Conventional Wisdom Says Monopoly Is Greed

Who would have thought that Yucaipa Companies, Quality Foods and leveraged buyouts would be the topic of a community meeting?

As president of the 2,000-household Studio City Residents Assn. (SCRA), I had no idea that when we challenged the pending merger of supermarket giants Ralphs and Hughes we’d be thrust into the crazy world of merger mania.

Sure we’ve fought our share of battles, but mergers and acquisitions? Wasn’t this more for the likes of Wall Street corporate raiders? Well SCRA was drawn into this fight by the most basic of issues--food.

At one time, Studio City was served by five large grocery stores: Market Basket, Boys Market, Safeway, an independent operator and Los Angeles’ first Hughes Market.

Over the years, residents saw most of these get swallowed, one by one. Boys Market became Ralphs; Market Basket, Safeway; and the independent grocer went away. Soon only the Ralphs and Hughes remained. With a new, significantly larger Ralphs on the drawing board in addition to the existing one, and only the hugely popular Hughes remaining as competition, residents had cause for alarm when the merger of Quality Foods, owner of Hughes Markets, and Yucaipa Companies, owner of Ralphs supermarket chain, was announced.

In response to our inquiry about the post-merger status of the Hughes Market, we were told that Ralphs’ only other Studio City competitor would be converted to a Ralphs. We didn’t have to sharpen the pencil we use to make our grocery list to figure out that one existing Ralphs plus a new Ralphs plus a Hughes-turned-Ralphs equals no competition.

SCRA quickly mobilized and asked state Atty. Gen. Dan Lungren and federal regulators for help. Regulators approved the merger with conditions requiring divestiture of 19 stores, including one in Studio City, in areas where Justice Department officials determined merger would be detrimental to competition.

SCRA’s opposition to the Ralphs-Hughes merger was based on a simple premise: Ralphs’ takeover of their only Studio City competitor would give Ralphs a monopoly in the area. Simple as it was, our effort was met with tremendous community support.

Although we regret the loss of a great family market like Hughes, we’re pleased that Ralphs is going to divest itself of one of its Studio City stores, thereby maintaining some competition. But what about the communities beyond the 19 where stores are going to be sold?

The SCRA undertook this battle on behalf of our residents and neighbors but we were not the only ones impacted. Our effort tapped into a much greater and deeper-felt fear residents have of the impacts of corporate mergers. Just what do we have to look forward to in the aftermath of more merger mania?

In this case, Ralphs says that more streamlined operations yield greater efficiencies that lead to lower prices (and higher profits). Although economists would probably say that the reduction in grocery stores in Studio City is a great example of “market forces at work,” conventional wisdom might say that the consolidation is simply evidence of corporate greed. Maybe it’s best to leave the debate on the economic merits of corporate mergers to the economists.

But for SCRA and many other groups representing individuals and families of all ages, the focus is on the human impacts as we see them: less competition, higher prices, fewer choices and corporate giants posing as community and family markets.

Now that we’ve stopped a Ralphs monopoly in Studio City, what’s next? Our focus has turned to the store that will replace the Studio City Ralphs that is being sold. Just as in our initial campaign against the merger, SCRA is relying on the democratic process. We’re conducting an informal poll through the end of February to ask residents what store they’d like to see.

At the end of the month, we’ll forward the results to Ralphs Chairman Ron Burkle and federal and state regulators. We hope they’ll be listening.