UPDATE 2-Chicago approves plan for new Wal-Mart store

* Second Chicago store wins city council approval

* Local lawmakers approve store despite reservations

* Wal-Mart expansion could pressure Supervalu, Safeway (Adds comments from aldermen, Wal-Mart)

By Emily Stephenson

CHICAGO, June 30 (Reuters) - The Chicago City Council approved a plan for a second Wal-Mart Stores Inc (WMT.N) store in the city even as local politicians expressed reservations about the world's largest retailer's business practices.

Wal-Mart said on Wednesday it is scouting potential locations for additional Chicago stores as part of the company's plan to reach urban consumers across the country.

The plan was approved without objection but council members, known in Chicago as aldermen, repeated complaints critics have been making since Wal-Mart first proposed to build dozens of stores in the third most populous U.S. city.

"I've got to tell you I've got extreme consternation about voting for this," said Alderman Ed Smith, who added that Wal-Mart's planned starting pay of $8.75 per hour is not a fair living wage.

"If you're going to be the largest retail corporation in the world, you ought to be able to pay some people some decent salaries," Smith said.

Wal-Mart is the largest seller of groceries in the United States and reaped nearly half of its U.S. sales from those items last year. It has put significant pressure on traditional U.S. supermarket operators, which typically use union labor, and have less flexibility to slash expenses and store prices.

Aldermen also warned that Wal-Mart's low prices could put existing retailers out of business and questioned the quality of the stores' inexpensive products.

Approval for the store in Chicago's South Side Pullman neighborhood, sometimes described as a "food desert" because of its lack of grocery options, came after Wal-Mart was able to satisfy a key union group, the Chicago Federation of Labor, on the question of how much employees would be paid at the store.

A company spokesman said pay would be similar to that in other Wal-Mart stores and that no deal had been cut with unions.

Critics have questioned how Wal-Mart treats its employees in terms of pay, benefits and working conditions. But rising unemployment and the need to generate revenue through sales taxes softened opposition among aldermen.

"We have heard loud and clear from the constituents ... how desperately they want and need this," said Alderman Mary Ann Smith. "Who are we to deny a community these jobs?"

Wal-Mart said in a statement that the stores would stimulate the economy and increase access to groceries in underserved, low income areas while "serving as a successful model for other cities across the country that face similar challenges."

Grocery operators Supervalu (SVU.N), which owns Jewel stores in Chicago and Safeway Inc (SWY.N), which operates as Dominick's, have most to lose if Wal-Mart launches an aggressive expansion in Chicago. Those companies already are locked in a brutal price war to combat the discounter and other rivals. (Reporting by Brad Dorfman and Emily Stephenson; editing by John Wallace, Bernard Orr)