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 surrounding 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 also reduce prices by 2% to 4% at 85 other stores in Southern California.
The company said it will be able to cut prices because of greater efficiency resulting from the merger, which will create the largest supermarket chain in California. The value of the combined company is $2.5 billion.
Yucaipa, which already owns the Alpha Beta, Boys, Viva and Food 4 Less chains, will control about 27% of the Southern California market, vaulting past Vons Inc., the longtime market leader with 19%.
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 price cuts will bring the converted stores in line with Ralphs' current pricing structure, which is lower than that at the stores of its merger partner, Ralphs 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. "There will be significant price savings. That shows that we are really going after more market share in South-Central communities."
The company said prices will be reduced at 25 stores in an area bounded by Interstate 10 on the north, California 91 on the south, Interstate 710 on the east and Interstate 405 on the west. The stores are located 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 is already dominated by Yucaipa's various stores, which account for more than half the food outlets in the area. The dominance of Food 4 Less in the area was examined by state regulators who reviewed the proposed merger last year. Regulators are requiring the merged company to divest 27 stores in Southern California, including three in the targeted area. They chose not to block the merger on anti-competitive grounds partly because 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 is exchanging that title for the position of chief executive of the merged company.
The decision was hailed by John Mack, president of the Los Angeles Urban League. Mack said the League has been concerned about the lack of major chain stores and inflated prices in the areas targeted by Ralphs.
"This is excellent news," he said. "This is a signal to other chains that you can do the right thing and make money."
In addition, company executives said prices will be lowered by 2% to 4% at all other Alpha Betas that are converted to Ralphs. The prices will change as each store is converted. 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.
When announced last year, the merger was criticized by some who said it would reduce competition and drive up prices. But some analysts said today 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.
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.
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. The company has built three of the stores--one each in Inglewood, Compton and Pomona--and has plans to build three more over the next two years. The company has said it is looking for four other sites.
Executives said the merger will provide enhanced buying power and additional leverage with suppliers, enabling Ralphs to buy food and other products for $20 million less annually. The company said it will also save about $80 million in administrative, warehousing and advertising expenses.