By Randy Tucker
The Cincinnati Enquirer

A California-based supermarket chain that's joined with a Kroger subsidiary and another company in an ongoing labor dispute in Southern California said Thursday that it lost almost $700 million last quarter.

One analyst warned that the loss by Safeway Inc. could also hit Cincinnati-based Kroger's bottom line, because of the grocers' alliance in a struggle against 70,000 members of the United Food and Commercial Workers Union. The workers have been locked out or on strike since mid-October.

Safeway attributed much of its fourth-quarter loss of $695.9 million, or $1.57 a share, to the dispute that has pitted Safeway's Vons division, Kroger's Ralph's division and Albertson's against the union.

The supermarket chains say they need labor concessions to compete with non-union companies such as Wal-Mart, which pays its workers less and provides fewer health benefits. But union officials say the grocers are asking for too much.

While Safeway's loss didn't have a direct impact on Kroger's bottom line, all three grocers have agreed to share equally in any loss resulting from the labor dispute, now entering its fifth month, according to Mark Hughsam, retail food analyst with Morningstar Inc.

"They (grocers) haven't really spelled out the details of the agreement, but it calls for them to share in the losses resulting from the strike,'' Hughsam said. "The impact is going to be a little different for each chain, but it affects them all.''

Kroger officials could not be reached for comment Thursday.

But Kroger's chief financial officer, Mike Schlotman, explained the agreement among the three supermarket chains during a recent conference call with investors this way: "While it's described as a revenue-sharing agreement, it's based on changes in sales and then some calculation of what that change in sales' shift among the retailers means from a profitability standpoint.''

Kroger officials have said the labor dispute has already cost the chain between $135 million and $145 million in sales in the third quarter, while dragging earnings down by about $90 million. And some analysts estimate that Safeway has lost about $500 million in sales because of the strike.

Wall Street seemed unfazed Thursday by Safeway's earnings report. The share price of all three companies closed up, with Kroger climbing 19 cents to $19.14 a share.

"Safeway's results weren't as bad as a lot of people had anticipated,'' Hughsam said. The company's shares closed at $22.49, up 70 cents.

"These losses are short term in comparison to what they (grocers) could be losing in the future if they don't reach a favorable agreement, and it seems the momentum is in their (grocers') favor,'' he said.

E-mail rtucker@enquirer.com