Steve Burd Unwavering on Cost-Cutting Stance

Discussion
Aug 30, 2004
George Anderson

By George Anderson

Millions of dollars lost in one strike/lockout and the potential for millions to be lost in future job actions doesn’t faze Safeway chairman and chief executive Steve Burd one
bit.

To survive against the likes of Wal-Mart and other non-union competitors, Mr. Burd says Safeway and its divisions must cut costs even if it means offering lower wages and less
generous health insurance packages to the company’s employees than they’ve received in the past.

Mr. Burd sat down with editors from the San Francisco Chronicle and offered opinions on various subjects.

The U.S. health care system

“You’re looking at the only food retailing chief executive officer that has ever gone to Congress and lobbied for some kind of national health care. We have de facto universal
coverage in this country. It doesn’t really cost $1,500 a day to stay in a hospital. It’s just that the uninsured get cared for, and we all pay for it.”

Safeway’s negotiating stance with unions

“We have a set of objectives that we have to achieve in order to really be competitive. We look at this thing as a challenge to our basic survival as a segment of food retailing
— the supermarket segment. I believe our employees understand and appreciate that. I believe most of the union leaders understand that. They’re just trying to come to the table
and negotiate something that makes them look like they properly represented their employees.”

Wal-Mart’s plans For California

“I’ve read a lot of newspaper articles going back a year and a half saying Wal-Mart has plans for 40 Supercenters in California. What’s hardly ever reported is that they’re building
a distribution center in Southern California capable of serving over 200 Supercenters. These are smart guys. They’re not building that so they serve 40 Supercenters.”

Protecting market share

“There’s a parallel industry here that there are lessons to be learned from, the airline industry, which for years was a highly unionized industry. People made a very good rate
of pay and had terrific benefits. United is in bankruptcy. US Air is in bankruptcy. Delta is actually threatening bankruptcy. I would say that the time to protect your market
share is before you lose it.”

Moderator’s Comment: Is Safeway a stronger company today than it was before the Southern California strike? What do you see as the company’s current
strengths and weaknesses?

We have to give credit to Steve Burd for sticking to his guns. Safeway is in a better position to compete, on paper at least, because of the deal it struck
in Southern California.

What concerns us is that an executive who professes to being out in the field 35 percent of his time still remains out of touch with his employees.

When asked if he has problems with the rank and file of his company, he answered, “I don’t know if I would say I have a problem. I would say I’m in the
press a lot. But I would tell you that I think I have a good relationship with the employees in this company. In the last three months, I have met with 6,000 department managers
— at least 5,500 of them would be union. I’ve met with over 200 department managers in Southern California. I think they embrace our strategy.”

Everything we’ve heard, having spoken to Safeway employees and consumers in that market, directly contradicts Mr. Burd.

We’re also concerned that Mr. Burd’s words suggest he has a hierarchical view of haves and have-nots within organizations and this conflicts with the Safeway
company message that everyone is in this fight together.

When asked about the time it takes to become eligible for health insurance benefits, Mr. Burd said, “I’m not sure there’s a 30-month eligibility requirement
in any of our contracts. There may be something that would be fairly extended for full family coverage. The first job I ever had was right here in San Francisco with Southern
Pacific. I was not covered for 90 days, and it was an executive position.”

George Anderson – Moderator

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2 Comments on "Steve Burd Unwavering on Cost-Cutting Stance"


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M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
16 years 2 months ago

Super Bowls are won with defense, but supermarket retailing is not. Safeway
appears to be yet another retailer trying to control its way to growth, rather than selling its way to growth. Building your business at the expense of your employees is always rewarded with additional loss of loyalty and
turnover.

James Tenser
Guest
16 years 2 months ago

Well it seems that Mr. Burd hasn’t very many fans among our BrainTrust. I must say I buy into this consensus. It seems to me that a strategy based on backpedalling in the face of Wal-Mart is not very strategic at all.

I’m afraid that Safeway is running short in the soul department – an affliction that affects most other big supermarket chains. Does the company have a vision for its future positioning? Or does it plan to manage quarter-by-quarter until Wal-Mart succeeds in draining away what is left of its center-store profitability?

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