Outsourcing would save AWG $93 million

Associated Wholesale Grocers' top official wants to start banking on the $43 million that outsourcing would save the company in a five-year span.

Doug Carolan, president of Associated Wholesale Grocers, said outsourcing the company's warehousing and trucking operations would save $43 million over five years, free up $10 million in assets (from the sale of trucks and trailers) and save $40 million over five years in expenditures related to maintaining the operations.

The Kansas City-based company announced Feb. 1 a tentative agreement to contract for trucking and warehousing at its Springfield location, and warehousing in Kansas City. Those operations are now performed by company employees, many of them represented by the Teamsters.

"These are the kinds of efficiency strategies that will help us lower the cost of Tide to the retailer," Carolan said.

Associated Wholesale Grocers is a cooperatively owned company in which members purchase a minimum of 15 shares of stock at $1,800 a share. Those members, 336 in all, are also Associated's customers, Carolan said.

The company is negotiating with the Teamsters union for a new contract it must have in place by April 2, the date of expiration for the current three-year contract.

The company must be efficient and productive in order to compete in today's grocery business, Carolan added, and he said the company's current contract with the Teamster union at its Springfield operation does not allow it the flexibility needed to save money and lower the cost of goods to its grocery store member-owners.

"From our perspective, we need elimination of the restrictions in the work rules laid out in that contract. We need flexibility in start times and scheduling, because we can't be the most efficient if we continue to operate under these restrictions," Carolan said.

The company and the Teamsters union were to negotiate both the contract for the Springfield operation and the Kansas City operation March 1 and 2.

Jim Kabell, business manager for Teamsters Local 245 in Springfield, said March 2 he thought more negotiations would be scheduled.

Carolan said time is running out for negotiating and that the union should act now to prevent distress in both Springfield and Kansas City.

If negotiations with the Teamsters fail to yield the type of contract the company desires, Carolan has said the company will outsource its warehouse operation to Elite Logistics, a member company of Tibbett & Britten, and its trucking to Refrigerated Transport Express.

Elite is a division of Montreal-based Tibbett & Britten, a company that handles some of North America's largest warehouses, said Martin Street, senior vice president of the western region.

Though Tibbett & Britten has agreements with Teamsters in some of its warehouses, the Springfield local has yet to negotiate with the company. Kabell said the union wants to continue to negotiate a contract with Associated Wholesale Grocers.

Carolan said the closing of other grocery warehouses around the nation, including the Fleming Foods warehouse in Springfield, is indicative of industry trends that have large grocery chains maintaining their own distribution.

"You've got to look at the basic competitive landscape. If you don't keep up, then you will close," Carolan said.

Kabell said union contracts have not destroyed the company, but that, in fact, it has grown considerably while the union has been in place.

"We've seen this company go from being a very small company with a handful of employees to a large company on 17 acres with more than 900 employees. All that growth occurred under those contracts. The company showed the largest profit in the history of the company in 1998, with the largest payout to member stores in 1998," Kabell said.

Associated employs 966 people in Springfield, 614 of whom are represented by the union.

Carolan said if the outsourcing contracts are enacted, 100 percent of those nonunion jobs are available to current employees.

Elite has made offers to about 45 management and clerical nonunion employees, Street said, and, if Elite takes over on April 2, "everyone in the warehouse will have a job."

Of the 45 employees Elite has agreed to hire, 30 are management and the rest are support staff, Street said.

Elite has been chosen to run the Springfield warehouse, Carolan said; another company will run the Kansas City operation.

The company has a contract with the Teamsters in Oklahoma City, its other facility, and has already outsourced the trucking operation there, Carolan said.

Associated serves 857 stores in a four-state region, Carolan said. The company's Springfield warehouse has lost 23 stores since 1995 because of closures. That type of business landscape makes Carolan concerned about improving efficiencies in Associated's operation.

"Many stores today are open 24 hours a day, seven days a week, and the union contracts haven't evolved to meet those new demands," Carolan said.

Kabell said the workers at Associated Wholesale Grocers are some of the most efficient in the country.

"These workers are efficient based on measured standards. They have to maintain that efficiency. We are not opposed to efficiency; we want to make the company as productive as possible while protecting the workers' benefits. We need to balance the work with the workers' need to be with their families," Kabell said.

Carolan said the company and the union struck a "clean sheet" agreement in 1997.

"We agreed to start anew, to reconstruct the fabric of our agreement with the Teamsters," Carolan said.

Kabell said Carolan is overestimating the extent of the clean sheet agreement.

"We agreed to start anew on some things, yes, but we did not agree to throw out 50 years of labor negotiations," Kabell said.

Street said Elite is operating as though it will take over on April 2, while bearing in mind that successful negotiations between the company and the union could remove Elite from the equation.

The company will save AWG money, Street said, by taking out restrictive practices.

"In some cases now, the company has high overtime in one area, and low overtime in another. We would work to even that out," Street said.

Now, Tibbett & Britten runs warehouse operations for Kroger, Safeway and Brooks Brothers and is the biggest distribution company in Canada. The company's stock is publicly traded in the United Kingdom, Street said.

As of the Springfield Business Journal's deadline, AWG and the Teamsters were continuing to negotiate the union's contract.

Kabell said he anticipated further negotiating sessions, but did not know when those sessions would occur.