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NATHAN DENETTE/Nathan Denette/The Canadian Press

Loblaw Cos. Ltd. is locked in a crucial battle with its major union over work rules as it steps up its fight against Wal-Mart Canada Corp. and other non-unionized competitors.

At stake is the dogged pursuit by Canada's largest grocer for more flexibility to adjust staff scheduling and job descriptions, and in turn lower costs. Competitors such as Wal-Mart have an edge in being able, for example, to extend employee hours on busy weekends and evenings without necessarily having to call in a new crew or pay steep overtime bills.

Unionized grocers like Loblaw and Metro Inc., still tussling on the pricing front, are racing to even the playing field as discounter Wal-Mart and others rapidly pump up food offerings.Grocers are fighting back by bolstering their own low-cost discount chains - Loblaw's No Frills and Real Canadian Superstores, for example - and low-priced private labels.

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But now they feel added pressure as they approach what Loblaw president Allan Leighton calls a watershed year in 2011: for the first time, the sector will be made up of more non-union grocery employees than unionized ones, according to his research.

"It's a war cry or a warning that there are going to be difficult times coming," said Kevin Grier, senior market analyst at the George Morris Centre, an agribusiness think tank in Guelph, Ont. "You've got the biggest of the competitors that is gaining market share, and they're not unionized. The strategy is obvious - who wouldn't want more flexibility in terms of overtime, work hours and job descriptions?"

Loblaw's negotiations with its union to renew the contract for 30,000 employees in Ontario has become a flashpoint in the industry.

Mr. Leighton has warned that gaining flexibility is even more important than moderating pay raises. While Loblaw pays many of its employees 10 per cent more than their non-union rivals' counterparts, the gap is even bigger - 15 per cent - when it comes to flexibility costs, his data indicate.

"That's a real competitive disadvantage," Mr. Leighton said in an e-mail. "That's not sustainable."

A Wal-Mart spokeswoman said its wages and benefits are competitive, and it provides overtime pay.

The stage was set for battle in 2003, when the United Food and Commercial Workers union agreed to loosen some restrictions and lower the pay rates of some employees at discount superstores.

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Today Loblaw is trying to apply its superstore labour economics to its conventional supermarkets. The issue so enraged the UFCW that it broke off talks earlier this month to call for a conciliator, saying the negotiations for the contract, which expires in July, were setting out to be its most difficult ones with the company.

"It's just unacceptable to take that kind of position," said Kevin Corporan, president of UFCW's local 1000A, which is handling a mounting array of grievances tied to Loblaw's bid to be more nimble.

For instance, since 2003 Loblaw got the nod from the union to let some suppliers stock superstore shelves, which saves Loblaw from having to pay its own workers to do the job. But union disputes have flared over suppliers doing the job on their own in conventional stores also.

Another point of contention is the cost of converting stores to utilitarian discount formats with lower pay scales and fewer employees. No Frills workers in Ontario, for example, earn 8-per-cent less than their counterparts at conventional supermarkets.

In the past, the UFCW has won constraints on the ability of grocers, ranging from Loblaw to B.C.-based Overwaitea Food Group, to convert stores. Now Loblaw wants to loosen the restrictions.

Loblaw has to give the union six months' notice of a conversion to a superstore, provide evidence that the store is no longer viable and invest at least $3-million into renovations. As well, union members have the option of taking a buyout or "buydown" that can cost Loblaw up to another $3-million a store, analyst Perry Caicco at CIBC World Markets has estimated.

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The added buyout cost has the effect of "hammering" the conversion's return on investment, Mr. Caicco said in a 2008 report. As a result, the conversion's tab can be prohibitive: while the union's current four-year contract allowed Loblaw to convert 44 stores, it ended up revamping only half that number, according to union figures.

The grocer and union also have clashed over evening and weekend scheduling. About two years ago, Loblaw created about 100 "special" full-time positions to improve service at its Toronto area conventional supermarkets. But to qualify for the positions, the applicants had to sign away contract rights that, among other things, restrict the number of evening and Sunday shifts.

"We require flexibility to enable key colleagues to be in our stores when our customers shop, such as evenings and weekends," Mr. Leighton said. "We don't mind being the highest payer, in fact we'd like to be, but not at the expense of worse flexibility."

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