Super-Merger : Parent of O.C.’s Alpha Beta Finalizes Deal to Buy Ralphs for $1.5 Billion
Touting their union as a deal that will help them upgrade stores and escalate the local price war, the owner of Orange County-based Alpha Beta supermarkets on Wednesday completed a long-anticipated agreement to acquire 121-year-old Ralphs Grocery Co.
Yucaipa Cos., which also owns the Viva and Food 4 Less warehouse stores--which have headquarters in La Habra--and the Boys chain, signed a definitive agreement to acquire Ralphs from the Ohio-based DeBartolo Corp. for $1.5 billion. The value of the combined company would be $2.5 billion, making it the largest supermarket merger in California history.
The pledge of lower prices is doubted by some antitrust experts, and the merger still faces scrutiny by state and federal regulators. It approved, the combined company would be the largest supermarket chain in Southern California with 27% of the market--surpassing long-time leader Vons in sales and store sites.
In Orange County, the combined company would operate 31 Ralphs supermarkets plus 31 Alpha Beta stores, three Viva stores and two Food 4 Less warehouse stores.
The two firms, which had been in talks for more than a year, missed several informal deadlines in recent days because one of the six Ralphs’ shareholders, Paris-based Banque Paribas, had withheld approval. But that impasse was resolved Wednesday.
The companies said they plan to combine their operations by November or December. Though Yucaipa is the acquiring company, Ralphs management will run the vast enterprise on a day-to-day basis, an acknowledgment that the Ralphs chain is a stronger chain.
The companies say they have not yet determined how many jobs would be eliminated. The headquarters for the combined company is to be located at Ralphs current corporate offices in Compton. A smaller staff will continue to work at the La Habra offices of Food 4 Less Supermarket, which operates the Alpha Beta, Viva and Food 4 Less chains.
Company officials would not specify how many stores might close or the number of jobs to be lost in Orange County. And company officials did not discuss the fate of Food 4 Less’ bakery and distribution facility, which is also in La Habra.
The combined entity is to be called Ralphs Grocery Co. and Yucaipa plans to convert all of its Alpha Beta, Boys and Viva markets to either Ralphs or Food 4 Less warehouse stores. The new partners promised to improve service by adding staff at the stores and to lower prices, partly by converting some existing sites to the low-price Food 4 Less warehouse store format.
Though consumer groups have voiced concern that the reduced number of players on the Southern California supermarket scene will mean higher prices, some customers seemed pleased to know that Ralphs will be in charge.
“Ralphs stores are just laid out better,” said Irvine resident Shobba Hingoran. “I shop Alpha Beta, but not for my major shopping.”
She used a simple gauge to explain why she looks forward to the merger. “Look at the parking lot,” Hingoran said while loading half a dozen bags of Alpha Beta groceries into her trunk. “It’s hardly ever full. Then look at Ralphs. . . . You’ll see it’s always filled.”
As expected, Yucaipa Chairman Ron Burkle is to become chairman of the merged firm and Ralphs Chairman Byron Allumbaugh will become the chief executive of the combined company. In interviews, they said they are converting the stores because the 121-year-old Ralphs has a higher public profile than the younger Alpha Beta, Boys and Viva chains.
“Ralphs has a very good image . . . and it doesn’t make sense to operate under different names,” Burkle said.
Ralphs President Al Marasca is be the new company’s president while George Golleher, president of Food 4 Less Supermarkets, will become vice chairman.
They will oversee an enterprise that currently includes 167 Ralphs, 131 Alpha Beta, 24 Boys and 15 Viva stores as well as 30 Food 4 Less warehouse stores. However, many stores are expected to close and an undetermined number of jobs lost in neighborhoods where the chains now overlap, a process that will be watched closely by antitrust regulators.
In addition to the conversion of all surviving traditional supermarkets to the Ralphs format, up to 30 of the existing Ralphs are to be converted to Food 4 Less stores to better compete with existing warehouse stores and the anticipated challenge from Wal-Mart, which will be opening grocery operations in California under its “superstore” format.
Burkle and Allumbaugh said that with two chains--Ralphs and Food 4 Less warehouse stores--instead of the current five, the company can save $100 million annually by consolidating administrative and distribution functions. It can also slash advertising budgets.
“We’ll take the costs savings and pass them along to consumers,” Burkle declared.
The Federal Trade Commission and California Atty. Gen. Dan Lungren are conducting reviews to determine whether consumers will be helped, hurt or unaffected by the mega-deal. They could block the deal or, more likely, force the combined company to sell some stores on antitrust grounds.
“We’re taking a very close look at it,” said Lawrence Tapper, deputy state attorney general.
In the past, some local supermarket chains have been forced to pare down merger plans in the face of opposition by regulatory agencies. For example, though Alpha Beta’s former corporate parent, American Stores, was permitted to merge Alpha Beta stores with Lucky in Northern California in 1991, it was forced to sell 145 Alpha Beta stores in Southern California to Yucaipa on antitrust grounds.
Most of the major competitors of the planned new company had no comment on the merger, but one supermarket executive said a combined Ralphs-Food 4 Less would have too great a presence in certain neighborhoods.
“The potential for price gouging is greater when you dominate an area,” he said, asking anonymity.
The new entity will respond to possible price-cutting by competitors with promotions of their own in a bid to lure customers at Alpha Beta, Boys and Viva sites that are converted to Ralphs and Food 4 Less formats, said executives at the two companies.
But some real estate brokers said that there appears to be relatively little overlap between the two grocery store operators.
“These two companies are working different neighborhoods, so to speak,” said Ted Lawson, a senior vice president with CB Commercial in Torrance. “Food 4 Less is working its way up, Ralphs is working its way down, and they share some middle zones. So there might not be a lot of duplication. I don’t see them dropping stores unless they’re on the same block.”
* WHAT’S IN STORE
Customers wonder if older Alpha Beta stores will be closed. D6
Market Merger
The merger of Ralphs Grocery and Yucaipa, which owns Food 4 Less, Alpha Beta, Viva and Boys markets, has created Southern California’s largest supermarket chain.
MARKET SHARE
Yucaipa-Ralphs: 27.0%
Vons: 19.2%
Lucky: 14.1%
Albertsons: 7.5%
Stater Bros.: 6.8%
Other: 25.4%
NUMBER OF STORES:
Yucaipa-Ralphs: 367
Vons: 335
Lucky: 215
Albertsons: 106
Source: Progressive Grocer 1994 Market Scope, company reports
