Analysts: Safeway May Be on Verge of Exiting Chicago

NEW YORK - No. 2 supermarket chain Safeway Inc. may be on the verge of exiting Chicago, where its Dominick's chain has suffered about four years of falling profits and its unionized workers are demanding more pay, analysts told Reuters on Wednesday.

Analysts expect Safeway to elaborate on its future plans for the Chicago market when it holds its investor conference on Friday.

The speculation came about after Safeway said on Monday it would dispose of Dominick's if a union representing the unit's almost 9,000 workers did not scrap demands for higher wages at this week's discussions.

"There is a real chance that Safeway could be leaving Chicago," said Jason Whitmer, an analyst at Midwest Research. "It's been a real challenge and a tougher market," he added.

Dominick's is the No. 2 grocer in metropolitan Chicago, behind Albertson's Jewel supermarket chain.

Safeway acquired Dominick's in 1998 in a push to expand into one the largest food markets in the U.S. But for the nearly four years since the acquisition was sealed, Dominick's sales and profitability have been on the decline, weighing on Safeway's finances at a time when traditional grocers are battling fierce competition from independent chains and discounters such as an expanding Wal-Mart Stores Inc.

Safeway, in a regulatory filing with the Securities Exchange Commission on Monday, said Dominick's operated at a "significant cost disadvantage" to its unionized rival Jewel, and thus it would not attempt to run any of the stores in the event of a strike by members of the United Food and Commercial Workers Union (UFCW).

A UFCW spokesman said labor talks continued on Wednesday but could not immediately provide their outcome. He claimed that Safeway wanted to cut healthcare benefits for UFCW members. The union's current labor contract with Safeway expires this Saturday.
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