Alpha Beta Parent Must Sell Some Stores : FTC Gives Conditional OK to Buyout of Lucky
The owner of the Alpha Beta supermarket chain received tentative government approval Tuesday for its purchase of rival Lucky Stores but was ordered to sell between 32 and 38 stores within six months of the merger to satisfy antitrust concerns.
The Federal Trade Commission ruling followed the agency’s decision Friday to allow Vons Cos. to proceed with its purchase of Safeway Stores’ 172 locations in Southern California.
The commissioners voted 3-1 to accept the agreement with American Stores, owner of Alpha Beta. Commissioner Mary L. Azcuenaga dissented, saying in a statement that “the order is not sufficiently broad to resolve the potential anti-competitive effects” of the acquisition. She also opposed the Vons-Safeway agreement.
The public may comment on the agreement by mail for 60 days, after which the commission will decide whether to give final approval to the $2.5-billion merger. In the Vons-Safeway deal, the normal 60-day comment period was cut in half.
The two mergers, which will reduce to three from five the number of powerhouse chains in the Southland, are a further sign of “the dynamic adjustment of the marketplace at work,” said Willard R. Bishop, a Chicago-based supermarket consultant.
The combination of Lucky and Alpha Beta will help the chains build market share and enable them “really to do a job in advertising,” he said.
As for how the ongoing consolidation in Southern California will affect prices, Bishop said: “These companies need to grow to survive. They have to be aggressive, and price is a part of that.” But he added that “only time will tell” whether prices will start climbing.
Prices May ‘Creep Up’
Edward F. Comeau, an analyst with the Wood Gundy investment firm in New York, reiterated concerns that Southern California’s big three competitors--Vons, Lucky and Ralphs--will all be heavily in debt as they go through ownership transitions. (Ralphs Grocery of Compton recently took on debt in connection with its purchase by Campeau Corp.)
“They’re not in a position to engage in (cutthroat pricing) . . . as they get their houses in order,” he said. The shifts in chain ownership “will create an environment in which it’s easier for prices to creep up over time,” especially as the industry passes along higher costs if food price inflation heats up this year as expected.
American Stores, which plans this summer to move its headquarters to Irvine from Salt Lake City, has the choice of selling either the Alpha Beta or the Lucky store in each of the designated areas to purchasers that are subject to FTC approval. Comeau speculated that in most cases the Alpha Betas, which are generally smaller and less successful than the Lucky stores, will be sold.
The order also requires American Stores to win prior FTC approval before buying grocery stores in certain areas of California. However, the company will be allowed to buy as many as four stores in Los Angeles and Orange counties and a single store in the San Francisco Bay Area within a given year without FTC approval.
During its two-month battle to win Lucky’s agreement to merge, American Stores said repeatedly that it plans to adopt Lucky’s name and low-price marketing techniques for all 248 Alpha Beta stores in California. All the stores will be run by Lucky’s management from the Dublin, Calif., headquarters.
Lucky has 487 stores in California, Florida and the Midwest, and American Stores owns 399 stores in 14 states. At the outset, the companies’ merger would create the nation’s largest supermarket company, based on their combined sales last year of $21.2 billion.
Tuesday’s agreement requires that American Stores sell one store in each of the following: Camarillo, Cathedral City, Fallbrook, Indio or Coachella, La Mesa, Lemon Grove, Mill Valley or San Rafael, Novato, Petaluma, Point Loma, Santa Barbara, Montecito or Goleta, Santee, Spring Valley and the area south of Chula Vista and north of the Mexican border.
Selling Eagle Stake
In addition, it must divest two stores in the area that includes Canyon Country, Newhall, Saugus and Valencia. In the Bay Area, American also agreed to sell between 6 and 12 groceries in Santa Clara County, 6 in Alameda County and 3 in San Mateo County. If the sales are not completed within six months, the commission may appoint a trustee to oversee the deals.
As part of an earlier agreement with the FTC, American also has agreed to sell Lucky’s interest in Eagle Food Centers, which operates grocery stores in the Midwest that compete with American’s Jewel chain. The stake will be sold to Odyssey Partners, Lucky’s partner in Eagle.
