Remember names like Viva, Cala Foods, Jurgensen’s and Alpha Beta?
They’re among the growing number of local groceries that have disappeared over the years through an ongoing consolidation that, as of last week, has left Southern California with just three major players: Ralphs, Albertson’s and Vons.
Albertson’s Inc.’s Aug. 3 deal to buy American Stores Co., the parent of the Lucky supermarket chain, for $8.3 billion is the latest of those deals.
“You are seeing consolidation happen in all areas of retailing. L.A. supermarkets are no exception,” said Joseph Ronning, an analyst at Brown Brothers Harriman in New York.
The grocery industry is driven by a desire to improve performance by achieving economies of scale. Besides reducing costs by trimming administrative staff, merged supermarkets buy in larger quantities, so they’re able to squeeze better deals out of food producers, distribution companies and advertisers.
“When I started in the industry as a box boy 45 years ago, there were 100 chains in Southern California. As recently as 1981 there were 23,” said Jack Brown, chairman and president of Carson-based Stater Brothers Markets, which is focused on Southern California. “Now we are down to around five.”
With most of the larger chains having already merged, M & A; activity in Los Angeles should be limited to smaller chains, analysts said.
“You still have a lot of smaller companies that are not doing very well. You will still see consolidation among these smaller chains, but not beyond that,” said John Rogers, an analyst at D.A. Davidson & Co. in Portland.
Brown said that he intends to keep Stater Brothers independent, especially if the potential acquirer is controlled by Wall Street. “My pledge is to keep the store in the hands of people who know food,” he said. “Leveraged buyout funds don’t need to come calling around here.”
The drive to achieve cost savings has gotten intense because the industry’s profit margins have been falling in recent years. A prolonged period of low inflation means supermarkets have been unable to raise prices significantly, even though wages of largely unionized supermarket employees have continued to rise.
Further squeezing margins are wholesale outlets like Costco and Wal-Mart Stores Inc.
“Retail square footage per capita in California has doubled over the last 10 years,” said Ronning. “When you have more stores chasing the same amount of dollars, you have a much more competitive situation.”
Together, Idaho-based Albertson’s and Salt Lake City-based American Stores will have nearly 2,423 outlets nationwide and annual sales of over $33 billion, making it the nation’s biggest supermarket chain.
Despite the mergers, many of the old nameplates still survive. Though Safeway bought out Vons nearly two years ago, Vons stores remain, as do Pavilions markets. There are even a few Hughes stores around town, though they are slowly being converted to Ralphs.
A spokesman for Albertson’s said that at this time, there are no plans to do away with the Lucky nameplate.
“Our intention is to maintain the current identity of Lucky,” said Michael Read, Albertson’s spokesman. “These stores have a good reputation and loyal customers.
