Grocery Mergers No Bargain for Consumers, House Panel Told
Food prices for California consumers would rise by $356 million a year--1.5% in Los Angeles and as much as 2.5% in San Diego--if major grocery chains complete their merger plans, a House subcommittee was told Wednesday.
The proposed takeovers--the purchase by Vons of 172 Safeway stores in Southern California and American Stores’ takeover of Lucky Stores--would sharply reduce competition for grocery shoppers, professor Ronald W. Cotterill of the University of Connecticut told the House Judiciary subcommittee on monopolies.
“This is a frightening prediction,” said Rep. Don Edwards (D-San Jose). “What about the consumers? Who’s taking care of them?”
In a special study prepared for the subcommittee, Cotterill predicted that shoppers would have to pay an additional $183 million a year in Los Angeles and $59 million a year in San Diego if the proposed mergers were allowed to proceed.
The impact of the mergers would be particularly great in San Diego, Cotterill said, because the Vons-Safeway combination would command a hefty 48.5% of the grocery market there and American-Lucky would control another 29.7%.
In Los Angeles, he said, the impact would be somewhat less pronounced. The combined Vons and Safeway would conceivably control 30.3% of the market, he said, and American Stores, which owns Alpha Beta, would have 31.1% if it bought Lucky.
The result of the mergers, Cotterill said, would be “tremendous upward pressure on the price structure.” He based his predictions about California costs on price performances in other markets in which concentration increased.
Debt Burden Cited
The Federal Trade Commission is reviewing the Vons plan to buy Safeway’s Southern California stores.
Lucky, with 500 stores in California, Arizona and Florida, has been fighting its proposed acquisition by American Stores. Lucky said last month it had found a friendly merger partner, the investment firm of Gibbons, Green, van Amerongen, for a $2.2-billion deal.
American Stores may still pursue its bid for Lucky in an effort to create the nation’s biggest supermarket chain. Even if Lucky successfully fights off American and succeeds in merging with Gibbons Green, it would acquire a heavy debt burden in the process, making it a less effective competitor in the California market, Cotterill said.
The Reagan Administration has taken no position pending the outcome of the takeover battle. The Administration has generally adopted a hands-off approach toward corporate mergers and acquisitions, arguing that the consumer is sufficiently protected if new competitors can freely enter a market.
Cotterill said Lucky Stores, “a low priced competitor in the market,” would be “turned into a pussy cat” if it was acquired by American.
Rep. Carlos J. Moorhead (R-Glendale), a subcommittee member who said he was worried about the future of grocery market competition in his state, said: “We’ve been very lucky in Southern California. The grocery stores have done a marvelous job.”
The merger wave, however, could cost more than higher prices, Moorhead warned. There is “very real concern,” he said, “about the loss of jobs in our state and the accompanying loss of tax base for our local units of government.”
Other Price Predictions
For example, 105 workers at Ralphs Grocery in Compton were recently laid off as a result of the company’s purchase by Campeau Corp. The deal involved a substantial debt load for Ralphs.
For other areas of California in which all four grocery chains mentioned as merger partners operate, Cotterill’s study predicted: Bakersfield, a 1.4% hike in prices, with additional spending of $8.5 million a year; Oxnard-Ventura, 2.4% and $17.5 million, and Riverside, 1.4% and $34 million.
In Santa Barbara, he said, the Vons-Safeway merger would raise prices 0.5% a year, costing consumers $2 million a year.
The American-Lucky deal, if it is completed, would have this impact on Northern California, Cotterill’s study said: San Francisco, 0.6% and $26.7 million a year; San Jose, 1% and $20.2 million; Salinas 0.5% and $2 million, and Santa Cruz, 0.3% and $833,000.