Green Grocer : Ralphs-Yucaipa Merger Is Eyed for Anti-Competitiveness

Like a giant cash register, the Ralphs supermarket at 3rd and La Brea in Los Angeles rings up about $1 million a week in receipts--more than any other grocery store in California. It is one of the highest-volume food stores in the nation.

The store draws a well-heeled clientele and is especially attractive to Yucaipa Cos., parent of Food 4 Less Supermarkets, the company that would gain control of that site and other lucrative Ralphs locations as part of a proposed $2.5-billion merger now nearing completion.

But while the store in the Hancock Park District of Los Angeles is one of the biggest nuggets in the deal, it is also a potential obstacle to a smooth acquisition, because the store is part of “Ralphs Country,” a commercial corridor where the 121-year-old company for years has faced no challenges from major competitors.

Marla Brown, who shops regularly at the store, says she has waited as long as 15 minutes in the checkout lanes. She tolerates the crowded aisles and long lines because the store is near her home, offers everything she needs and is about the only show around.

“The store is always very crowded,” Brown said. “It’s hard on the customers and it’s hard on the employees. I come here because I don’t have many options.”

Only one challenge to this chunk of Ralphs turf has emerged--a large supermarket now under construction in the area--but it is an Alpha Beta. And under the purchase of Ralphs Grocery Co. by Yucaipa Cos., Ralphs, Alpha Beta, Food 4 Less and two other chains would become one big, happy family.

This concentration of power in “Ralphs Country” isn’t likely to torpedo the deal, antitrust experts say. Several observers said that even though the new chain would be the biggest in Southern California, the competitive environment would still be tougher than in many other cities.

“This is probably the most competitive environment in the country for supermarkets,” said David Slawson, an antitrust expert at the USC Law School. “A merger probably wouldn’t become a big political issue, because the average consumer is aware that the environment is extremely competitive.”

But state and federal regulators are looking at “Ralphs Country” and several other areas for possible anti-competitive effects. The antitrust review is crucial because the Federal Trade Commission or state Atty. Gen. Dan Lungren could block the merger or require the combined company to sell or close certain stores.

The two companies, which began merger discussions more than a year ago, have confirmed that they are near a final agreement. Yucaipa’s Food 4 Less Supermarkets operates Alpha Beta, Boys, Viva and Food 4 Less warehouse stores.

Critics of the deal--competing supermarkets, consumer advocates and some independent legal experts--say such a merger deserves close regulatory scrutiny because it would create a giant new chain with 27% of the market. Vons, with about 19%, is the current market leader.

A 27% market share “is not trivial,” said William Baxter, a Stanford Law School professor who, as head of the Justice Department’s antitrust division in the 1980s, helped bring about the breakup of AT&T.;

“The disappearance of one (grocery chain) out of six or seven or eight is not likely to cause a price increase,” Baxter said. “It’s probably OK. But I wouldn’t say you could close the book without a close investigation.”

Initially, the combined chain would have 355 stores, compared to Vons--the current leader--at 320. However, the state attorney general and the FTC will examine more than the number of stores and total market share in determining whether antitrust implications exist.

Here are some of the major criteria, according to legal experts:

* Market share by community. Antitrust regulators divide California into 62 “relevant geographic markets” defined by man-made barriers such as freeways and city boundaries or natural boundaries such as mountain ranges and rivers. A merger that creates a market share of 40% or more in a “relevant market area” can prompt the state attorney general or the FTC to object to a deal.

* Major competition. Regulators are more likely to object if a merger leaves a market with only two major competitors, making it easier for them to fix prices.

* Pricing. The level of price competition in a market is especially important to state regulators. In general, the Southern California market is considered to be among the most price-competitive in the nation.

* Trends. Even if a merged entity would control a substantial share of an area, regulators would be less likely to object if new competitors have been moving in.

* Ease of entry. Regulators are more likely to object if it is difficult for a major competitor to enter a certain market due to high real estate costs or a lack of available store sites.

State and federal officials would not discuss details of the Ralphs-Food 4 Less combine. But sources point to several areas besides “Ralphs Country” where there are concentrations of stores operated by the two companies.

For example, Food 4 Less and Ralphs have supermarkets close to each other in communities such as La Mirada, Anaheim and the areas of Redondo Beach-Torrance, South Pasadena-Alhambra and Arcadia-El Monte. These clusters are being scrutinized for their proximity to the stores of such competitors as Vons, Lucky, Hughes, Albertson’s, Smith Food & Drug and Stater Bros.

In addition, Food 4 Less has a large concentration of stores and little competition in South-Central Los Angeles and Inglewood, and it has a strong lead in store sites as far south as El Segundo.

However, state and federal authorities are not likely to complain of anti-competitive practices in that region because--until recently--Food 4 Less was the only major food retailer willing to maintain a large presence in South-Central Los Angeles and Inglewood. Vons and Smart & Final have been expanding into those underserved areas the past two years.

While the “Ralphs Country” corridor--the region that includes much of Hancock Park and the Fairfax District--has been considered one of the more difficult areas for new supermarket entry, Ralphs and Food 4 Less contend that the current construction of the new Alpha Beta at Wilshire and Hauser boulevards is evidence that a competitor can establish such a presence.

“No one has a lock on that area,” insists a Ralphs executive.

But three Ralphs and the Alpha Beta being built at Wilshire and Hauser are within two miles of each other, giving them control of a substantial portion of the sales in this corridor. The region is bounded by Western Avenue on the east, La Cienega Boulevard on the west, Wilshire Boulevard on the south and Melrose Avenue on the north.

Marketing studies have shown that consumers will consider shopping at stores within a three-mile radius of their homes. One Ralphs executive noted that there is a Pavilions store at Melrose and Vine and a Pavilions at Santa Monica and Robertson boulevards--both within a three-mile radius of the lucrative Ralphs showcase store at 3rd Street and LaBrea Avenue.

However, industry observers say the area is so heavily populated--with about 150,000 people within a one-mile radius of the Ralphs at 3rd and La Brea--that the presence of those competing stores on the area’s fringes is insufficient.

“The population density makes that area very profitable,” said Dick Carter, a commercial real estate expert and vice president of Los Angeles-based Blatteis Realty. “The supermarket industry in Los Angeles has been difficult and cutthroat-competitive. Food 4 Less and Ralphs have been taunting each other in that area; now they plan to marry. Meanwhile, that area is very much in need of more stores.”

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Times staff writers Martha Groves and Greg Johnson contributed to this report.

A Ralphs Stronghold

The California attorney general is reviewing the proposed Ralphs-Food 4 Less Supermarkets merger to determine if such a combination would create an anti-competitive environment in the Southland. An area encompassing Hancock Park and the Fairfax District is among the many areas under review.

Ralphs is the only major supermarket chain operating in a region bounded by Western Avenue on the east, La Cienega Boulevard on the west, Wilshire Boulevard on the south and Melrose Avenue on the north. Food 4 Less Supermarkets is building an Alpha Beta at Wilshire and Hauser Street, but it would also be controlled by the new entity if Food 4 Less Supermarkets completes an agreement to acquire Ralphs.

Source: Ralphs Grocery Co.