Analysts Debate What Lucky-Alpha Beta Merger Will Cost Customers

The way Lucky Stores Chairman John M. Lillie sees it, his company’s decision to merge with Alpha Beta is a sweet deal for customers. Low prices have “been our hallmark and will continue to be,” he said. “We don’t anticipate any change in that at all.”

Not everyone, however, is convinced.

Prices, in fact, may creep up for awhile because “the level of competition temporarily will be slowed down,” suggested Edward F. Comeau, an industry analyst with Wood Gundy Corp. in New York.

Within two years’ time, he predicted, customers will see four chains dominating the market: Vons, Lucky, Ralphs and Albertsons.

It’s difficult to say, whether “all will go for each other’s throats,” he said, “or milk the market.”

On Friday, Lucky Stores agreed to a $2.5-billion takeover by American Stores, the owner of Alpha Beta. The twist is that the Alpha Beta name will be eliminated and the grocery operation merged into Lucky, marking the demise of another logo in the topsy-turvy Southern California food industry.

For customers in Southern California, who are seeing a wave of consolidation in the supermarket business, the impact may not be known for months or years. Often, less competition in a market means higher prices.

But even though Safeway is leaving the market and selling its store to Vons and the Alpha Beta name is now being phased out, the competition may remain intense--at least for awhile. In fact, a fierce battle could ensue as the remaining grocers fight over those customers shopping for a new supermarket.

Many supermarket experts also said shoppers could breathe sighs of relief that the owner of a competing supermarket chain, and not an investment firm, ended up buying Lucky.

The merger will create perhaps the largest food chain in the nation. That, in turn, “will mean significant cross-savings” because American will be able to buy cheaper in greater bulk and eliminate costs from advertising as well as lay off some regional officers and management people, said Ronald L. Rotter, a retail analyst with Morgan, Olmstead, Kennedy & Gardner in Los Angeles.

“I think consumers are going to be much better off,” he said, than if Gibbons, Green, van Amerongen--the investment firm that had agreed to buy Lucky for $2.4 billion--had succeeded.

The firm had proposed purchasing Lucky in a leveraged buyout--which, in turn, would have created roughly $300 million in interest costs, said Rotter. “And that would have been passed onto the consumer, one way or another.”

Whatever happens, he said, Lucky will have the advantage of a strong reputation for what its ads tout as “everyday low prices.”

Because American Stores has the lion’s share of many of its markets in other states, Rotter noted, “it has not been willing” to plow a lot of money into upgrading and merchandising Alpha Beta supermarkets. “Alpha Beta hasn’t been willing to put in the money to keep up with consumers’ demands. So we’re likely to see much more convenience-oriented stores.”

That is likely to mean such features as bigger produce, deli and bakery counters at both Alpha Beta and Lucky stores. “We’ll emphasize more services to the consumer and better prices,” said Troy D’Ambrosio, a spokesman for Irvine-based Alpha Beta Stores.

Lillie, 51, noted that the combined companies should realize advantages in a couple of ways. First, they will have more clout when it comes to buying from manufacturers, and that will mean savings that can be passed on to customers. Savings should also be gained as the companies improve the efficiency of warehouse distribution methods.

In addition, the chains will be able to step up production at various of their plants that manufacture grocery products such as ice cream. “We’ll add incremental volume,” Lillie said, “and that can be very profitable.

“I think when it all settles down, we’ll continue to be a bunch of excellent competitors, and the California consumer is probably going to continue to be the best-served consumer in the nation,” he said. “I don’t think those other guys are going to let up any, and neither are we.”

Competitor Agrees

With that kind of stiffer competition, executives at the Southland’s major competing chains said Friday that consumers will be the winners.

“I don’t see competition easing when you have larger, more cost-effective retailing networks, and there are a number of them still here,” said Roger E. Stangeland, chairman of El Monte-based Vons Cos. “Smaller chains are generally less cost-efficient. If there is ample competition--but it’s made up of fewer, larger chains--you’re apt to have more, not less competition.”

At Ralphs Grocery in Compton, Chairman Byron Allumbaugh agreed.

“We’re not going to raise prices,” he said. “People ask: How can you afford new debt and not raise prices? It’s simple. For the next couple of years we will sacrifice our after-tax profit to pay down our debt.”

Allumbaugh noted that, as a private company, Ralphs does not have to report earnings or satisfy industry analysts. “We just have to pay off our debt,” he said. “Believe me, I wouldn’t have any part of this if I thought we’d have to jack prices up to pay for it. . . . We are going to be aggressively fighting with each other for every nickel’s worth of business.”

“If you have an empty refrigerator,” added Jonathan H. Ziegler, retail analyst with Sutro & Co., “now’s the time to stock up.”

Main story, Part I, Page 1.