EMPLOYMENT CONTRACT


DATED: October 1, 1998

BETWEEN:            UNITED GROCERS, INC.,
                    an Oregon corporation, hereinafter referred to as "Company"

AND:                TERRY OLSEN,
                    hereinafter referred to as "Employee"

                                    RECITALS:

      A. The parties  desire to provide for  employment  of Employee by Company,
which for purposes of this  Agreement,  includes any  subsidiary  or  affiliated
corporation or entity that is at least fifty-one percent (51%) owned directly or
indirectly by Company.

      B. Employee desires to be assured of a minimum  compensation  from Company
for Employee's services over a defined term (unless terminated for cause).

      C.  Company  desires  to employ  Employee  in order to  assure  continuing
management  expertise  for  Company  and to  provide  reasonable  protection  of
Company's  confidential  business information which has and will be developed by
Company.

1.    EMPLOYMENT.

      1.1  Employment.   Company  hereby  employs  Employee  as  Executive  Vice
President and Chief Operating Officer upon the terms and conditions set forth in
this Agreement.  Employee  accepts such employment upon the terms and conditions
set forth in this Agreement.

      1.2 Term. The term of this Agreement  shall commence upon October 1, 1998,
and shall  continue  for a period of three (3) years from said date,  subject to
the termination provisions of paragraph 3.

      1.3  Extension.  This  Agreement  shall be  automatically  extended for an
additional year on each  successive  October 1, commencing with October 1, 2001,
unless  terminated by written notice by either party.  The notice of termination
shall be given no sooner than 240 days prior to the  expiration  of the original
term or any  subsequent  extension  and not  less  than  180  days  prior to the
expiration of the original term or any subsequent extension.

      1.4 Duties.  Employee accepts employment with the Company on the terms and
conditions set forth in this  Agreement,  and agrees to devote his full time and
attention to the performance of his duties under this Agreement.  Employee shall
be the Executive Vice President and Chief  Operating  Officer of the Company and
agrees to act in such capacity and perform  services  normally  associated  with
such  positions.  Employee shall perform such specific duties and shall exercise
such specific  authority as may be assigned to Employee from time to time by the
President and Chief Executive Officer. In performing such duties, Employee shall
be subject to the direction  and control of the  President  and Chief  Executive
Officer.  Employee  further  agrees  that in all  aspects  of  such  employment,
Employee  shall  comply with the  policies,  standards  and  regulations  of the
Company from time to time established,  and shall perform his duties faithfully,
intelligently,  to the  best of his  ability,  and in the best  interest  of the
Company.  The  Employee  may serve as a member of the  boards of  directors  for
businesses  or  associations  other  than  United  Grocers,  Inc.  or any of its
subsidiaries,  provided  such activity does not  materially  interfere  with the
services required to be rendered to or on behalf of the Company.

                                      -1-
<PAGE>

2.    COMPENSATION.

      2.1 Base Compensation.  In consideration of all services to be rendered by
Employee to the Company,  the Company shall pay to Employee base compensation of
Two Hundred Thousand Dollars  ($200,000) per year, payable at the same frequency
as all employees are compensated (the "Base  Compensation").  Adjustments may be
mutually agreed upon from time to time, and such  adjustments will be in writing
and signed by both parties  hereto and added as an amendment to this  Agreement.
If Employee's Base  compensation is increased during the term of this Agreement,
the  increased  amount shall be the Base  Compensation  for the remainder of the
term and any  extension.  Base  compensation  shall not  include  any bonuses or
incentive  compensation payments, if any, which Company, in its sole discretion,
may elect to pay to Employee at some future date.

      2.2 Withholding;  Other Base Benefits. The Base Compensation and any other
payment or benefit shall be subject to the customary withholding of income taxes
and  shall be  subject  to other  employment  taxes  required  with  respect  to
compensation  paid by a corporation to an employee.  Base  Compensation  paid to
Employee shall be in addition to any other  contribution made by the Company for
the benefit of  Employee to any  qualified  or  non-qualified  pension or profit
sharing plan, including, but not limited to, the Pension Plan of United Grocers,
Inc.,  any  supplemental  pension  or  bonus  plan  for key  employees,  and the
Company's portion,  if any, of the 401(k) plan maintained by the Company for the
benefit of its employees. Employee shall be entitled to participate in Company's
medical  and  dental  insurance  plans and any other  fringe  benefits  that are
provided to Company's key employees on a regular basis.

      2.3 Expenses.  Company shall pay or reimburse  all of the  reasonable  and
necessary  expenses  incurred by Employee in carrying  out his duties under this
Agreement, provided that Employee accounts promptly for such expenses to Company
in the manner prescribed from time to time by Company.

      2.4  Disability.  If Employee  shall  become  unable to perform his duties
under  this  Agreement  because  of  accident,  injury or  illness,  he shall be
considered  permanently  disabled,  but his salary, less any disability benefits
Employee should receive from an insurer, shall continue for the duration of such
disability  for the remaining  term of this  Agreement,  or at the minimum of at
least one full year of salary.  Such  disability  period shall commence with the
month following the month in which the disability  occurs.  For purposes of this
Agreement,  "permanently  disabled" shall be defined as Employee's inability due
to physical  or mental  illness,  or other  cause,  to perform  the  majority of
Employee's  usual  duties for a period of one (1)  month.  For  purposes  of the
various  employee plans referred to in subparagraph 2.2 above, all payments made
to Employee by an insurer or company pursuant to this subparagraph 2.4, shall be
deemed to be compensation  paid by Company for actual  services  rendered to the
Company.  The parties acknowledge that the company's  disability program for its
key  executives is currently  being  reviewed and agree that once such a plan is
established  the  benefits  provided  under this  paragraph  will be modified to
conform with such plan.

                                      -2-
<PAGE>

      2.5 Benefit Inclusions.

          2.5.1 Auto or auto allowance.

          2.5.2 Annual medical physical.

          2.5.3 Country club privileges (initiation fee).

      2.6  Vacation.  Employee  shall be entitled to five weeks of paid vacation
per year plus those holidays which are normally recognized by Company during the
year.

      2.7 Life  Insurance.  During  the term  hereof,  Company  shall  acquire a
$200,000 life insurance  policy on the life of Employee which insurance shall be
payable to whatever  beneficiaries Employee designates or in the absence of such
a designation to Employee's estate.

3.    TERMINATION.

      3.1 Termination by Company  (Without Cause).  Employee's  employment under
this  Agreement  may be  terminated  without  cause by the  President  and Chief
Executive  Officer by giving one hundred  eighty (180) days'  written  notice to
Employee. Upon the giving of such notice or at any time thereafter,  the Company
may elect to (i)  continue to employ  Employee  for the balance of said  180-day
notice period subject to the  provisions of this  Agreement or (ii)  immediately
terminate Employee provided that the Company pay to the Employee for the balance
of said  180-day  period  his Base  Compensation  that he  normally  would  have
received for such 180-day period,  as if Employee had remained as an employee of
the Company. For purposes of this Agreement,  the expiration of the term of this
Agreement or any extension of such term, without renewal,  shall be treated as a
termination  without cause and the foregoing  180-day period shall commence upon
written notice of termination under  Subparagraph 1.3. If the Employee should be
terminated without cause ("cause" hereafter  defined),  the Company shall pay or
provide to the Employee after such termination, the following:

          3.1.1 The Employee's Base  Compensation,  as described in subparagraph
2.1 above,  which  compensation  shall be payable at the same  frequency  as all
other  employees are  compensated  over the longer of (i) the remaining  term of
this  Agreement,  (ii) the remaining  term of any extension of this Agreement if
this Agreement has been extended as provided in  subparagraph  1.3, or (iii) the
foregoing 180-day period after notice of termination.

          3.1.2 For the period  specified in Subparagraph  3.1.1,  full employee
benefits as more particularly  described in subparagraphs  2.2, 2.3, 2.4 and 2.7
to the extent such benefits are not  discretionary  on the part of Company.  The
coverages  provided  in  subparagraphs  2.2,  2.3,  2.4 and 2.7 may be  procured
directly  by the  Company  apart  from and  outside  of the  terms of the  plans
themselves, provided that the Employee and the Employee's dependents comply with
all of the conditions of the various plans.

      3.2 Termination by Company (For Cause).  Employee's  employment under this
Agreement may be  immediately  terminated  by the President and Chief  Executive
Officer for cause.  Termination  "for cause" means that Employee shall be guilty
of fraud,  dishonesty,  conduct  involving  moral  turpitude  connected with the
employment  of  Employee,  or a  breach  of the  provisions  of this  Agreement,
including specifically a failure to perform the duties described in subparagraph
1.4. If Employee is terminated  for cause,  Employee  shall be entitled to those
vested  retirement  benefits as of the date of termination that he qualified for
under the terms of the Company's  various  retirement  plans, both qualified and
non-qualified;  however, Employee shall only be entitled to Base Compensation or
any other benefits described in this Agreement up to the date of termination.

                                      -3-
<PAGE>

      3.3 Termination by Employee. The Employee may terminate his employment for
any  reason and  without  cause by giving 60 days  prior  written  notice to the
Company.  Upon receipt of such notice,  the Company may elect to (i) continue to
employ  Employee  for all or a portion  of said  60-day  period,  subject to the
provisions of this Agreement or (ii) immediately  terminate  Employee,  provided
that  the  Company  pay  to  the  Employee  for  said  60-day  period  his  Base
Compensation  that he normally  would have received for such 60-day period as if
Employee had remained as an employee of the Company.  If Employee terminates his
employment,  he shall be entitled to those vested retirement  benefits as of the
date of  termination  that he  qualified  for under  the terms of the  Company's
various retirement plans, both qualified and  non-qualified,  and Employee shall
be entitled to the full  benefits  provided in  subparagraphs  2.2,  2.3 and 2.4
through  the  date  of   termination   to  the  extent  such  benefits  are  not
discretionary on the part of Company.

      3.4 Termination Due to Death or Disability. In the event of termination of
employment due to death or disability of Employee,  Base  Compensation  shall be
prorated  and paid  through  the date of such death or  disability.  Employee or
Employee's  beneficiaries  shall be entitled to those vested retirement benefits
as of the  date of such  termination  that  employee  qualified  for  under  the
Company's various retirement plans, both qualified and non-qualified.  All other
benefits  provided under this Agreement  shall  terminate as of the date of such
death or disability  except as may be  specifically  provided  otherwise in this
Agreement or the agreements relating to such benefit plans.

4.    CONFIDENTIAL INFORMATION.

      4.1 Definition.  For purposes of this paragraph 4, the term  "Confidential
Information: means information, including but limited to financial, operational,
customer,  pricing, and marketing information,  which is not generally known and
which is proprietary to Company,  including but not limited to (i) financial and
trade secret  information  about Company or its subsidiaries or affiliates,  and
(ii)  information  relating  to the  business of Company,  its  subsidiaries  or
affiliates  including,  without limitation,  information about Company's and its
subsidiaries' or affiliates'  customers,  trading skills,  contacts and know-how
and information  about the trading,  manufacturing  and marketing  activities of
Company, its subsidiaries,  or affiliates.  All information which Employee has a
reasonable  basis to consider  Confidential  Information  or which is treated by
Company, its subsidiaries or affiliates as being Confidential  Information shall
be presumed to be Confidential Information, whether originated by Employee or by
others,  and without  regard to the manner in which  Employee  obtains access to
such information, except that it shall not include:

          4.1.1 information in the public domain;

          4.1.2  information  that becomes part of the public domain  through no
fault of Employee;

                                      -4-
<PAGE>

          4.1.3 information in Employee's  possession prior to his employment by
Company; and

          4.1.4 information  otherwise acquired lawfully from parties other than
Company.

      4.2  Nondisclosure.  Employee  will not,  either  during  the term of this
Agreement  including any  extensions or for a period of two (2) years  following
expiration or termination of this  Agreement,  use or disclose any  Confidential
Information to any person not then employed by Company without the prior written
authorization  of Company's  Board of Directors and will use reasonably  prudent
care to safeguard and protect and to prevent the unauthorized  disclosure of all
such Confidential Information.

5.   NON-COMPETITION.   If  Employee's  employment  is  terminated  pursuant  to
subparagraphs  3.2 or 3.3,  then  Employee  agrees  that for a period of two (2)
years  following  termination  of  this  Agreement,  he  will  not  directly  or
indirectly,  alone or as a  partner,  officer,  director  or  employee,  perform
services for any firm or organization  engaged in activities in competition with
or  similar  to those  activities  which  have  been or are being  conducted  by
Company,  its subsidiaries,  or affiliates in the states of Washington,  Oregon,
Idaho or  California  or in such  other  geographic  areas in which  Company  is
conducting its business as of the date of termination.  If Employee's employment
is terminated  pursuant to subparagraphs  3.1 or 3.4, then this  non-competition
provision  shall not apply to Employee  after  termination.  In all events,  the
provisions of subparagraph 4.2 shall apply to Employee after his termination. 6.
CORPORATE  RESTRUCTURING.  If Company is  acquired  by  another  company,  sells
substantially all of its assets,  mergers,  or consolidates with another company
or operates its business  through a joint  venture or  partnership  with another
company and if Employee's employment under this Agreement or a similar agreement
is not continued by Company, the acquiring company, the successor company or the
joint  venture or  partnership  as the case may be,  then  Company  agrees  that
Employee shall be entitled to receive the benefits under  subparagraph 3.1 as if
Employee's  employment had been terminated without cause.  Employee acknowledges
that in such a sale or acquisition,  Employee's  title may be changed and such a
change in title will not be viewed as a termination of Employee's  employment so
long as his duties and responsibilities are commensurate with his current duties
and responsibilities.

7.    APPLICABLE  LAW.  This  Agreement  is entered  into,  under,  and shall be
governed for all purposes by the laws of the state of Oregon.

8.    SUCCESSORS.  This Agreement shall be binding upon and inure to the benefit
of the Company, its successors and assigns (including,  without limitation,  any
company  into or with  which the  Company  may  merge,  form a joint  venture or
consolidate).

9.    AMENDMENTS.  No amendment or variation of the terms and conditions of this
Agreement  shall be valid  unless the same shall be in writing and signed by all
of the parties hereto.

                                      -5-
<PAGE>

10.   REPRESENTATIONS  AND  WARRANTIES  OF  EMPLOYEE.  Employee  represents  and
warrants  to the  Company  that  there is no  employment  contract  or any other
contractual obligation to which Employee is subject which prevents Employee from
entering into this Agreement or from performing  fully  Employee's  duties under
this Agreement.

11.   NO ASSIGNMENT.  The Employee's right to receive payments or benefits under
this  Agreement  shall not be  assignable  or  transferable,  whether by pledge,
creation of a security  interest or otherwise,  other than a transfer by Will or
by the laws of descent or distribution. In the event of any attempted assignment
or transfer  contrary to this paragraph,  the Company shall have no liability to
pay any amount so attempted to be assigned or transferred.  This Agreement shall
inure to the benefit of and be enforceable  by the Employee's  personal or legal
representatives, heirs, distributees, devisees, and legatees.

12.   NO ADEQUATE  REMEDY.  The parties declare that it is impossible to measure
in money the damages which will accrue to either party by reason of a failure to
perform any of the obligations under this Agreement.  Therefore, if either party
shall institute any action or proceeding to enforce the provisions hereof,  such
person  against who such action or proceeding is brought hereby waives the claim
or defense that such party has an adequate  remedy at law, and such person shall
not urge in any such action or  proceeding  the claim or defense that such party
has an adequate remedy at law.

13.   NOTICES.  All  notices,  requests  and demands  given to or made  pursuant
hereto  shall,  except as  otherwise  specified  herein,  be in  writing  and be
delivered or mailed to any such party at an address to be  designated by each of
such  parties.  Any  notice,  if mailed  properly  addressed,  postage  prepaid,
registered or certified mail, shall be deemed  dispatched on the registered date
or that stamped on the  certified  mail  receipt,  and shall be deemed  received
within the second  business  day  thereafter  or when it is  actually  received,
whichever is sooner.

14.   CONSTRUCTION.  Where  possible,  each provision of this Agreement shall be
interpreted  in such manner as to be effective and valid under  applicable  law,
but if any provision of this  Agreement  shall be prohibited by or invalid under
applicable law, such provision  shall be ineffective  only to the extent of such
prohibition or invalidity  without  invalidating the remainder of such provision
or the remaining provisions of this Agreement.

15.   WAIVERS. No failure on the part of either party to exercise,  and no delay
in exercising,  any right or remedy hereunder shall operate as a waiver thereof;
nor  shall any  single  or  partial  exercise  of any right or remedy  hereunder
preclude  any other or further  exercise  thereof or the  exercise  of any other
right or remedy granted hereby or by any related document or by law.


                                      -6-
<PAGE>


16.  ENTIRE  AGREEMENT.  This  Agreement  constitutes  the entire  agreement and
understanding  between the parties  herein in  reference  to all matters  herein
agreed upon and supersedes any and all prior agreements.

EMPLOYEE:                                    COMPANY:
                                             UNITED GROCERS, INC.


/s/ Terry Olson                              By /s/ Charles E. Carlbom
Terry Olsen                                  Its President and CEO


                                      -7-