Supermarket Smackdown

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Meanwhile, Albertson's 2,300 stores hope to reel in customers with the power of other retail brands. Its new store-within-a-store concept has carved out space not only for its well-known pharmacy, Osco, but for 1,900 Toys "R" Us alcoves, 1,000 Krispy Kreme nooks, some 300 Starbucks cafes and a dozen or so Office Depot sections. "We're really just trying to maximize choice," says Bob Dunst, Albertson's chief technology officer. That impulse helps explain why his company--along with several others, including Kroger, Marsh and H-E-B--is hedging its bets via multiple store brands that cater variously to upscale, discount and ethnic shoppers. Some supermarkets have even been installing gas stations in their parking lots to bring in more traffic.

HANDLE THE UNIONS

Labor unions have represented workers at big chains like Safeway since supermarkets first appeared in the 1930s, but their inability to crack Wal-Mart leaves the chains' employers at a wage disadvantage they can't abide. Something has got to give, so Burd's most formidable target is labor, which accounts for 68% of Safeway's budget. According to consulting firm Retail Forward, Wal-Mart's labor costs are 25% to 30% less than the big unionized chains', which contributes to prices that are 15% lower.

Knowing that Wal-Mart plans to open 40 Supercenters in California in the next five years, Burd, who took the helm at Safeway in 1993 and has been lauded for trimming bloated costs, played hardball during regional negotiations with the United Food and Commercial Workers (UFCW) union last fall. After its workers went on strike on Oct. 11, Albertson's and Kroger subsidiary Ralphs locked out their UFCW employees. Five grueling months later, the UFCW agreed to a two-tier plan that pays new hires less and requires them to contribute more for health care. "It still leaves [existing employees] with the highest wages, the highest health-care plan and the highest pension benefits in all of retail," says Burd. The tactic may have helped the company reach a settlement recently, without a strike, in and around the Washington-Baltimore area, another UFCW stronghold. Since a hostile work force won't help bring in new customers, Safeway wisely created a multimillion-dollar hardship fund to provide financial grants to employees who fell behind on their house, car or other payments during the strike.

Albertson's, which is giving its employees $10 million in strike-ratification bonuses, is taking other preventive measures by outsourcing some of its customer service to a new call center in Utah and reducing the overall need for checkers, hostile or otherwise. The company has installed 1,800 self-checkout aisles and plans to reach a total of 5,000 by fall. It is also using the Dallas--Fort Worth market to test a shop-and-scan technology, similar to Speedpass, that obviates the need even to go through a checkout aisle.