business news in context, analysis with attitude

As expected, unionized employees at Safeway and Ahold-owned Giant Food in the Washington, DC, market yesterday overwhelmingly ratified a new labor contract, avoiding a possible strike later this week. The vote was approximately 11,800-200 in favor of the deal.

Both sides pronounced themselves satisfied with the deal.

The Washington Post this morning reports that "union officials called the contract a victory for its members, saying it left their generous health care benefits and retirement plans largely untouched while winning hourly wage increases for the next four years." At the same time, both Giant and Safeway reportedly said the contract will deliver "substantial savings by cutting pay and benefits for new workers."

Under the terms of the new contract, according to the Post:

  • Employees will get a 30- or 35-cents-an-hour raise each year for four years.


  • Current employees' health insurance deductibles will double, and for many, the maximum out-of-pocket health care costs will increase from $2,500 to $4,000. The company will also contribute less to prescription drug costs.


  • New hires will pay more for health care costs than current employees, with a $300 deductible and pay more for prescriptions. And their out-of-pocket payments for health care will be higher than current employees' after the deductible. After six years of employment, they can qualify for the current workers' health care plan.


  • The companies will not provide health care coverage for the family members of newly hired part-time employees until they have been employed for six years.


  • Giant and Safeway also plan to pay new employees less on Sundays and holidays than current workers, the majority of whom make 1 1/2 times their hourly wages.


The resolution was greeted with relief by both sides, which had hoped to avoid the acrimony that accompanied the four-month strike/lockout that took place in Southern California.
KC's View:
The question is whether the two grocery chains are achieving the kinds of savings that put them in Wal-Mart territory. (Some analysts are quoted in the Post as saying that they thought not.) And if the two chains are not able to achieve that kind of efficiency, are they offering the kind of compelling, differentiated shopping experience that will appeal to consumers?