Ralphs, Hughes to Sell 19 Stores
Ralphs Grocery and the owner of Hughes Family Markets agreed Friday to sell 19 of their 399 Southern California stores in an antitrust settlement that paves the way for a merger of the two chains.
The agreement, involving 4.7% of the chains’ stores, came after months of negotiation with the California attorney general’s office. It calls for Hughes to sell three of its 57 stores and for Ralphs to sell 16 of its 342 stores.
The chains are merging in a complicated transaction that allows Ralphs Chairman Ron Burkle to expand his supermarket empire in Southern California.
Authorities sought the divestiture to maintain competition amid the rapid consolidation of the grocery business in Southern California.
Ralphs’ share of the Southern California market would increase to about 32% from 26% as a result of the merger--boosting its lead over No. 2 Vons, which has 22% of the market. No. 3 Lucky Stores has about 18%.
The attorney general’s office said in a statement that the sale of the 19 stores “will give consumers in these neighborhoods meaningful choice in the selection of supermarkets.” The Federal Trade Commission has already approved the merger.
Some community groups expressed concern that food prices would still go up.
“Food is one of the most basic of economic issues, and there is now the potential for less competition and higher prices,” said Tony Lucente, president of the 2,000-household Studio City Residents Assn., a group that opposes the acquisition of Hughes. “The community regrets the loss of a strong and popular competitor.”
The San Fernando Valley--where Hughes was strongest--and Orange County are the regions with the highest number of stores that must be divested--six each. The attorney general’s office chose locations based on the concentration of stores owned by Ralphs and Hughes.
Burkle said the marketplace remains highly competitive and that the merger of Ralphs and Hughes will not result in higher prices. He said the deal will allow the chains to consolidate their warehouse and administrative operations, reducing combined operating costs by $55 million a year.
“All of this makes us more competitive, and anything that makes us more competitive is good for consumers,” Burkle said. “In most parts of the country, you don’t have as much competition.”
Burkle said the Hughes name will be retained because the chain has loyal customers.
He said he expects to reassign to other Ralphs or Hughes stores the 700 employees who work at the 19 stores to be sold. The consolidation of headquarters and warehouse operations will eliminate about 100 jobs, he said.
Ralphs President George Golleher is to manage both Ralphs and Hughes, Burkle said.
The Ralphs-Hughes union is actually part of a mega-deal that Burkle engineered and announced in November. Under it, four supermarket chains would be consolidated under one corporate roof in two simultaneous deals. In one transaction, Compton-based Ralphs is to be acquired by Portland, Ore.-based Fred Meyer. In the second, Fred Meyer is to acquire Quality Food Centers, a Seattle-based supermarket company that owns the Hughes chain.
Burkle is also chairman of Fred Meyer.
The companies are to be combined under a stock swap. Shareholders of QFC are to receive shares in the new, larger Fred Meyer.
As a result of its merger with Fred Meyer, the privately held Ralphs would be relieved of its debt obligation--$2.4 billion in bonds and loans. Burkle’s investment firm--the Los Angeles-based Yucaipa--gets 10% of Fred Meyer.
Shareholders with a stake in the larger merger are expected to approve the deal and make it final by mid-March.
If the deal is approved, Fred Meyer will have about 800 stores in 14 states and combined annual sales of about $15 billion. There would be only one major locally based supermarket chain in Southern California: Colton-based Stater Bros.
