Suppliers Caught in the Middle

By Ronald D. White and Melinda Fulmer

Dec. 8, 2003 12 AM PT

Times Staff Writers

These days, the Snak King is struggling to rule his realm.

Sales have plummeted 50% since the supermarket strike began Oct. 11, according to Chief Executive Barry Levin, and drivers for the City of Industry-based company are trucking pork rinds and cheese puffs from one store to the next in hopes of unloading the treats ahead of their expiration dates.

“We’re working twice as hard for half the money,” Levin said last week.

In Fullerton, Tam Produce President Sam Licato blames the labor dispute for an 80% drop in sales, which has forced him to lay off about 35 of his 140 workers, mostly in the warehouse.

With pickets outside of most major grocery stores, the company can no longer move the same quantity and variety of produce, Licato said. Shoppers “are buying four or five different kinds of tomatoes, versus 17.”

The supermarket strike and lockout, at first barely more than an inconvenience, is increasingly becoming a serious liability for businesses in the region.

Although food vendors are shifting products to nonunion markets and other stores, many say there is no way to make up for the steep decline in customers at major supermarkets.

“We have had some increase in volume from Costco,” said Lindsay Martinez, marketing manager for Boskovich Farms in Oxnard, which grows green onions, lettuce, celery and cilantro. But she said that hasn’t “balanced out” lost sales to the hundreds of stores being picketed.

The United Food and Commercial Workers union struck Safeway Inc.’s Vons and Pavilions stores in Southern and Central California on Oct. 11 after talks on a new labor contract broke down. Kroger Co.’s Ralphs and Albertsons Inc., which bargain jointly with Safeway, locked out their workers the next day.

Both sides met with federal mediator Peter J. Hurtgen on Saturday and Sunday. The talks “recessed” Sunday night and no new meetings were scheduled. At Hurtgen’s request, the grocers and the union are declining to comment on the talks.

The union pulled its pickets from Ralphs on Oct. 31, giving people an alternative to the smaller markets and warehouse stores that many had been patronizing since the dispute began. That helped suppliers move more goods, but the supply chain was dealt a blow three days before Thanksgiving, when the International Brotherhood of Teamsters agreed to honor UFCW picket lines at warehouses, including those serving Ralphs.

As a result, Ralphs stores, which had been relatively well stocked, have suffered spot shortages on key dairy, produce and other grocery items. Weekend shoppers were largely able to find essentials -- milk, bread, produce, meat and canned goods -- but often not in the size or the brand they wanted.

At a Manhattan Beach Ralph’s, the selection of yogurt, Gerber’s baby food, applesauce, plastic sandwich bags and kitty litter was decimated. A Ralph’s store at 3rd Street and Vermont Avenue in Los Angeles was in short supply of disposable diapers, peanut butter and canned soup. And customers had slim pickings of milk, paper goods and liquid laundry detergent at a Ralphs in Studio City.

Ralphs said last week that it had hired nonunion workers to replace 430 of its 550 Teamster drivers, plus another 1,500 people to move product inside its warehouses.

“Each day we are getting back closer to normal,” said Ralphs spokesman Terry O’Neil.

Vons claims it is “100% on schedule” with deliveries of key commodities. Albertsons declined to comment on its supply chain.

In addition to hiring temporary workers, the chains have asked vendors to deliver goods directly to the stores instead of to warehouses. Not all have complied. “We are not equipped to go to 575 stores every day,” said Licato of Tam Produce.

Some of California’s food producers say they have been relatively unscathed by the strike.

Mexico City-based Grupo Bimbo, which bakes Oroweat bread, Entenmann’s pastries and other brands, said it was holding its own.

“We have seen sluggish sales for some of our products, but have been able to make up volume at other stores throughout Southern California,” a Grupo Bimbo spokesman said.

Naked Juice Co. has seen its supermarket sales drop by 35% to 40%, according to President Tom Hicks, who said the Glendora company typically sells about 600,000 bottles of juice a week.

Hicks said Naked Juice has been able to make up much of those losses in other markets.

“At first, there were people standing in front of our trucks,” Hicks said, “but that has toned down. People are finding us at the local coffee shop, Gelsons, Stater Bros., Trader Joe’s. We are selling a tremendous amount at Costco, where our business is up 25% to 30%.”

California Dairies Inc. says its milk sales at markets untouched by the labor dispute have in some cases doubled or tripled. Some of the milk that can’t be sold will be turned into cheese, butter and powdered milk, CEO Gary Korsmeier said.

But for many growers and manufacturers, the effects of the supermarket strike -- the Southland’s first in 25 years -- aren’t easily overcome.

Jackie Brya, a retailing expert at Ernst & Young, said many packaged-food companies may be forced to discount their goods and move them to other channels, such as dollar stores.

“Food companies are going to have to get creative and look for new ways to distribute their products,” she said.

Makers of perishable products could see the biggest impact, Brya said. “These companies enter into fixed production contracts with the anticipation that they will sell a certain number of products in the coming year. They enter their main selling season and now they are stuck holding onto inventory. This could have a significant impact on their business.”

Levin of Snak King, for example, said the company hasn’t been paid for products that make it to stores but don’t sell. “This is costing us a lot of money,” he said.

Snak King drivers also suffer -- they work for commissions, not salaries. Levin says the company has lost about 20% of its contract drivers since Oct. 11 and that some supervisors have been forced to take over their routes.

“People are walking away from the business,” Levin said. “They are quitting their jobs and doing something else.”

The crippling blows come just before supermarkets enter one of their slowest selling seasons, from January through April.

For one vegetable supplier now working to nail down next year’s sales, the three chains’ responses have been dismal.

“They haven’t bought anything all week,” said David Cook, sales manager for Deardorff-Jackson Co. in Oxnard. “This is all such a mess.”

Times staff writer Meg James contributed to this report.