Tough talks between Acme and its largest union

Labor negotiations have begun between Acme Markets and its largest union in the Philadelphia region, and this round is shaping up to be even tougher than the last, when talk of steep concessions nearly led to a lockout that would have emptied dozens of supermarkets of their cashiers, clerks, and other workers.

The three-year contract covering about 3,000 members of United Food and Commercial Workers Local 1776 at 38 Acme locations in Southeastern Pennsylvania expired in February, bringing both sides to the bargaining table about the same time that competing supermarket chain A&P emerged from bankruptcy with $625 million in recently won concessions from its own UFCW members.

The steep cuts won by A&P late last year in agreements with various UFCW locals representing Super Fresh, Pathmark, and other stores across the mid-Atlantic region are influencing early talks between the UFCW and Acme. So, too, are financial difficulties facing Acme's corporate parent, Supervalu Inc., which has struggled for years with declining sales and pressure from shareholders.

Acme officials have cited pension concessions won by A&P during its Chapter 11 bankruptcy as among the cost-containment terms they are seeking from Local 1776 while trying to free money for efforts to revitalize a grocery chain that has lost its local market-share lead.

The union, cognizant of recent Acme store closings and the layoff of hundreds of part-timers a year ago, as well as layoffs of nonunion Acme and corporate staff in recent months, is bracing for what its leader called potentially "confrontational bargaining," while also saying it hoped to avert any sort of work stoppage.

Top officials on both sides said Friday that they were hopeful for constructive dialogue, despite the foreboding backdrop. But proposals put on the table by management thus far, as well as the financial condition of some of Acme's most underperforming stores, suggest anything but an easy road in the months ahead.

"It's a huge concessionary package, and it's worse than last time," said Wendell Young IV, president of UFCW Local 1776, who said company negotiators were seeking significant pension-payment and health-care-obligation reductions that he said would eat right into members' increasingly meager paychecks.

"I will do everything possible to reach a settlement to avoid impasse," Young said, "to avoid a lockout or a strike."

Acme president Dan Sanders, who was hired two years ago, said his efforts to lower prices, improve inventory control and customer service, and boost the quality of produce offerings and other fresh foods have paid off, despite the shuttering last year of six underperforming stores.

Sales in stores open for at least a year, a key indicator of success for any retailer, moved into positive territory during the fiscal year ended in February, rising 4 percent over the previous year, when they fell, Sanders said. But many of Acme's stores in Local 1776's realm - primarily in Philadelphia - continued to struggle, dragging down the entire division.

"When you look at the 38 Acme stores that are represented by 1776, more than half of those stores lose money annually," Sanders said. Those stores combined lose about $12 million a year, he said.

"I'm not pointing the finger or blaming 1776 or the team members for those issues," said Sanders. "I'm just stating the reality of what we face."

In the eight-county region alone, Acme has 64 stores with about 5,000 employees, accounting for more than half the chain's 116 stores, which employ 10,000 people in all. Local 1776 represents a majority of unionized Acme workers in Philadelphia and its suburbs.

With the onslaught of competition in recent years from the likes of Wegmans, Shop Rite, Giant, and Whole Foods - all of which have been adding stores in this area and some of which have nonunion labor forces - Acme has struggled with declining sales and profit, as has its parent company overall.

A division of a publicly traded corporation carrying considerable debt, Acme has not been showered by its Minnesota-based corporate parent with endless capital each year to buy new locations or radically renovate existing stores as a way of fending off its rivals.

The first new local store in four years is set to open in June in Bryn Mawr, and Acme plans to remodel an additional dozen stores, Sanders said. On the whole, however, Supervalu in recent years has stressed to investors that it would expand mostly through its deep-discount Save-A-Lot chains.

Sanders said the new Acme on Lancaster Avenue represented a $14 million investment and would include a prepared-foods wing. Elaborate prepared foods have helped chains such as Wegmans and Whole Foods set themselves apart from more traditional supermarkets.

"We're going to be offering a carving station with all kinds of delicious meats and seafood," Sanders said, "side dishes you can buy there as a meal ... entrée dinners. ⠦ We've got some really cool things teed up."

The company intends to hire 200 people for the new store. But the burden of rising labor, pension, and health-care costs elsewhere in the division remains a concern. Each time there are layoffs or store closings, employees with the least seniority and, presumably, compensation, are let go first. The average age of Acme's full-time associates is 50, and of part-timers 38, Sanders said.

"One of the biggest challenges we face is labor and benefits, which accounted for 20 percent of our sales last year," he said. "Those labor and benefits costs have increased $40 million in four years, even though the store base decreased by 8 percent. So I have fewer stores, and yet I've had these dramatic increases in labor and benefits.?â ¦"

The company is seeking to make a flat health-care contribution over the course of the next contract while upping what members pay each week toward coverage.

Acme also has asked UFCW to allow it to contribute to the union's underfunded pension fund the same increase the union allowed A&P: 7 percent. Acme and A&P share the pension fund. And with A&P's dropping its contribution, the burden remaining on Acme is of top concern.

While not solving the problems facing the pension fund, Sanders said, that step would allow "us more time to turn our company around, no different than what A&P asked the union, and they agreed to."

A strong Acme, he said, would keep the pension fund strong: "At the end of the day, you can't kill the goose that laid the golden egg."

Young said he believes the only way to a reasonable settlement of the pension issue must involve "strategic" discussions between all UFCW locals at the table, along with Supervalu officials and Acme division leaders.

The idea, in Young's estimation: "To come up with a long-range plan how we can work together in both sides' mutual interests - rather than slug it out city by city."

Contact Maria Panaritis at 215-854-2431 or mpanaritis@phillynews.com, or follow on Twitter ?@panaritism.