Unionised workers at Loblaw’s Zehrs Markets, Loblaws Supermarkets, Fortino’s and Real Canadian Superstores in Ontario have approved an agreement that will allow the company to convert up to a third of its Ontario outlets to a lower pay structure, a move that the company said will allow it to better compete with US rival Wal-Mart. 

Canada’s largest supermarket operator said that the deal would allow it to increase investment in prices, choice and service while escalating its new store-opening programme, as it gears up for increased competition from non-union rival Wal-Mart in the province.

The agreement allows the retailer to convert up to 44 stores into the Real Canadian superstore format, where pay rates are lower. Loblaw has opened 22 Real Canadian stores since it negotiated a separate deal for the chain in 2003. Real Canadian superstores offer lower priced items and carry more household goods than a traditional supermarket.

The lower pay structure would also apply to what the United Food and Commercial Workers union, representing Loblaw workers, called the “Great Canadian Food Store,” a new format that will offer a wider variety of food products and better service than a traditional food store.

Where market conditions necessitate existing stores can be converted to these new formats, but if this occurs workers must be compensated, the union said.

“It gives the company the right to make important choices now for the long-term growth of the business, which is in everyone’s interest,” said Galen G. Weston, who replaced his father as executive chairman last month. “We believe this creates a strong foundation for the company and the union to work together and to serve as an example for how Canadian companies can meet both employee needs and the demands of a more competitive business environment.”

The complex compensation package consists of two lump-sum payments and two hourly rate increases over a four-year period.

Full-time employees will receive C$3,000 in the first year, a raise of 35 cents per hour in the second year, C$1,500 in the third year, and a raise of 35 cents per hour in the fourth year. Lump-sum payments to part-time employees will be calculated on a pro-rata basis, taking into account years and hours of service, while part-time hourly wages will go up by 25 cents an hour, the UFCW said.

The deal, which covers 35,000 workers, was ratified by 80% of the members of the UFCW union, the union said.