At What Price?
Is the wave of supermarket mergers in Southern California leading to higher prices and fewer choices for customers?
Those concerns were reignited Monday among shoppers and consumer advocates amid news that Albertson’s Inc. agreed to buy American Stores Co., parent of such chains as California’s Lucky Stores, in a deal that would create the nation’s largest supermarket company.
Consumer advocates contend that mergers will ultimately lead to higher prices and reduced competition. Yet there is no conclusive evidence to prove that prices are either higher or lower because of the consolidation trend, which also has seen the marriage of such chains as Ralphs and Hughes, and Safeway and Vons.
And because Albertson’s is only a second-tier competitor in the Los Angeles area, with a market share of just over 5%, its linkup with Lucky by itself is not likely to reduce competition significantly in Southern California, industry analysts said.
A case can be made that consumers will suffer little--and might even benefit--from supermarket mergers.
Industry experts noted that the supermarket business is far more fragmented than other major U.S. industries, and has yet to produce a true national chain. As a result, they say, some supermarket mergers help companies achieve economies of scale that eventually bring consumers lower prices.
What’s more, these analysts say, the wealth of small, local food retailers prevents the big chains from getting complacent. In a market as diverse as Southern California, these smaller competitors range from Jons Markets, which largely serves Latino neighborhoods, to upscale Gelsons Markets to mom-and-pop food stores.
Nationally, the Food Marketing Institute, a trade association, estimates that local or family-owned retailers snare 40% of grocery sales, versus 60% for the chain stores. In the Los Angeles area, the chains are only somewhat more powerful. Together, the current owners of industry leaders Ralphs, Vons and Lucky together enjoy nearly two-thirds of annual supermarket sales.
Competition also is maintained by general retailers and discounters such as Wal-Mart, Fedco and Costco that sell groceries along with other goods.
Supermarket shoppers “do have a lot of options, more than is generally the case with other industries that they deal with,” such as banks or airlines, said Tim Hammonds, president of the Food Marketing Institute.
Phillip L. Broyles, the Washington-based official in charge of reviewing supermarket mergers for the Federal Trade Commission, added that “the reality is that the vast majority of all mergers don’t pose competitive problems.”
When there is a chance that competition in the supermarket industry will be undermined by mergers, Broyles contended, regulators are quick to step in. He cited the consent decree won by the California attorney general’s office in February forcing Ralphs to sell 19 stores before it could take over the Hughes chain.
A spokeswoman for the California attorney general’s office, Staci Turner, said her agency would review the proposed Albertson’s-American Stores deal too, “to make sure competition will not be hindered here.”
Still, for consumer advocates and longtime customers of supermarkets snapped up in mergers, those arguments often aren’t very persuasive.
“The supermarket industry already can engage in practices that gouge consumers. More concentration is not going to help that situation and may make it worse,” charged Harry Snyder, a senior advocate in San Francisco for Consumers Union, a nonprofit group that publishes Consumer Reports magazine.
Ken McEldowney, executive director of San Francisco-based Consumer Action, added that the acquisition of Lucky could be especially painful for cost-conscious shoppers because it traditionally has been known for its low prices. Increased concentration, he said, also means that “you’ll end up with supermarkets that are indistinguishable from each other.”
Longtime Hughes shopper Lynn Harris of Burbank said things changed for the worse at her neighborhood store after Ralphs took over. The 40-year-old Harris, a teacher, said mergers mean that “you lose the quality, you lose the choices” that existed before.
Meanwhile, customers at Lucky, one of the three biggest chains in the Los Angeles area, with a market share exceeding 15%, offered mixed reactions Monday to the merger announcement.
“Albertson’s is too expensive. I like Lucky’s,” said Rosalio Rodriguez, 52, of East Los Angeles as he loaded up his van with groceries. “Lucky’s is better for me. We always come here.”
Another customer at the same Lucky store, 15-year-old Angie Garcia, also cited Lucky for having low prices. But she shrugged off concerns about the proposed supermarket merger, saying there are places she can shop if things change after Albertson’s takes over.
“There’s a Vons next to my house. Also a Food-4-Less,” she said.
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Times staff writers Susan Abram and Vanessa Hua contributed to this report.
MARKET MERGER: Albertson’s agrees to pay $11.7 billion for Lucky’s parent company. A1
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Lucky Buy
Albertson’s Inc.’s agreement to buy American Stores Co.--parent of Lucky and Sav-on--would make it the biggest grocery store company in the nation and the second-biggest in Los Angeles County--but still far behind L.A. leader Ralphs.
Maket Share in L.A.
Ralphs/Food 4 Less/Hughes: 33.0%
Lucky Albertson’s: 3.4% (18.7% total)
Vons: 15.9%
Other: 32.4%
The Cost of Food
The 10 most expensive places to buy groceries*:
Urban area: Index
New York (Manhattan): 142.6
Nassau-Suffolk, N.Y.: 125.1
Los Angeles/Long Beach: 116.9
San Diego: 114.2
Philadelphia: 111.8
Boston: 111.7
Washington: 110.0
Cleveland-Lorain-Elyria, Ohio: 108.6
Riverside/San Bernardio: 107.0
Indianapolis: 105.5
*Based of an index that measures the cost of a selection of groceries in each region, including meat, dairy products, produce, bakery products, tobacco and miscellaneous items such as coffee and sugar. The average for 329 urban areas equals 100.
The Companies
Albertson’s Inc.
* 1998 sales: $14.7 billion
* 1998 earnings: $516.8 million
* Employees: 94,000
* Stores: Albertson’s
*
American Stores Co.
* 1998 sales: $19.1 billion
* 1998 earnings: $280.6 million
* Employees: 121,000
* Stores: Acme, Jewel, lucky, Osco, Sav-on
*
Boise, Idaho; new company general office
Sources: American Chamber of Commerce Researchers Assn. cost of living index, Trade Dimensions, Associated Press
Major Grocery Deals
Albertson’s agreement to buy American Stores is the latest in a string of grocery store mergers affecting Southern California. A look at some of the major deals:
*--*
Base equity price Announce date Companies offered (billions) Aug. 3 1998 Albertson’s/American $8.30* Stores (Lucky) Oct. 30, 1996 Safeway/Vons 1.99 Nov. 7, 1997 Fred Meyer/Quality 1.83 Food Centers (Hughes)** Nov. 7, 1997 Fred Meyer/Food 4 0.70 Less Holdings** June 12, 1997 Fred Meyer/Smith’s 0.69 Food & Drug Sept. 15, 1994 Yucaipa Cos./DeBartolo 0.53 Inc. (Ralphs) Nov. 20, 1996 Quality Food Centers/Hughes 0.36 Family Markets Jan. 29, 1996 Smith’s Food & Drug/Yucaipa 0.09 Cos. June 12, 1993 Whole Foods Market/Mrs. Gooch’s 0.05 Natural Food Markets
*--*
*Does not includes $3.4 billion in American Stores’ debt that Albertson’s would assume.
**This complex deal in effect merged Ralphs and Hughes.
Source: Houlihan Lokey’s Mergerstat
