When markets merge, customer not always right

When the parent companies of Hughes and Ralphs, Quality Food Centers Inc. and Food 4 Less Holdings Inc., respectively, were acquired earlier this year in a two-part deal by Portland, Ore.-based Fred Meyer Inc., it created a chain of more than 800 stores in 14 states.

Meyer, already one of the largest food retailers in the country, converted the Hughes stores to Ralphs in a move to cut costs. As a result of the consolidation, there are now 380 Ralphs markets in Southern California.

Hughes manager Lee Ford, enormously popular in Malibu for keeping his market open during every emergency, sometimes powered only by a generator, is having some difficulty serving his customers.

“I don’t know him personally, but all the (former Hughes) managers I know by reputation as excellent,” said Ralphs spokesman Terry O’Neil. “They work real well with the community.”

O’Neil said that since the conversion of Hughes stores into Ralphs, Ralphs’ corporate offices have received “a lot” of calls from concerned Hughes customers, as company officials expected.

“Ralphs Grocery Co. understands it [the conversion] will create feelings of alienation and discomfort for loyal Hughes shoppers,” said O’Neil. “But we’ve done consumer studies and conducted focus groups to make changes as unobtrusive and easy as possible.”

What items Ralphs carries at its markets is dictated almost exclusively by what the main office determines all Ralphs markets should sell, so every Ralphs carries the same product selection, drawn from the Ralphs warehouse. If a product once carried by Hughes in Malibu is no longer available at Ralphs, that is because the item is not stocked at the Ralphs warehouse.

“The product mix at Ralphs stores is determined by corporate headquarters, based on [consumer] studies,” said O’Neil.

In contrast, Hughes had a more varied selection at each store, because individual stores were not subject to the same kind of centralized decision-making.

An individual Ralphs store is allowed some small changes in the product selection based on the demands of the community in which the store is located. The stores’ directors and department managers convey those demands to the main office.

“Store managers have the authority to call marketing to ask them to order an item,” said O’Neil. “If enough customers [from a particular store] ask for an item, it will be stocked.”

Ralphs also encourages its customers to call its toll-free number, 888-417-5556, to request an item not currently carried at their neighborhood market.

Since 1992, Meyer has focused on increasing sales of its private-label grocery items and plans to do the same with Ralphs stores, according to documents filed with the Security and Exchange Commission. Private-label items generally generate higher profit margins than national brand products. Ralphs already has a strong private-label program, with approximately 2,800 private-label products out of a total of 35,000 merchandise items.

Hughes’ reputation was, in large part, based on it providing among the widest and freshest variety of meat, seafood, produce, deli and bakery items, among the major supermarket chains.

O’Neil volunteered during the one interview granted for this story that Ralphs is buying from the same produce supplier from whom Hughes purchased. But O’Neil did not return several follow-up calls seeking comment on whether Ralphs purchases from the same meat and poultry suppliers.

Mike Osterman, owner of Pacific Coast Greens, said his fish supplier used to supply Hughes in Malibu as well, but the supplier lost the contract when the market became a Ralphs.

O’Neil said he did not know whether the volume of sales has fallen since Malibu’s Hughes became a Ralphs, but Osterman said his sales, before the road closure, had increased since the Hughes converted to Ralphs, although he declined to say by how much.

“I’ve tried to advocate for six years for people not to eat pesticides, hormones and chemicals,” said Osterman. “Now new people are coming to my store because their brand isn’t carried by Hughes anymore.”

As part of its marketing strategy, Ralphs emphasizes lower regular retail prices, according to an SEC filing. To increase store traffic, it offers double coupons and the “Ralphs Club Card,” which gives frequent shoppers discounts on selected items. The club card is designed to increase the frequency of store visits and the size of each transaction. The card also provides what Meyer describes in the SEC filing as “valuable information about consumer shopping habits.”

Among the major supermarkets in Los Angeles, Hughes was second only to Gelson’s in terms of customer service.

“Hughes was among the best-run supermarkets in California,” said O’Neil.

Hughes generally staffed each shift with a sufficient number of employees to readily help customers find an item, or to move them through the check-out line in near-record time. Lucky Stores and Vons Markets are considered the worst service-oriented and Ralphs is somewhere in the middle, said a source with close ties to the supermarket industry.

While customers at Ralphs in Malibu may feel that the market cut its staff, Ralphs did not lay off any former Hughes employees. But individual Ralphs stores may have fewer employees working during any given shift than Hughes would have had, said the source, who asked not to be identified.

While the conversion to Ralphs is official on the inside of the store, it is not on the outside. The big, blue sign there still says “Hughes.”

O’Neil said that’s because Ralphs wants to go about changing the signage “at a slower pace. We don’t want to drive customers away.”

Writer Robert A. Jones, of the Los Angeles Times, called the Ralphs-cum-Hughes’ sign strategy the “attack of the stealth Ralphs,” in a recent column.

In addition to the product selection at Ralphs, the store’s layout is also determined by the main office, in what it calls its “signature” style.

And what goes on which shelf is determined by “slotting fees,” the well-established practice in the supermarket industry of grocers charging manufacturers for shelf space. Companies commonly pay thousands of dollars to get a supermarket chain to stock its products or display them more prominently. Eye-level shelves are the most pricey.

“All major commercial chains participate in the process,” said Osterman. He said the amount paid depends on the item, but he has heard of a company that shelled out $100,000 to get a snack item on the shelves in a national chain.

“The real estate is very, very valuable,” said Osterman. “It involves kicking someone else off the shelf.” He also said that a company that intends to have a chain stock its products needs to have enough money behind it to advertise on television, have product demonstrations and give out coupons.

“If you’re just one guy with a single product, there’s no way you’re going to make it,” he said. “You need to get the food in people’s mouths through TV commercials, demos and coupons.”

The Malibu Times is the first newspaper in Malibu, serving the community since 1946.

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