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SMITH'S CONFIRMS IT MAY LEAVE CALIFORNIA

SALT LAKE CITY -- Smith's Food & Drug Centers here last week confirmed widespread reports that it is considering a pullout from the California marketplace.The company said it "has decided to explore the possibility of selling or leasing its California stores to other retailers."The announcement followed a reversal over the past couple of years from growth plans in California, and increasing predictions

SALT LAKE CITY -- Smith's Food & Drug Centers here last week confirmed widespread reports that it is considering a pullout from the California marketplace.

The company said it "has decided to explore the possibility of selling or leasing its California stores to other retailers."

The announcement followed a reversal over the past couple of years from growth plans in California, and increasing predictions from observers that Smith's is gearing for a complete exit.

However, Smith's also said last week it might decide to retain the stores. Jeff Smith, the chain's chief executive officer, said in a statement that "continuing the operation

of those stores remains a viable alternative for the company, as the region has shown performance progress during recent months." Many observers last week interpreted the statements as further proof that Smith's is actively attempting to sell the stores and may not remain in California for much longer.

Smith's operates 34 of its 151 stores in southern California. It made a deal earlier this month to lease its 981,000-square-foot distribution facility in Riverside, Calif., to Ralphs Grocery Co., Compton, Calif. -- a move most observers view as a preliminary to a full-scale retail pullout from California. "Every chain in California has already been approached by Smith's, and Smith's efforts to sell have heated up since the warehouse deal," one southern California retailer told SN. Gary Giblen, managing director of Smith Barney, New York, said Smith's has already distributed a selling memo "to all potentially interested parties with details about each store location." According to Jonathan Ziegler, a securities analyst with Salomon Bros., New York, "I wouldn't be surprised if Smith's is close to signing a deal. I think the company was trying to tell all of us in its press statement that a deal is in the works and that it will have a handshake agreement very soon." Any pullout from California would presumably include disposition of approximately 17 unused pieces of real estate in northern California that Smith's acquired several years ago in anticipation of statewide expansion. While Smith's would reportedly prefer to sell all 34 southern California stores to a single buyer, industry observers told SN they believe it is more likely the stores will be sold on a piecemeal basis through a bidding process, since supermarket operators are likely to be interested in only 10 to 17 of the store sites. "Less than half the stores are doing acceptable volumes," one local retailer told SN. "The rest are running around $500,000 a week, which in stores of 75,000 square feet is just about breakeven." According to Giblen, "Some stores will attract multiple bids, while others will go wanting." Smith's officials could not be reached for additional comment last week. Ralphs officials declined to comment last week on whether they are interested in any Smith's locations. Although the chain signed an agreement with the California Attorney General's office barring it from acquiring additional stores for five years after its merger with Food 4 Less Supermarkets last June, some local observers said the company may be able to sell a store for each unit it may acquire. Mary McAboy, vice president, corporate communications, for Vons Cos., Arcadia, Calif., told SN her company is interested in looking at the Smith's stores if they become available.

A spokesperson for Lucky Stores declined to comment.

Jack Brown, chairman, president and chief executive officer of Stater Bros. Markets, Colton, Calif., said his company would be interested in bidding on at least three Smith's units in the Riverside-San Bernardino County area. "Should Smith's locations in the Inland Empire become available, we would be interested in discussing a deal with them for three particular stores," Brown said. Smith's disclosed plans in the early '90s for an aggressive growth program that anticipated expansion into central and northern California, with a goal of operating 120 California units by 1997. However, the California recession slowed the chain's expansion considerably. In mid-1994 the company announced it would halt new-store openings in southern California temporarily "in an attempt to concentrate our efforts (on) improving our current stores (and) to fine-tune and improve the operation."