Lucky’s Suitor Has Eye for Bargains
The owner of Alpha Beta and Sav-on Osco stores--which has grown to a $14-billion drug and food giant in less than two decades--has achieved its growth record primarily by acquiring established, usually successful, companies.
On Monday, American Stores Inc., with headquarters in Salt Lake City, proposed to add another name to its properties, bidding $1.74 billion for Lucky Stores Inc. of Dublin, Calif.
“American Stores . . . has been a vehicle for its chairman to astutely buy companies that are attractive values while selling off assets at a premium,” said John B. Kosecoff, an analyst with First Manhattan Co. “It is a company of incredible magnitude.”
American Stores has 240 Alpha Beta stores in California--two-thirds of which are in the Southland--and 150 drug stores in the state. But American dispenses drugs and sundries as far away as Maine under the Osco name and sells groceries everywhere except the Southeast under such names as Acme Markets and Jewel Food Stores.
American’s Chairman L. S. (Sam) Skaggs, who controls some 11% of the company’s common stock, comes from a family that has had a substantial impact on retailing in the United States--including the founding of the giant Safeway supermarket chain. Also, the Pay-less drug chain can trace its history to the Skaggs family.
American traces its history to an 18-by-32 foot grocery store built in 1915 in American Falls, Ida., by S. M. Skaggs, a Baptist minister who was Sam Skaggs’ grandfather. The elder Skaggs’ purpose was to serve grain farmers with lower prices than they had been paying for food, according to “Everybody’s Business: An Almanac.”
By 1926, the store had become a Western chain of 428 stores. The Skaggs sons merged the chain in 1926 with the Southern California Sam Seelig stores that had adopted the Safeway name in 1925. Sam Skaggs’ uncle--M. B. Skaggs--served as Safeway chairman until 1941, but there are no longer any family members involved in Safeway.
The current American Stores chairman’s father founded in the 1930s the drug store chain that would evolve into today’s American Stores.
Today, Sam Skaggs is a towering figure in Salt Lake City, said Fred S. Ball, president and general manager of the Salt Lake City Area Chamber of Commerce. “We only have one company in the entire state of Utah that is on the New York Stock Exchange and American is it. He is one of the major players in the state,” he said.
In addition to serving in civic organizations, Skaggs and his wife Aline, who is also an American director, have contributed “very generously” to the University of Utah and Brigham Young University, Ball said. The family built and donated the Skaggs Memorial Chapel at Salt Lake City’s Wasatch Presbyterian Church. The chapel, Ball said, is a popular wedding chapel in the state.
Three major acquisitions defined the modern American Stores, said analyst Kosecoff. In December, 1970, the Skaggs company bought Katz Drug Co. of Kansas City, Mo. In the spring of 1979, it acquired the much larger former American Stores Co., adopting the American Stores name. In 1984, American launched a rancorous takeover of Jewel Food Stores of Melrose Park, Ill., that resulted in the departure of some top Jewel managers. The Jewell acquisition included the Sav-on stores.
American’s earnings have been depressed in the three years following each acquisition Kosecoff said, but “for the long-term shareholders, the compounded growth has been nearly 19% annually every year since 1970.”
American Stores reported a $154.3-million profit last year, an improvement from $144.5 million in the previous year. But the growth reflected a lower tax rate and a gain on the sale of some Osco stores in the Northwest. According to analysts, the company isn’t generating the sales momentum it needs to boost sagging operating margins. The Alpha Beta stores had a small decline in volume for the first nine months of 1987. Also, according to analysts, the company’s Osco drug division has had relatively stagnant sales--a worrisome trend because drug store margins are normally double those of supermarkets.
American reorganized a year ago to operate on a decentralized basis. The company restructured its retail operations into three operating groups, including American Superstores Inc., Osco Drugs Inc. and Alpha Beta Stores Inc. The reorganization included a shake-up of Alpha Beta’s management with Sam Skaggs making himself chairman of that division.
Alpha Beta, which according to industry sources ranks third in market share in Northern California and fourth in the Southland, also began a major remodeling and revitalization program to booster sales and earnings.
Alpha Beta also began promoting its low prices, a philosophy dating back to S. M. Skaggs, who believed in building sales volume by taking a small profit on items sold. A price survey of the Los Angeles area by the California Public Interest Research Group last fall found Alpha Beta with the second-lowest prices, behind Lucky Stores.Main story, Part I, Page 1 American Stores at a Glance American Stores, owner of Alpha Beta supermarkets and Sav-on Osco drug stores, operates 1,590 supermarkets, drug stores and combination food and drug stores in 39 states. Its headquarters is in Salt Lake City. Right, a store in City Hall Mall. Above, a store in Burbank.
Year ended Dec. 31 1987 1986 1985 1984 Revenue (billions) $14.3 $14.0 $13.9 $12.1 Net income (millions) $154.3 $144.5 $154.5 $185.5
Assets $3.6 billion (1987) Employees 130,000 Shares outstanding 30.8 million 12-month price range $41.50 to $86.25 Tuesday close (NYSE) $$58.25, down $2.25 U.S. Marketplace These were the biggest markets for food sales in the United States in 1986, according to Sales and Marketing Management magazine.
Metro area Sales (billions) Los Angeles $10.45 New York 9.11 Chicago 6.41 Philadelphia 6.10 Boston 5.39 Detroit 5.09 Washington 4.83 Houston 4.60
Big U.S. Stores The largest U.S. supermarket chains in fiscal 1987, according to Supermarket News:
Store Sales (billions) Kroger $17.1 Safeway* 17.0 American Stores 14.1 Winn-Dixie Stores 8.8 A&P; 7.8 Lucky Stores 6.4 Albertson’s 5.4 Supermarkets General 5.1
*estimate Southland Favorites Lucky led in a November-December survey of 1,000 shoppers in the Southland who were asked at what store they bought a majority of their groceries. The survey was done by The Times’ Marketing Research Department.
Store Percent Lucky 18.2 Ralphs 16.7 Vons 15.5 Alpha Beta 9.7 Safeway 6.1 Hughes 5.4 Boys Markets 4.6 Giant 4.6 Albertsons 3.5
