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Content Guy's Note: While the Southern California labor strife certainly has gotten plenty of attention here and elsewhere, sometimes it is interesting to see how folks outside the US view the situation.

This exclusive column from offers a look at how the situation is affecting Stater Bros…

At the end of last year, Stater Bros., the leading Californian supermarket chain, announced record sales for the fiscal year ended September 28, 2003, noting that total sales climbed by 3.3% to USD2.754 billion, a comparable sales increase of 2.8%. The retailer has benefited from the disruption affecting its key rivals as they struggle with industrial action, with sales in the fourth quarter up by 4.5% as dissatisfied shoppers began to desert Vons, Kroger and Albertsons stores in Southern California. The company reported a net income of USD10.1 million for the fiscal year. Jack H. Brown, Chairman, President and Chief Executive Officer, stated: "We were pleased with the fiscal year results and see positive momentum going forward. We have been able to protect our sales base by focusing our efforts on serving our 'Valued Customers' one at a time." The company ended the year with 157 stores and is poised to open three new outlets by the end of Summer 2004.

This represents a solid performance by the privately-owned supermarket operator. Stater Bros. has successfully driven its business forward in the face of intense competition from its larger rivals and is exploiting their current travails in order to push growth ahead at a faster tempo. Stater Bros. is not alone in seeing an increase in popularity as a consequence of the industrial disharmony besetting Safeway, Kroger and Albertsons, other businesses that have seen demand boosted as a result include retailers such as warehouse club operator Costco (sales up by 9% in California in its Q1) and drugstore chain Longs (front-end comparable sales up by 2.5% in November).

Stater has remarked that it could permanently retain around 5% of the business it has picked up during the Southern California troubles. Jack Brown told the company’s bondholders that 50 of Stater's 157 stores were unaffected as they do not directly compete with Kroger, Albertsons or Safeway; 50 units were generating an extra USD25,000 to USD40,000 per week, and 57 were seeing unspecified "significant increases." There is every chance that shoppers hitherto unfamiliar with Stater’s compelling mix of impressive fresh food merchandising and keen no-frills pricing will like what they find, and that the chain will recruit a large number of new regular consumers who will continue to shop the stores once the strikes have been resolved.

While 2003 has been a strong, if slightly fortuitous, display from Stater Bros., 2004 might be slightly trickier. The major grocers could be back on track if the unions and retailers somehow swallow their pride and reach a compromise and a long shadow is already being cast over the Californian grocery sector by the imminent arrival of the first Wal-Mart Supercenters in 2004, with 40 such units planned over the next few years. This threat, of course, is at the heart of the current industrial action, with the three grocery chains attempting to slash labour costs in order to make their cost bases more competitive ahead of Wal-Mart’s assault.

Stater Bros. has already sketched out some of its strategy to fend off the world’s largest retailer, hoping to rely on features such as staffed butchers counters, high standards of merchandising and customer service and the more convenient navigability of its relatively small stores to differentiate it from the more impersonal, sterile and cavernous approach of the Supercenters. And in Jack Brown, Stater Bros. has a confident and bullish hand on the tiller: "We've been head-to-head with other stores that have targeted us before. We're still here, and they're not." Given the pedigree of the chain’s performance and the quality of its stores, his confidence does not seem misplaced.
KC's View: