Ralphs, Yucaipa in Talks : Merger Would Create Southland's Biggest Grocery Chain

By GEORGE WHITE and JESUS SANCHEZ

Aug. 13, 1994 12 AM PT

TIMES STAFF WRITERS

In a deal that would create Southern California’s largest supermarket chain, the owner of Alpha Beta and several other chains is close to reaching an agreement to acquire the 121-year-old Ralphs Grocery Co. for $2.5 billion, according to sources close to the negotiations.

Yucaipa Cos., which also owns the Food 4 Less, Boys and Viva chains, would obtain controlling interest in Ralphs from DeBartolo Corp., an Ohio-based real estate development firm. Negotiators hope to reach a tentative agreement within 10 working days.

The combined company would be called Ralphs Grocery Co. and an undetermined number of Alpha Beta stores would be converted to Ralphs outlets. However, some Ralphs stores might also be converted to operate under the Food 4 Less warehouse store format.

In addition, some stores in overlapping areas can be expected to close and jobs may be eliminated, sources said. The companies would consider sales performance and location in making those determinations.

Any deal is likely to face scrutiny on antitrust grounds, given that the merger would create a vast chain controlling 27% of the hotly competitive Southern California market. The current leader is Vons with 19%.

A top executive at a competing chain immediately took aim at the proposed combination.

“I don’t see how the attorney general would approve of this,” said the executive, who did not want to be identified. “The takeover clearly limits competition. If all you have is Ralphs and an Alpha Beta (in a neighborhood), don’t you think they are going to raise their prices as high as they can?”

But officials of the proposed new mega-chain noted that the combined company would be able to reduce its costs by consolidating administrative and other support services, and--with increased buying power--would also be able negotiate better prices from vendors. “There would be a direct benefit to consumers in Southern California,” insisted a Food 4 Less executive.

Ralphs, based in Compton, has 167 stores, all in Southern California. Yucaipa--headquartered in Los Angeles and parent of the La Habra-based corporation known as Food 4 Less Supermarkets--has 130 Alpha Beta, 24 Boys, 15 Viva and 29 Food 4 Less warehouse stores in the Southland.

Two investors--Yucaipa Chairman Ronald Burkle and Mark Resnick--have controlling interest in Yucaipa.

Though the two companies operate throughout Southern California, Ralphs has a stronger Los Angeles County presence while Food 4 Less Supermarkets is more concentrated in Orange County. In the city of Los Angeles, Ralphs has a large number of stores on the Westside and in the San Fernando Valley, and Food 4 Less Supermarkets stores are concentrated largely in south and South-Central Los Angeles.

If the proposed deal is completed, Burkle would also become chairman of the combined supermarket company. Food 4 Less Supermarkets President George Golleher would become vice-chairman. Ralphs Chief Executive Byron Allumbaugh would become chief executive, and Ralphs President Al Marasca would be president.

Burkle, Allumbaugh and representatives of DeBartolo could not be reached for comment.

Sources said DeBartolo would receive about $500 million in cash and $1 billion in financing notes. Yucaipa would also assume about $1 billion of Ralphs debt, sources said.

If a tentative agreement is reached this month, a final agreement would probably be concluded in November, sources said.

But if recent history is any guide, the antitrust concerns may not be limited to worried competitors. In the past, some local supermarket chains have been forced to either abandon or pare down merger plans in the face of opposition of state and federal antitrust officials.

In 1990, for example, the then-parent of Alpha Beta--American Stores--and Lucky stores gave up trying to merge the two chains after encountering stiff opposition from the California attorney general.

Under an agreement with the state, American Stores sold 145 Alpha Beta stores in Southern California to Yucaipa Cos. for $248 million in 1991. American was permitted to merge most of its Alpha Beta and Lucky stores in Northern California.

Three years later, a merger between Ralphs and Yucaipa would certainly meet with government scrutiny, said consumer advocates and industry officials.

“Some Alpha Betas would be converted to Ralphs and those stores would upgrade the product offering, the (display) presentation and the prices,” said Jonathan Ziegler, an analyst at Salomon Bros. in New York. “When you consolidate any market it usually leads to some price stabilization because there is a less of a need to be aggressive.”

Sources said Yucaipa has already consulted with the office of California Atty. Gen. Dan Lungren. A Food 4 Less source maintained that a 27% share does not constitute overwhelming dominance of the market and predicted the proposal would clear any antitrust hurdles.

Jack Kyser, senior economist at the Economic Development Corp. of Los Angeles County, forecast hotter price competition among the major players in the region--Vons, Lucky and the new Ralphs--but said smaller operators like Smith’s Food & Drug and Albertson’s will have more trouble competing in such a new environment.

Consumer groups also voiced warnings. The proposed new chain “might be able to price competitors out of business,” said Michael Heffer, a senior staff member of Consumer Action, a nonprofit consumer education group based in San Francisco. “In the long run, it’s bad news for consumers when you reduce competition.”

Creating a Giant

If Yucaipa, which owns Food 4 Less, Alpha Beta, Viva and Boys markets, acquires Ralphs, it will create the dominate supermarket chain in the Southland. Market share based on 1993 sales:

1993 Market Share:

Vons: 19.2%

Lucky: 14.1

Yucaipa: 13.9

Ralphs: 13.1

Albertsons: 7.5

Stater Bros.: 6.8

Others: 25.4

Market Share With Merger:

Yucaipa/Ralphs: 27.0%

Vons: 19.2

Lucky: 14.1

Albertsons: 7.5

Stater Bros.: 6.8

Others: 25.4

Note: Market share area includes entire Southern California area except San Diego and Imperial counties. Total population of market share area is 14.6 million.

Source: Progressive Grocer 1994 Market Scope

The Companies at a Glance

Yucaipa Cos.

* Headquarters: Claremont

* Chairman: Ronald Burkle

* Employees: N/A

* Major holdings: Alpha Beta, Boys, Viva and Food 4 Less Supermarkets

* 1993 sales: $2.7 billion

* 1993 profit: N/A

Ralphs Grocery Co.

* Headquarters: Compton

* Chief executive: Byron Allumbaugh