Raley's says a contract stalemate with its union workforce is costing the company millions of dollars and forcing it to close stores as nonunion grocers eat away at its profits.

After months of fruitless labor negotiations, Raley's Chief Executive Michael Teel sent workers a blunt memo this week, saying their union is ignoring "economic reality" by resisting the West Sacramento grocery chain's cost-cutting proposals.

Raley's also said it had abandoned joint bargaining with Northern California's other union grocers, Safeway Inc. and Save Mart. Starting with a session Thursday, Raley's is now negotiating one-on-one with the United Food and Commercial Workers.

Teel's memo, released Thursday, provides a rare window into the executive mindset at one of Sacramento's signature companies, which employs about 13,000 people in California and Nevada. Privately held Raley's usually shares little about its inner workings.

"The union is dragging its feet and ignoring our pleas for cost savings. … By reaching an agreement on the cost reductions we seek, we will be able to operate more competitively and preserve the future viability of our company," Teel wrote.

He blamed the contract impasse for two recent store closures.

Raley's wants to cut pay and health care benefits to compete against nonunion stores such as Wal-Mart, which has made inroads into the local grocery market.

Union officials couldn't be reached for comment. Earlier, they said they recognize the woes facing Raley's and other union stores – but that management's demands are too steep.

Although contracts vary from company to company, grocers typically negotiate in tandem. Raley's spokesman John Segale said the company has decided to go it alone because "there is more urgency on our end than on the other retailers to reach an agreement.

"We hope the union will see this as a sign that we're serious about negotiating," he said.

Asked about Raley's decision, Safeway said, "We respect the right" of a company to bargain separately, while Save Mart said, "We remain focused on the task at hand."

The grocers' contracts with the UFCW ran out four months ago, and while the pacts have been extended several times, little progress has been reported. Raley's decision to go it alone is a new twist in what is shaping up as an epic battle.

Sacramento hasn't seen a supermarket strike since 1995, but the rise of Wal-Mart and other nonunion rivals is straining the decades-old compact between unionized stores and their workers.

Supermarket work is one of the last blue-collar, middle-class occupations; veteran employees make around $21 an hour plus benefits. The Northern California contract, covering 60,000 workers, is one of the most generous in the industry.

Now Raley's, Safeway and Save Mart are trying to ratchet down those costs to fend off the advances of Wal-Mart, Target and others.

Bay Area industry consultant Bob Reynolds said Raley's is suffering more than Safeway and Save Mart. Wal-Mart and WinCo, two of the top low-cost competitors, are particularly powerful in Raley's Central Valley stronghold.

"Raley's is clearly facing a greater competitive challenge," Reynolds said.

Teel's memo shows Raley's is increasingly impatient to start saving money now.

If the UFCW had accepted Raley's contract proposals four months ago, when the contract first expired, Teel said the company would have saved $6 million. That suggests the grocer is seeking $18 million in annual savings.

"We told the union that we could avoid store closures and save jobs by quickly reaching an agreement," Teel wrote. "However, the information we shared seemed to fall on deaf ears and as a result, we had to announce the closure of two stores last month.

"I believe we could have found a way to keep those stores open if we had been able to reach an agreement in December," he added.

Raley's is closing an Elk Grove Bel Air and a Modesto Raley's. That followed the announcement in November that a North Highlands Raley's would close as well. Raley's also has cut off health care coverage for nonunion retirees over the age of 65.

Teel's memo said Raley's must "reduce our operating losses." Segale elaborated Thursday, saying the CEO was referring to a number of stores that remain unprofitable.

The company as a whole still makes money, he said, adding, "We are struggling to remain profitable given the current cost structure and competitive landscape."

Raley's sales fell to $3.4 billion in 2010, a drop of 8 percent since 2008, according to Stores magazine. In that same time, Save Mart sales fell 2 percent and Safeway's about 7 percent.

Raley's won't discuss its contract proposals in detail, but says it wants to eliminate "premium pay" for Sunday and holiday hours and is trying to save money on health care. It says the changes will leave employees with the same level of health coverage as company executives.

UFCW officials have said the three union grocers have proposed eliminating company-paid health care for all retirees and having current employees contribute to insurance premiums for the first time.

The contracts at Raley's and the company's Nob Hill subsidiary expire Feb. 29; the contract at Bel Air runs out April 29.

Safeway and Save Mart's contracts expire Feb. 24.

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Call The Bee's Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.

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