have been conducted. We recently wrote that "to solve this problem, someone has to step up to the plate with an innovative, break-the-logjam solution."

To which MNB user Paul Schloss wrote:

Kevin! You are too bright to think this about a "lack of innovation." There is no rabbit in the hat. Market forces (the perpetual enemy of organized labor, and employers bound by stratified labor models), is driving Albertson's, Safeway and Kroger, (and every other employer not protected by structural monopolies) to rationalize their use of labor and cost structures - or perish. Smoke and mirrors cannot mask Wal-Mart's reported 15 - 20% price advantage. Customer loyalty or a convenience factor cannot overcome such a difference. The grocers know this, the unions know this, and so should you. That is old news and yesterday's story.

On one day the UFCW defines Wal-Mart as the "Great Satan" and the next day they demonize Steve Burd for his inflexibility when responding to market forces. The union's enemy is not Safeway, Kroger, Albertson's or Wal-Mart, but their failure to embrace innovative labor models to protect their members from market forces. This is the recurring story with the airlines, trucking, steel and other labor intensive union imbedded industries. The UAW has done a great job in colluding with the automakers, using innovative labor models and productivity, to protect both from the free market forces. The airlines and the unions succeeded for a period, but ultimately failed. Collapse (and failure) under a unsustainable labor cost is the recurring natural consequence of logical market forces. All the union's special interest development codes and standards designed to discriminate against Wal-Mart and Costco, masquerading as "neighborhood protection" and called "big box" approvals, will not stop this market force, or protect a labor cost [union] that is neither competitive or productive.

Absorption of the cost of health care is the "big" issue and unionist push away, insisting it remain the employer's (sole) responsibility - and deny they, or their membership, have any role, skin or burden in building that solution. The union's inflexibility on that "point of principle" perpetuates and justifies their continued existence, and the employers failure to engineer a viable solution out of thin air is the cause of this "loose - loose" situation for union membership and stockholders.

As a commentator, you should not be co-opted by demagogues and rhetoric that loves the employee, but hates the employer. This conflict calls for a big solution, larger than any CEO or employer can provide. Costco has a business model and sustainable labor solution - because they do not experience constraints imposed by a union or labor rules. It is no coincidence they are constrained by the same union designed big box ordinances. As commentators like yourself cover and comment on the clash between purported titans captured by issues clearly beyond their control, the employees, and investors (in the employer) get punished and blamed by their leaders/managers.

If you want to pretend, go to the land of make believe, - Disneyland!

Gosh. We've been "co-opted by demagogues and rhetoric that loves the employee, but hates the employer"?

We had no idea. We thought we were skeptical of everybody and everything.

Another member of the MNB community was even more critical:

You never cease to amaze me with your remarks on this issue because I can intelligently tell you that you have absolutely no idea what you are talking about.

After all this time you still think each side should give in a little and the thing will be over. Kevin, please stop embarrassing yourself. This is no longer over benefits, or wages and just a little secret, Kevin, it never was. The union is done in southern California. Finished, over done etc. The people are crossing the lines, the companies are operating without them and the companies knew their goals all the time and they are right on target with them.

The 3 chains will be operating non union PERIOD. Please when you make a comment like "maybe a prayer by religious leaders will help," it really questions if you are for real or not. Who has been the most quiet one since the beginning? The companies, that's who. The reason is they are right where they want to be. Do we hear about the profit sharing of the companies that the union alleges is illegal? Do we hear about the false names of people returning back to work? Of course not. We hear about calling on religious leaders praying so the union bosses can keep their jobs. One final thing I want to make clear and that is by no means do I feel the companies did not and will not be hurt by this situation because they will. They have lost a lot of business and there is a lot they will never get back but I am sure the benefits outweigh the negatives and they figured that out already. The only 2 parties that have not figured this thing out and are living in LA LA land are YOU and the UNIONS.

Really, Kevin, you could pick better people than that to associate yourself with.

Well, it's a good thing we have a thick skin and don't take things too personally. (That's the advantage of the editorial "we"…)

Hey, everybody is entitled to their opinion.

But a couple of things…

First of all, we were joking about the prayer helping. It was in response to a story that appeared in the Los Angeles Times, and those folks weren't joking.

Second, we're aware that there is more at stake here than wages and benefits. And you may be right…maybe the union is finished, and maybe the chains will be successful in getting rid of them.

We're not on the union's side in this fight, nor are we on management's. We just happen to believe in the old-fashioned notion that negotiations ought to be conducted in good faith, and people ought to be straightforward with each other, that reasonable people can come to reasonable solutions, and that it might make more sense to work with the union than simply hold out until they go away. Now, maybe neither side is capable of being reasonable. And maybe the Southern California grocery landscape is changed forever…and will be changed yet again when Wal-Mart starts opening up its stores all over the place.

But guess what? The attitude that you express in your email is exactly the kind of intransigent, angry attitude that has kept both sides from making any progress over an almost four-month period. And somehow, that just doesn't seem like progress of any kind.

By the way, about that prayer thing, we also noted that religious and civic leaders planned to congregate at the entrance of the gated community where Safeway CEO Steve Burd lives….and we made a wisecrack (go figure!) about the metaphor of his living behind gates.

To which one MNB user responded:

Hmm. I think you'd be hard-pressed to find a CEO in California that DOESN'T live in a gated community. I'm betting that most of the Sr. VPs and VPs live in them too.

Too bad.

Though it raises an interesting question. If these folks live in gated communities, d'ya think they also have other people do their grocery shopping?

Because if they do, it would explain a lot.

It was interesting, by the way, that the religious leaders weren't even allowed to get to the entrance gates. They were stopped a mile away, and only a half-dozen were allowed to actually hike to the actual gate.

Talk about a metaphor.

We also wrote recently about the questionable timing of bonuses recently awarded to Safeway executives, to which one MNB user responded:

The recent Safeway executive bonuses illustrate that as the gap between executive pay and that of the average worker's has increased tremendously, so has the difference in standards of treatment for the two groups. Somehow in the insular culture of top management, corporate leaders have convinced themselves that they are indispensable, while the people who run their stores are not. The result of this thinking is clear: the people that run the company are rewarding themselves with lavish bonuses while demanding that the people who actually run the stores and deal with customers one on one should accept wage and benefit reductions.

Originally, stock options were supposed to reward executives when they increased the company's value and punish them when they devalued it. The rise of extra payouts and special retention and incentive bonuses has made it a one-way street where there's no accountability on the down side. The bonuses might have been more understandable had these executives been responsible for creating huge profit increases for the retailing giant. In fact it has been the opposite. The flawed strategy that drove the takeovers
of Randalls, Genuardi's and Dominicks created staggering losses and has dragged the stock price down. The cost-cutting strategy that worked well in
the early years of Safeway's resurgence has run its course and now begun to backfire. Now Safeway needs to find ways of actually making customers want to shop their stores more.

Executives have lobbied successfully for stock options that create real incentives for management success. Why then do they resist the very same type of incentives for the people who work in the stores?

The disconnect between management and store workers is a disgrace that is emblematic of our era of extreme capitalism and increasingly common in executive suites across corporate America. As long as store workers are
denied a real stake in the company's success (stock options based on store performance), this disconnect will only increase.

And another MNB user wrote:

You are right on! This is starting to feel like the "perfect storm".... making false promises and presenting false images to the GLOBAL public may be the final "element" to kick this thing into a level-6 (as tornados go...) disaster. Just think - all the money being spent on legal defense and public/media posturing could have been invested in employee wages and benefits! What a concept. The scary part for this "no-cost" retailer is the spending has "only just begun".

By the way, responding to one other story we had about Safeway, MNB user David Livingston wrote:

The California Public Employees' Retirement System has $77 million invested in Safeway? Perhaps they should switch to Wal-Mart stock and that should solve the investment problem.

Which all leads into a series of letters we've received about Wal-Mart.

MNB user Andy Casey wrote:

The Pogo quote, "We have met the enemy and he is us", is one of my favorites and applies well to the predicament many retailers find themselves in today. Years of business as usual, building organizations that foster complacency rather than innovation has left the grocery industry ripe for assault by new competitors. Wal-Mart is indeed causing great pain for the supermarket industry and other retailers, but the truth is that the industry spent years sowing the seeds of its own destruction by focusing on buying rather than selling, gathering trade monies rather than marketing to consumers needs. Be assured, if Wal-Mart's assault hadn't caused the
damage, another new concept would have eventually done so.

Thinking back over the history of retailing, at the height of their glory who would have predicted the fall of A&P or Sears? Yet changing customer needs, demographics and lifestyles brought these once seemingly invincible retail giants to their knees as more insightful and nimble competitors found new and better ways to serve - and steal - their customers. Even a few years ago, who would have foreseen the problems to be encountered as the big supermarkets consolidated their market power through acquisition to attain the size necessary to compete with Wal-Mart? Oops, turns out there is more to competing than being big, and forgetting the customer turned many of those previously successful acquisitions into disasters.

The answer lies not in mimicking Wal-Mart's approach, but in understanding customers changing needs and serving them so thoroughly that the basis of competition shifts to your approach. Does anyone doubt that is what Wal-Mart did with their "always low prices" strategy?

Consumers are constantly changing (could anyone market to you the same way they did to your father or mother?) and as a retailer, if you don't adapt to them, someone else will. Wal-Mart presently understands that, and more importantly, that the only way they can stay on top is to keep innovating.

But success is seductive, and nearly always makes people think they are smarter than they really are. And if they ever think their current approach will keep them on top forever, we will be wondering in a few years how they will compete with whomever has emerged to steal their customers.

And another MNB user offered:

What's all the fuss about Wal-Mart's pay and benefits. They are the same as just about every other discount department store. How come the unions aren't trying to organize Kmart and Target? Go take a look at the average person who is working in a Wal-Mart. Now come on!! Do you really think this person is going to find a job anywhere else? The chances of a Walmarter getting a job at a unionized store are slim to none - and they know it. That's why the employees don't want to take a chance losing what they have. All these handwringers are assuming a Wal-Mart employee is the same caliber of worker you might find in a Kroger. It's apples and oranges. Wal-Mart has done a wonderful job in being able to provide employment for what the rest of use would consider an unemployable person. We owe Wal-Mart a debt of gratitude.

Another MNB user had an interesting take on our Wal-Mart coverage and commentary:

It's not unusual to read your opinion on Wal-Mart. If there are less retailers in business there might be less business for Kevin.


Actually, that's wrong.

We've never thought of it that way.

We used to work with folks who worried about that kind of stuff all the time, and even threatened to fire us if we kept up the critical nature of our punditry. One of the reasons that we have MNB instead of being a contract writer for some other site is that we didn’t want to have to worry about that nonsense.

The problem with the business we're in - and, for that matter, the problem with a lot of retailers - is that too many people practice a "CYA" approach to their work.
KC's View: