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Agreement Will Put Dominick’s On The Market
Late last night, it was announced that Safeway had come to a tentative contract agreement with the United Food and Commercial Workers (UFCW) for its Dominick’s division in Chicago. The deal will reinstate the terms of the labor contract that expired a couple of weeks ago, give union members an unspecified “ratification bonus” if they vote in favor of the agreement, and commits Safeway to trying to sell the company after four years of ownership.

The 8,900 unionized workers had authorized a strike, and were targeting Thanksgiving weekend as a likely strike date.

The settlement follows weeks of enmity between the chain and the union. Safeway blamed high labor costs for its waning profits in the market, and had said that if the UFCW didn’t accept its terms, it would close or sell the company; the union said that Dominick’s problems were because of poor marketing and strategic decisions that had replaced local products with Safeway’s private label, and had ignored local sensitivities in general.

The union said it would try to ratify the agreement by Thanksgiving.

“It is the opinion of the leadership that this is the best outcome in a very difficult situation,” Stephen Powell, treasurer of UFCW Local 881, told the “i>Chicago Tribune.

An unnamed Safeway executive told the paper that this would allow “the company to explore options in a quiet, peaceful manner.”

The UFCW had itself been recruiting possible buyers for the division, with names such as Kroger, Supervalu, and Schnucks being floated as being interested in all or part of the company.
KC's View:
Safeway may have blinked, but this strikes us as the best possible settlement under the circumstances.

The level of discontent with Safeway’s management of Dominick’s made it problematic for the chain to continue there even if it had gotten the union to capitulate. That must have become clear as the days dragged on; the hostility was probably a lot more obvious that it ever would have been in focus groups.

Still, Safeway had to find a way to recoup as much of its $1.8 billion purchase price for the company as possible, and the division’s value probably was going a little bit more south each day.

It made sense for the union to agree to this deal, if only because it would keep jobs intact for the moment and create a far friendlier environment into which a new owner can walk.

At this point, it probably is as toss-up as to whether Safeway will come out of this better than the union. We’ll be able to judge that better once we find out what company buys Dominick’s and for what price, and then see what deal that company strikes with the UFCW, if any.

Still, there remains a strong lesson here for any retailer about the importance of local sensitivities and regional marketing. Economies of scale only make sense when you’re selling stuff people actually want to buy.