Standard & Poor’s cut the debt ratings of grocery chains Kroger Co., Safeway Corp. and Albertson’s Inc., citing competition from other retailers and the lingering effects of a recent labor dispute in Southern California.

The chains had their ratings cut to BBB-, the lowest investment-grade rating, from BBB, the lowest investment grade, S & P; said in a statement Wednesday. The chains were removed from CreditWatch and their outlooks are “stable.” They were placed on CreditWatch with negative implications on March 16.

S & P; analyst Mary Lou Burde said the downgrades reflect the “difficult operating environment” for supermarkets and that progress in restoring credit-protection measures, which suffered from the long labor dispute in Southern California, “is insufficient to offset this risk.”

The strike, which took place from Oct. 11, 2003, to March 1, 2004, diminished sales and profits and lowered operating margins for Kroger, Safeway and Albertson’s. While trying to recover from the strike, the companies also had to work at winning back customers that had found satisfactory alternatives, something that has proved difficult, S & P; said.

Traditional supermarkets now face increased competition from discounters such as Wal-Mart Stores Inc., dollar stores, drug retailers and warehouse clubs including Costco Wholesale Corp. This expansion has forced competitors to sharpen pricing and execution. With about 1,800 Supercenters and plans for adding 250 per year, Wal-Mart will continue to be a formidable competitor for many years, S & P; said.

“It will be challenging for traditional supermarkets to achieve performance gains in the face of intensifying competition, as cost savings must keep pace with ongoing price reductions,” said Burde.