The Bid for Federated Stores : Ralphs Might Be Odd Division Out If Federated Is Acquired

For Federated Department Stores, the grocery chain Ralphs is like an apple in a crate full of oranges. While most of Federated’s holdings are big department store chains such as Bullock’s and Bloomingdale’s, Compton-based Ralphs Grocery Co. is its sole supermarket chain.

But Ralphs may soon be the odd man out. In a document filed with the Securities and Exchange Commission, the company that made a $4.2-billion takeover bid for Federated on Monday, Campeau Corp., that it would consider the possibility of unloading the 129-store grocery chain.

For shoppers, a sale of Ralphs to current management could result in higher grocery bills. “Ralphs would be taking on a lot of debt so it would probably be less competitive in pricing,” said Jonathan Ziegler, an analyst with the San Francisco-based investment firm Sutro & Co.

Industry analysts generally say that while Ralphs is one of the top two grocery chains in Southern California--neck and neck with archrival Vons--it may still be a very tough division to sell. That’s because few outside grocery chains would want to mix it up in the already highly competitive Southern California market. And of those that are here, analysts say, not many could afford to buy Ralphs at an estimated price of $500 million to $600 million. Rival Vons recently agreed to purchase the Safeway grocery chain for about $400 million in cash and stock.

But analysts do say that one chain--Boise, Ida.-based Albertson’s--might be interested in purchasing Ralphs. “They want to expand in Southern California so they’d be the most logical buyer,” Ziegler said.

For now, however, Albertson’s executives won’t say if they are interested in buying Ralphs. “I’m sure there are a lot of shots yet to be fired,” said Gary Michael, vice chairman of Albertson’s. “I can’t comment on what we may or may not do, but my impression is that Ralphs is Federated’s crown jewel.” Albertson’s is in the midst of a two-year expansion in Southern California, with the addition of 13 stores, Michael said. Albertson’s now has 67 outlets in the Los Angeles area.

Meanwhile, executives at Ralphs would neither confirm nor deny the possibility of a management buyout or leveraged buyout of the chain. “I can’t make any comment about that,” said Byron Allumbaugh, chairman and chief executive of Ralphs. “It’s corporate policy not to comment on such things.”

But Allumbaugh did claim that combined, Ralphs and the Giant stores “are still No. 1 in market share in Southern California.” Those market share figures, however, tend to swing from month to month. But in the six-month period between May and October of 1987, the Ralphs and Giant stores posted 20.1% of all so-called shopper traffic, compared to 16.1% at Vons, according to a survey by The Times’ Marketing Research Department. During that same period, Safeway saw 5.7% of all customer traffic. So if the Vons purchase of Safeway is completed, Von’s would likely rank at the most heavily visited grocery chain in Southern California.

Although the 115-year-old Ralphs chain is under increased competition, it is still posting handsome profits. In fiscal 1986, it posted operating income of $59.2 million, according to Allumbaugh. Although Ralphs has not yet reported its fiscal 1987 operating income, analysts estimate that the addition of the Giant grocery chain could boost its 1987 profit to nearly $75 million. Ralphs opened its first Giant store in January, 1986, and over the next few months, opened 14 more.

Federated Stores in California

Bullock’s and Bullocks Wilshire

With headquarters in Los Angeles, Bullock’s operates 22 department stores from San Diego to Palm Springs and in Scottsdale, Ariz. The company says it wants to be known as “Southern California’s premier upscale department store.”

The operation also includes seven Bullocks Wilshire stores and three Bullock’s Woman, large-size stores. It reported $751.8 million in sales in 1986 and has an estimated 10,000 employees. Established in 1906, the chain last week named James E. Gray as chairman.

Ralphs

With headquarters in Compton, Ralphs Grocery has 15,000 employees and 129 stores in Southern California. That includes the larger Giant stores, which average 70,000 square feet. From May to October, 1987, the Ralphs and Giant stores accounted for 20.1% of all so-called shopper traffic in Southern California, according to a Times survey.

The division reported sales in 1986 of $2 billion. Ralphs was founded in 1873; its chairman is Byron Allumbaugh.

I. Magnin

A high-fashion women’s specialty store, I. Magnin is based in San Francisco. Eight of its 26 stores are in Southern California.

The chain, whose chairman is Barbara Bass, reported 1986 sales of $317.1 million. It has expanded its apparel departments to emphasize private label merchandise and has tried to enhance its image as a fashion authority.