CONSOLIDATED GAINS

DAVID ORGEL

The long-running supermarket industry consolidation story continued to find new and exciting plot twists in 1997.

The spotlight turned on some high-profile deals in the Western United States and highlighted how consolidation is leading some companies into major mergers more than once in the same year.

Quality Food Centers, Bellevue, Wash., wrapped up its acquisition of Hughes Family Markets, Irwindale, Calif., in March in a deal totaling about $358.8 million. That transaction underlined QFC's efforts to reach beyond its longtime base in the Pudget Sound market. QFC said the deal would be only the "first step in the company's plans to become a leading multiregional operator of premium supermarkets" throughout the United States. In acquiring Hughes, QFC was getting a 56-store chain that represented sales of about $1.25 billion, or about 5% of southern California's market share.

In another major Western U.S. merger, Fred Meyer Inc. last May signed a definitive agreement to acquire Smith's Food & Drug Centers, Salt Lake City. The transaction, completed in September, created a company with 420 stores in 19 states, including those with the Fred Meyer, Smith's and Smitty's banners. The combined volume was nearly $7 billion.

Fred Meyer viewed the deal as an opportunity for big cost savings and said it would remodel 18 Smitty's stores in Phoenix. "It's a terrific fit, both operationally and geographically," Robert G. Miller, Fred Meyer's chairman and chief executive officer, said about the deal.

But neither of these deals could prepare the industry for what would come next. In early November, a proposed merger of three giant Western retailers caught many off guard and promised to alter the ownership line-up of Western food retailing.

Under this deal, Ralphs Grocery Co., Compton, Calif., and QFC would combine with Fred Meyer in separate deals, creating the nation's fifth largest retail food distributor with 818 stores and sales of $14.9 billion.

The deal was sparked by Yucaipa Cos., the Los-Angeles-based investment firm that controls Ralphs and owns a large stake in Fred Meyer. Ron Burkle, managing partner in Yucaipa and chairman of both Ralphs and Fred Meyer, is scheduled to be chairman of the new company, which would retain the Fred Meyer name.

Under the deal, Ralphs and QFC would be added as operating units and maintain their separate identities. But the Hughes Family Markets banner would be eliminated in favor of the Ralphs logo.

Analysts cited the tremendous buying power the new entity could command, among other synergies.

"It's really a multifaceted opportunity from the standpoint of market strength, cash-flow strength and management strength with all kinds of synergies involved," said Jonathan Ziegler, a securities analyst with the San Francisco office of Salomon Bros., New York. Chroniclers of Western U.S. consolidation were also keeping track of Safeway this year. The Pleasanton, Calif.-based chain completed its acquisition of Vons Cos., Arcadia, Calif., last May. The merger brought Safeway back to Southern California after a decade-long absence.

Analysts expected both Safeway and Vons to benefit from the combination, which would retain the Vons and Pavilion names on southern California stores because of the clout of those banners.

Also in California this month, Raley's Supermarkets and Drug Centers, West Sacramento, said it will acquire Nob Hill Foods, Gilroy, Calif.

Among other industry deals, Schwegmann Giant Super Markets, New Orleans, was acquired by Kohlberg & Co., Mount Kisco, N.Y., for an undisclosed sum. The move ended family ownership of the 128-year-old company.

Lund Food Holdings, Minneapolis, acquired Byerly's, Edina, Minn. in May and said it would switch all of its buying to wholesaler Supervalu, Minneapolis.

Riser Foods, Bedford Heights, Ohio, merged with Pittsburgh-based Giant Eagle, in a deal completed in August. Combined sales were expected to be about $4 billion.

Delchamps, Mobile, Ala., last November became a wholly owned subsidiary of Jitney-Jungle Stores of America, Jackson, Miss. Jitney now operates 220 stores throughout Mississippi and Alabama, and in select markets in Tennessee, Arkansas, Louisiana and Florida.

In April, Randalls Food Markets, Houston, signed a definitive agreement to sell a majority interest to Kohlberg Kravis Roberts & Co., New York. As part of the deal, KKR said it would make an equity investment of $225 million in Randalls on top of the purchase price, which would enable the chain to reduce its debt and position itself for future growth. Randalls received that investment in July following completion of the acquisition.

On the wholesale front, Richfood Holdings, Richmond, Va., signed a definitive agreement earlier this month to acquire Farm Fresh, Norfolk, Va. That signing followed the announcement of the deal in September. The deal, which is to involve 44 of 48 Farm Fresh stores, is expected to close in early 1998.

United Grocers, Portland, Ore., and Associated Grocers of Seattle formed a joint venture to provide logistical and distribution services to members. That plan was formulated instead of a merger, which had been discussed as a possible option.

In other wholesale transactions, Associated Grocers of Florida, Miami, acquired Tampa, Fla.-based Affiliated of Florida. Nash Finch Co., Minneapolis, acquired substantially all assets of United-A.G. Cooperative, Omaha, Neb.