Retail food giant Loblaws, girding for a food war with non-union Wal-Mart, is complaining that difficult union contracts are hurting its business performance. "We need to be able to have as free a movement as anyone else that's doing those kinds of jobs," said Loblaws' chairman Galen Weston. "We have some very difficult contracts that hurt the performance of our business."

Loblaws' claim of union inflexibility contradicts its unusually cozy working relationship with the leaders of its primary union, the United Food and Commercial Workers (UFCW). With union help, Loblaws has substantially slashed its labour costs -- once among the highest in Canada -- and now reports unprecedented earnings. That union help, however, may soon lead to its undoing.

Amidst food industry analysts' predictions of a new round of consolidation, and because it has just about maxed out the share of the Canadian food market that the federal government's Competition Bureau would allow it to control, Loblaws may have to sit on the sidelines as U.S. competition enters the Canadian market. The UFCW is facing competition too, in the form of labour unions willing to compete with the UFCW for its traditional members. Loblaws' growing dependence on a friendly union to help manage its businesses could cause an Eaton's-like crash.

As well, the UFCW leadership is losing control of its Loblaws members, as the recent strike at the Loblaws subsidiary, Zehrs Markets, shows. After the union recommended the members accept a 1% per year wage increase, the members balked and walked off the job. The members were outraged to learn that, while negotiating a 1% increase for the members, the union elite secretly gave itself a 65% wage increase for the same year. Meanwhile, in B.C., Loblaws employees are challenging their UFCW leadership, and Loblaws has come to the union's defense by searching employees' lockers for anti-UFCW literature and threatening discipline for employees caught talking about union reform.

Without the UFCW, Loblaws operations are vulnerable to the coming competition. Rather than ridding itself of its union to better compete against non-union Wal-Mart, Loblaws let UFCW help itself to its employees. Industry watchers were left gagging when they discovered the "Partnering Agreement" between UFCW Local 175 and a Loblaws subsidiary, Provigo Inc. The union signed a deal agreeing to not exercise its rights under labour statutes, and also agreed to structure bargaining units to render Provigo safe from effective strike action. In turn, Provigo promised that if the UFCW drops by to sign up employees, "a clear message of free choice will be communicated to the employees of that store stating, without ambiguity, that employees are free to join the union if they wish."

That deal pales beside one Loblaws and the UFCW signed in British Columbia. Loblaws demanded that the UFCW charter a special local union to represent Real Canadian Superstore employees. In return for the friendly local, Loblaws gave the UFCW free access to sign up non-union employees of a small store in Kelowna, and then gave the UFCW exclusive jurisdiction for thousands of new members and millions of dollars in revenue.

With the agreement of the UFCW, Loblaws has restructured from an organization with a substantial full-time workforce receiving family-supportable paycheques to a transient workforce with paycheques barely large enough to pay the rent for a skid-row tenement. That once high-paying, full-time job now looks like just another part-time McJob, with low pay, few hours and a long, slow path to advancement.

UFCW members have begun to look at other unions for leadership, despite the possibility this could lead to raids from other unions. If a free-for-all happens, the grocery industry could be in for a major shake-out that will hammer earnings and raise food prices. A raid doesn't kill a collective agreement, but it kills special side deals such as partnering agreements.

Loblaws has good reason to worry about its prospects. Loblaws managers may soon find their sweetheart union deals replaced by a King Kong equivalent. Wal-Mart has developed a management team with killer instincts, while Loblaws has become complacent with the union as its partner. What remains to be seen is how badly Loblaws will suffer from market loss and share-price carnage from the likes of Wal-Mart.