Buying Lucky Might Solve Alpha Beta’s Identity Crisis

Back in 1915, some grocery store operators came up with a novel idea: a self-service market with products stocked alphabetically to help customers find what they wanted.

“It seemed natural to use the first two letters of the Greek alphabet, Alpha Beta, as the market chain’s new name,” a company history relates.

Given those roots, it’s ironic that Alpha Beta, in the view of industry observers, has lately had trouble keeping its mind on the ABC’s of food retailing.

“They have a sort of ho-hum reputation, just not very good at anything,” said one rival supermarket executive.

“Without probably realizing it, they have become a large chain of convenience stores,” another competitor said.

As a result, it comes as little surprise to supermarket people that American Stores, owner of Alpha Beta, is making some changes at its hapless operation, including store remodelings and the opening of new stores in Southern California for the first time in five years. The most interesting development, however, could mean the demise of the chain as it is known today.

The Salt Lake City parent company is looking to a takeover target--Lucky Stores, for which American Stores earlier this week offered $1.74 billion--as a source of dynamic management that could rekindle its own stores and put the food company on firmer footing in Southern California and other important markets.

In a candid, hand-delivered letter to Lucky Chairman John M. Lillie, American Stores Chairman L. S. (Sam) Skaggs proposed a friendly merger after which the Alpha Beta name would be changed to Lucky and Lucky management would remain in the Dublin, Calif., headquarters.

Some observers said the letter appeared to show Skaggs conceding that the competition could perhaps do a better job with one of his own companies. An American Stores spokesman would not elaborate on any aspects of the proposed merger, and Alpha Beta officials declined to comment.

“I wasn’t expecting this, but it doesn’t particularly surprise me,” said Roger E. Stangeland, chairman of the El Monte-based Vons supermarkets. “Over time, Alpha Beta doesn’t have a strong customer franchise.”

Lucky, on the other hand, does have a distinct identity, most observers agree. Since a dramatic overhaul in 1986 that successfully thwarted a takeover attempt, Lucky has captured one of the strongest images around with a firm commitment to what it calls “everyday low prices.”

“Taking the Alpha Beta logo away and putting Lucky’s on it and sprucing it up would mean a very powerful combination,” said Ron Rotter, an industry analyst with the Morgan, Olmstead, Kennedy & Gardner investment firm in Los Angeles. “American Stores had put very little money into upgrading Alpha Beta. The stores have deteriorated and lost market share.”

Customers’ comments reflect a lack of excitement about the chain.

“Alpha Beta isn’t my favorite, but it’s the closest. I shop here out of convenience,” said Lisa Bass, 27, a law firm administrator who was shopping Wednesday at the store in Costa Mesa.

At a nearby Lucky, shopper Eilean Monahan said she prefers that store because of lower prices. “Alpha Beta is so much higher now, it’s ridiculous,” she said. “I compare prices, and just the iced tea (at Alpha Beta) is 20 to 30 cents higher.”

In the last few years, competitors say, Alpha Beta’s management has turned over several times and the chain has vacillated between emphasizing lower prices and quality. The most recent management reshuffling was last September.

Led to Higher Prices

“The promotional policy has not been consistent, and therefore the consumer doesn’t have an idea what they stand for,” said Jonathan H. Ziegler, an analyst with the Sutro & Co. investment firm in San Francisco. “When you’re up against Ralphs and Vons, you have a problem competing.”

“While Alpha Beta has a great many stores (240 in California), a lot of them were built in the early ‘60s and are too small by today’s standards,” another rival supermarket executive said. “They can’t generate enough volume for prices to be competitive.”

As a result, the stores--many of them 20,000 to 25,000 square feet, half the size of the superstores common in the industry--became high priced. “Even though they have tried to fix that, they’ve lost confidence in the public’s mind,” the executive added.

A survey last fall by a Los Angeles consumer group showed Alpha Beta’s prices to be the second lowest in the region, after Lucky’s. That was an improvement over late 1986, when Alpha Beta’s prices were fifth lowest of eight major competitors.

In the view of many in the industry, Alpha Beta’s troubles were magnified after American Stores’ 1984 acquisition of Jewel Cos., a mammoth Chicago-based supermarket company. Soon after, the new owner had more than $3.5 million in losses during an outbreak of salmonella food poisoning caused by contaminated milk from a Jewel dairy. The outbreak caused six deaths.

“American Stores was preoccupied with that,” said Stangeland of Vons.

Big Changes Ahead

For now, speculation is that Lucky management will attempt to avoid a takeover, perhaps by finding backing for a buyout in partnership with an investment firm. No matter what happens, customers of Lucky and Alpha Beta might be in for big changes.

“One might argue that the California consumer would benefit by an Alpha Beta that goes to a lower-price strategy,” said analyst Rotter. “But American Stores would have about $200 million a year in additional interest costs, and that has to be passed on to somebody.”

And, he noted, if Lucky winds up being bought by management or by American Stores, there will be less money available for capital expansion and improvements. “Whatever winds up,” Rotter said, “will be a weakened company.”

Staff writer Mary Ann Galante in Orange County contributed to this story.