Las Vegas Sun

March 29, 2024

Vegas grocery deal faces union, antitrust scrutiny

Antitrust enforcers have begun reviewing a plan by the parent company of Smith's Food & Drug Stores and Food 4 Less to buy 18 Raley's supermarkets in the Las Vegas area under an agreement reached Friday.

Terms of the Kroger Co.'s deal with West Sacramento, Calif.-based Raley's, expected to close next month, were not disclosed.

The last big grocery buyout in Las Vegas -- Albertsons purchase of Lucky markets from American Stores Co. -- resulted in the forced sale of some stores to Raley's to comply with antitrust law. And the local grocery workers' union successfully lobbied to ensure union jobs remained union when the stores were sold to Raley's.

While regulators will focus on whether Cincinnati-based Kroger would conform to antitrust laws with the transaction, representatives of United Food and Commercial Workers Union Local 711 say they have asked Kroger to reconsider a decision to force Raley's employees to reapply for jobs when stores are converted to Kroger brands.

Kroger plans to convert most of the stores to Food 4 Less or Smith's outlets by the end of October, with eight under the Food 4 Less banner. Plans haven't been completed on which stores would take those names or whether any of the stores would be closed or sold to other grocery operators. In some locations, Raley's operates stores close to existing Kroger outlets.

Smith's has 19 stores in the Las Vegas area while Food 4 Less has five, with two more stores under construction.

Kroger officials said the 1,400 Southern Nevada Raley's employees would be invited to apply for jobs when they reopen under their new names.

Mike Gittings, secretary-treasurer for the 7,000-member UFCW union, said discussions are continuing with Kroger to change that.

"We're still talking to the company and hoping they will agree to accept the employees (without them having to reapply)," Gittings said.

He said the union represents nearly all employees at Smith's, Food 4 Less and Raley's and that of the local's 7,000 members, 6,000 are employed in Southern Nevada.

"Kroger has expressed a strong desire to interview and hire as many employees as possible," said William Coyne, president and chief executive officer of Raley's. "There are no guarantees, but our employees are cream of the crop in terms of skill level and customer service and most companies would fall all over themselves to hire them."

Coyne said those who are not employed by Kroger would be offered severance packages or positions elsewhere in the Raley's chain. The company has 150 supermarkets in Northern California, Northern Nevada and New Mexico, operating under the Bel Air Markets, Nob Hill Foods and Food Source brands.

Meanwhile, Tim Hay, head of the state's Bureau of Consumer Protection, said he has begun evaluating the effect the transaction would have on competition in the Las Vegas marketplace.

"The effective concentration on market share would be the biggest issue in an acquisition like this," Hay said.

He said he should know more later this week whether the deal would trigger antitrust concerns. He said there are a number of factors that need to be analyzed to determine what percentage of share would be considered as problematic by regulators.

Keith Schwer, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas, said regulators would look at store concentration ratios and calculate their impact on food prices for consumers.

"When I heard about this deal, the first thing I thought about was whether regulators would allow it to go through," Schwer said.

He said a small number of competitors in the grocery store market is a product of the city's rapid growth.

He explained grocery chains have to move fast to build stores in areas where growth occurs quickly. So only the largest, well-capitalized companies have the ability to keep up. That's why a small number of large chains dominate the local market, he said.

Raley's has operated in the Las Vegas market for three years following a series of transactions in which Boise, Idaho-based Albertsons acquired 26 Lucky supermarkets in a deal with American Stores Co. and Raley's took over most of the old Albertsons locations.

After the Albertsons deal, announced in 1998 and completed a year later, Raley's failed to capture the market share it was expecting in the Las Vegas area.

Coyne said while his company welcomed the competitive challenges of the market, it could never break above a 10 percent market share and wasn't gaining ground. He said deep discounters like non-union Wal-Mart and Kmart were not taking away large numbers of customers from his stores, which were considerably smaller than those of his counterparts at an average of 46,000 square feet.

Coyne said his company would redirect its energies to the other markets in which it has stores.

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