RALEY'S SETS ACQUISITION, EXPANSION OF NOB HILL

ELLIOT ZWIEBACH

WEST SACRAMENTO, Calif. -- Raley's Supermarkets and Drug Centers here said last week it will acquire Nob Hill Foods, a 27-store chain based in Gilroy, Calif. -- and proceed to open additional Nob Hill stores.

Raley's executives said the deal fits in with the company's expansion strategy of seeking acquisitions in areas adjacent to its existing operations.

Raley's, which operates 88 stores in northern California and northern Nevada, has only two stores in Nob Hill's central California marketing area -- one in Pleasanton, Calif., the other in Napa, Calif. -- but neither one is close enough to the existing Nob Hill unit to actually compete with it, Chuck Collings, Raley's chief executive officer, told SN.

Nob Hill would operate as a wholly owned subsidiary of Raley's -- the same arrangement Raley's adopted when it acquired Bel Air Supermarkets here in 1993.

Raley's has sales of $2 billion; Nob Hill does about $400 million in annual volume. The sale is expected to become final in mid-January. Financial terms were not disclosed.

According to Michael J. Teel, Raley's president, "Raley's and Nob Hill Foods are two very similar companies. Our family-owned and -operated histories complement one another, and this promises to be an excellent match."

He also said both chains have similar commitments to quality, variety and customer service. Michael Bonfante, president of Nob Hill, said the combination of the two companies "looks to be a good one. We've been looking long and hard to find a company that would uphold the philosophies of quality and service instituted by my dad and uncle.

"This sale ensures that those traditions will go on and that Nob Hill employees can continue to prosper in this very competitive retail climate."

If the sale is completed as expected, the new corporation would be likely to benefit from enhanced buying power and increased use of distribution and warehouse facilities, Teel said. The merger would also provide expanded opportunities for growth and employment while keeping the Nob Hill identity and local union contracts intact, he added.

The two companies are already partners in Sunnyside Dairy -- part of a joint venture that includes Save Mart Supermarkets, Modesto, Calif. -- which operates a fluid-processing plant in Fairfield, Calif., and an ice cream and cultures plant in Turlock, Calif.

Collings said once the sale has been completed, Raley's would begin distributing dry groceries, frozen foods and perishables to Nob Hill.

Nob Hill is currently a customer of Certified Grocers of California, Los Angeles, with leased dry grocery and produce facilities totaling 140,000 square feet "that will probably be the first efficiencies to be realized," Lynda Trelut, Nob Hill's vice president of advertising and public relations, told SN last week.

The transaction includes a standstill agreement that would allow Nob Hill to operate pretty much as it has for one year -- except for distribution -- while Raley's integrates accounting and management information systems and evaluates personnel, Collings told SN.

Bonfante, whose father Mike and uncle John founded the chain in 1934, would remain as a consultant to Raley's for several years, he added. As reported in SN, Collings himself would also become a consultant when he retires June 30 as Raley's CEO.

Collings said Nob Hill has been on Raley's list of potential acquisition targets, "but they came to us."

Nob Hill's stores average 31,000 square feet -- smaller than any of the existing Raley's units. However, newer Nob Hill stores are in the 35,000- to 47,000-square-foot range, and Collings said Raley's plans to evaluate each location to see if it can be expanded.