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Smith’s Grocery Chain Looking for Buyers : Retailing: Sources say firm has approached competitors in bid to sell its 34 Southland stores. It lags in market share.

TIMES STAFF WRITER

Smith’s Food & Drug Centers, a Salt Lake City-based grocery chain that entered the tough Southern California market five years ago, is now looking for a way out after failing to make much headway, industry sources say.

Smith’s has approached local competitors looking for buyers for its 34 stores in the region, and last week leased its state-of-the-art distribution center in Riverside to Ralphs Grocery Co. The facility was built to supply 60 stores, a total Smith’s never achieved.

“If someone would take all of the stores, they would sell,” said one competing supermarket executive. “That’s unlikely, so they’ve indicated a willingness to sell individual stores.”

Executives at Smith’s could not be reached for comment Thursday. Smith’s has said it plans to supply its Southern California stores from a warehouse in Arizona. Despite persistent rumors to the contrary, the company has denied that its Southern California stores are on the sales block.

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However, executives at two competing chains who requested anonymity said they had been approached by Smith’s about buying stores.

Industry analysts agreed that Smith’s could be preparing for an exit because it has been unable to make significant gains in Southern California’s highly competitive supermarket business.

“The marketplace is different, and Smith’s doesn’t have much of its top management in Southern California,” said Gary Giblen, an analyst at Smith Barney in New York.

“They’re making arrangements that would allow them to pull out of Southern California, but they haven’t made up their mind yet,” said Jonathan Ziegler, an industry analyst at Lehman Bros. in New York.

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Analysts said Smith’s could have difficulty selling its Southern California stores as a block. Competing chains would be interested in buying Smith’s more competitive stores, they said.

Other grocery companies declined to discuss their contacts with Smith’s on the record. But Vons said it would be interested in buying stores. The company would not say whether it was in negotiations with Smith’s.

“If they become available, we would consider them,” said Mary McAboy, a spokeswoman for Vons.

Vons was recently bumped from the No. 1 spot among Southern California supermarkets with the merger of Ralphs and Yucaipa Cos., the operator of the Alpha Beta, Boys, Viva and Food 4 Less chains. Acquiring the Smith’s stores would enable Vons to regain some ground.

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Besides its California stores, Smith’s has more than 100 others in seven other western states.

Other analysts said Smith’s failed partly because it spread its stores throughout Southern California before developing a strong presence in any part of the region.

Smith’s has a market share of only 2% to 3% in each one of the region’s five counties--Los Angeles, Orange, Ventura, Riverside and San Bernardino. In contrast, another smaller supermarket chain--Stater Bros.--has a market share of 25% to 40% in Riverside and San Bernardino counties and a much smaller presence in other counties.

Smith’s has also found it difficult to compete with the well-established giants in the region. The newly merged venture known as Ralphs Grocery Co. is the local industry leader with about 27% of the Southern California market.

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Vons--the second-ranked chain with about 19% of the market--remains competitive, and Thursday reported healthy sales and earnings gains. Lucky is third at about 14%.


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