(Nov. 14) Labor costs could force Safeway Inc., Pleasanton, Calif., to sell a Chicago-area retail chain it purchased just four years ago.

In a Securities and Exchange Commission filing, Safeway said it might sell Dominick’s Finer Foods Inc., Northlake, Ill., if it could not restructure labor contracts and so remain competitive with Jewel Food Stores Inc., Melrose Park, Ill., Chicago’s leading retailer. Dominick’s and United Food and Commerical Workers (UFCW), the labor union representing Dominick’s employees, are locked in a dispute that triggered the Safeway threat to sell.

On Nov. 10, the union rejected a Safeway plan that would have replaced high-salaried Dominick’s veterans with new workers. Later in the week, Safeway called for a re-vote, claiming workers were misled by the UFCW. The union rejected that request.

On Nov. 13, the UFCW filed unfair labor practice charges against Dominick’s with the National Labor Relations Board, charging that, among other things, the company unlawfully negotiated directly with workers instead of through the union.
George Melshenker, president of Ruby Robinson Co. Inc., Buffalo Grove, Ill., a longtime produce supplier of Dominick’s, said Safeway’s threat to sell was real.

“From what I understand, Safeway doesn’t make threats; they make promises,” Melshenker said. “I don’t think they’d hesitate to sell. I hope they don’t. They’re a very good customer of ours.”

Melshenker said that in an incredibly competitive retail enivironment like Chicago’s, it was hard for Dominick’s to stay afloat with Jewel paying its workers less. He also said that Safeway would probably “admit they’ve made some mistakes” since purchasing Dominick’s in 1998.

In June, Safeway transferred the buying office which served Dominick’s from Melrose Park, Ill., to the Phoenix area. Some industry veterans criticized the move, saying that Dominick’s would lose its connection to the needs of Chicago customers.

Around the same time Safeway announced that it would close a small number of its Dominick’s stores. Lower-than-expected second-quarter profits at Safeway may have contributed to the decision. The chain’s stock in June was at its lowest level in two years.