RALEY'S SELLOUT LIFTS KROGER'S STAKES IN LAS VEGAS

ELLIOT ZWIEBACH

SACRAMENTO, Calif. -- Raley's here said last week an inability to boost its market share in Las Vegas prompted its decision to sell its 18 stores there to Kroger Co., Cincinnati.

However, the company plans to maintain its operations in New Mexico, William Coyne, president and chief operating officer, told SN last week.

Kroger, which already operates 24 stores in the Las Vegas market, said it will convert some of the Raley's stores to the Smith's banner and others to the Food4Less banner once the deal is completed next month.

The acquisition is expected to help boost Kroger close to the No. 1 market share position there. Prior to the transaction, Albertsons controlled a market share of 30.4%, with Safeway-owned Vons at 15.7%, Smith's at 15.3% and Raley's at 13.1%, according to industry sources.

Terms of the sales were not disclosed.

Raley's operates 150 stores, including 111 in Northern California (60 Raley's, 18 Bel Air Markets, 26 Nob Hill Foods and seven Food Source), 30 in Nevada (12 in northern Nevada, 18 in Las Vegas) and nine in New Mexico. It has operated the 18 Las Vegas stores since acquiring them in September 1999 from Albertsons.

Kroger's Las Vegas stores include 19 conventional Smith's locations and five Food4Less price-impact stores.

James Hallsey, president of Smith's, said the addition of the 18 stores "will provide outstanding growth opportunities for our business and added convenience for our customers."

He said Smith's plans to interview Raley's employees "and bring many of them onto the Smith's team."

Coyne told SN Raley's decided to sell the Las Vegas stores following a re-evaluation of its holdings.

"When I became president [last April], I made it a priority to re-evaluate all major properties to ensure that our business resources were allocated in the right areas," he told SN. "What we found was that every area of the company was performing at high levels with the exception of Las Vegas.

"We see significant opportunities before us in California, northern Nevada and New Mexico, and we want to focus on those areas," Coyne said. "But we occupy the fourth position in Las Vegas, and while we've made some progress there, we haven't made the kind of progress we need to justify significant additional investment to achieve the levels we want to reach."

Raley's has maintained its market share in Las Vegas while its competitors have been growing, Coyne said. "The competition has built stores so much faster than population growth warrants, and that kept diluting our share," he explained. "Our sales continued to build, but our market share eroded because of dilution."

Raley's has one store under construction in Las Vegas that Kroger was not interested in acquiring, he said, and the company is looking for a separate buyer for that location, which is about half-completed. In New Mexico, where Raley's operates eight stores in Albuquerque and one in Taos, it is close to passing Albertsons for the No. 2 market position, behind Kroger's Smith's operation, Coyne said. "Our New Mexico sales are continuing to grow, and the Albuquerque-Taos community has accepted Raley's -- something we were not able to achieve in Las Vegas," he said.

Raley's closed two New Mexico stores, in Las Cruces, about 18 months ago and acquired four former Furr's stores in Albuquerque at the end of 2001.

Raley's sales for the year ended June 30 rose approximately 10% to $3.4 billion, Coyne said, although he declined to indicate how much volume came from the Las Vegas stores.