Ralphs to Cut Prices at Its South-Central Supermarkets : Consumers: Yucaipa says efficiencies created by merger will allow reductions of 5% to 10%. Urban League praises move.
The buyer of Ralphs Grocery Co. will unveil plans today to cut prices by 5% to 10% at its stores in South-Central Los Angeles and some neighboring communities, where retail prices have traditionally been higher.
Yucaipa Cos., which is to complete its $1.5-billion acquisition of Ralphs today under terms of a deal negotiated in September, said it will be able to cut prices because of greater efficiency resulting from the merger.
When announced last year, the merger was criticized by some who said it would reduce competition and drive up prices. The price issue is especially sensitive in low-income neighborhoods, where retailers have been criticized for charging higher prices or pulling out of such areas altogether.
But some analysts said Tuesday that the deal will allow Ralphs to be more price-competitive throughout Southern California, which is already considered a highly competitive grocery market.
“The market will heat up and competition will meaningfully intensify, which is better for consumers,” said Gary Giblen, an analyst at Smith Barney in New York.
The price cuts will occur at stores being converted to Ralphs outlets from their current Alpha Beta, Boys and Viva formats, which are already owned by Yucaipa. The cuts will bring the converted stores in line with Ralphs’ current pricing structure, which calls for prices lower than that of Yucaipa, Ralphs said.
The fact that Ralphs promised to cut prices in a region where it will control more than half the market was applauded by John Mack, president of the Los Angeles Urban League, which has been concerned about the lack of major chain stores and inflated prices in the areas.
“This is excellent news,” he said. “This is a signal to other chains that you can do the right thing and make money.”
The promised cuts will not radically change the competitive lineup among Southern California supermarket chains. Analyst Giblen said Vons Inc. might be most vulnerable and could respond by cutting some prices. But he said the prices probably wouldn’t undercut Lucky, which claims to be the “low-price leader” but is a minor presence in the targeted area.
Yucaipa, which also owns the Food 4 Less chains, will control about 27% of the Southern California market, vaulting past Vons, the longtime market leader with 19%. In the targeted area, the merged company’s share will exceed 60%.
Yucaipa is to convert 110 Alpha Beta, Boys and Viva markets to Ralphs stores by mid-September. Once converted, about a quarter of those stores--the ones in South-Central Los Angeles and several neighboring communities--will roll back prices 5% to 10%, Yucaipa Chairman Ron Burkle said. The rest of the stores will see price cuts of 2% to 4%, he said.
“The merger brings tremendous cost savings, and we want to invest some of that back by lowering prices,” said Burkle, who becomes chairman of the new Ralphs.
The company said prices will be reduced at 25 stores in South-Central Los Angeles and Watts and the communities of Southgate, Highland Park, Pomona, Hawthorne, Compton, Lawndale, Inglewood, Carson and East Los Angeles.
The region’s dominance by Yucaipa’s various stores was examined by state regulators who reviewed the merger proposal last year. Regulators are requiring the new company to divest 27 stores in Southern California, including three in the targeted area. They noted that few major supermarket competitors have shown interest in operating stores in South-Central Los Angeles and nearby areas.
Although incomes tend to be lower in parts of that region, prices at all food stores in those communities tend to be higher. Executives at Yucaipa say their prices are driven up by operating costs--including security and insurance--that are about 4% more than at stores elsewhere.
The price rollback is a risk because the merged company will have to increase sales by $20 million to $30 million annually to avoid losses in those areas, according to Food 4 Less executives.
“After the conversions, the overall quality of the price offerings in these areas will be comparable to any other store we have,” said Ralphs Chairman Byron Allumbaugh, who becomes chief executive of the merged company.
Vons, which is in the middle of a $10-million plan announced in 1992 to build 10 new stores in underserved communities such as South-Central, had no comment on Ralphs’ pricing plans.
Ralphs executives said prices will be lowered by 2% to 4% at 85 other Alpha Betas that will be converted to Ralphs. Thirty Ralphs, Boys and Viva stores will also be converted to Food 4 Less warehouse stores, where prices are 10% to 15% less than at conventional stores.
Although Yucaipa is making the acquisition, the merged company will be called Ralphs Grocery Co., an acknowledgment of Ralphs’ stronger presence in the Southland. In interviews with The Times, top executives of the two chains discussed price cutting and plans for consolidating company operations.
The merger will result in the elimination of about 150 administrative and warehouse jobs and the temporary layoff of an additional 200 store employees during the conversions.
By the end of the year, Ralphs Grocery will have 280 Ralphs and 82 Food 4 Less warehouse stores.
Executives said the merger will save about $100 million annually in lower purchasing, administrative, distribution and advertising costs.
