The California grocery strike was good for business if you weren't a striking employee or "stricken" grocer -- and particularly if you were an "alternative" to the chains run by big boys Albertson's (NYSE:ABS), Kroger (NYSE:KR), and Safeway (NYSE:SWY). Smart & Final (NYSE:SMF), based in Los Angeles and profiled here in November, is one company that benefited from the "mainstream" companies' bad publicity and shoppers' support for the striking workers.

Since the strike ended last March, however, it's been back to business -- and then some. Smart & Final and its colleagues have had to contend not only with the end of the strike but also with a business atmosphere in which its larger competitors have fought extra hard to win back lost business. (Whole Foods (NASDAQ:WFMI) is another company that got a nice pop in business during the strike.)

That was made clear in Smart & Final's Q4 results, reported yesterday. While the company reported a larger average ticket during the quarter, gross margins decreased slightly and -- perhaps more tellingly -- operating expenses increased more quickly than did sales, with operating margins narrowing as the company saw labor, benefit, and marketing costs (among other items) on the rise.

Meantime, the company plumped up store-level inventory in an effort to please holiday shoppers and, hopefully, impress those who might be considering a switch from the competition. This and the aforementioned cost increases are important in the context of the company's non-membership "warehouse" model: Its margins can only come under further pressure as it boosts marketing and service in an effort to move same-store sales, which slid in Q4, in the right direction.

Smart & Final's business, after a considerable restructuring -- it's made big steps away from the food-service business -- is neater and more streamlined than it was a few years ago, but its moves don't change the fact that it's still in a challenging, high-volume market in which the battle for market share is furious, and not just in its California markets. The challenge is to find the right level of service and selection to attract and customers while not imperiling profits.

If management can do that, Smart & Final can stake out a valuable place -- and grow it -- out West. Its investors, who've enjoyed a nice run vis-a-vis the S&P 500 over the last 12 months, hope it does.

Fool contributor Dave Marino-Nachison doesn't own any of the companies mentioned.