FOOD FIGHT FALLOUT : Nearby Shops Suffer When Warring Grocery Chains Leave Some Closed Sites Vacant Rather Than Let in Competition

SAN CLEMENTE —  Grocery wars can bury innocent victims.

Pull off the freeway into a Camino de Estrella shopping center where a closed Alpha Beta forced Popeye’s for Hair to trim the price of a cut by 25%. A few steps away is an empty space that once housed the Golden Comb, a salon that catered to older women. The Jim’s Pharmacy has also closed. And a Bank of America branch is soon to follow.

With the anchor grocery store site empty, foot traffic past the small shops in the center plummeted. Sales followed. Businesses withered. Jobs were lost.

Small businesses at aging strip malls across the nation have fallen by the wayside for years as supermarkets and other big retailers have moved to bigger buildings where they can lure customers with more goods and services.

But in Southern California, the trend was accelerated by the 1995 merger of Alpha Beta’s parent, Food 4 Less Supermarkets, with Ralphs Grocery Co., creating the region’s largest grocery chain. Since then, Ralphs has closed or sold 74 stores to save money or ease regulators’ concerns about reduced competition. At most locations, new tenants have moved in, but 16 are still empty.

And in the intensely competitive grocery business, Ralphs has decided to keep some of those “dark.”

That’s the case for the former Alpha Beta on Camino de Estrella, which has been closed for nearly two years. So far, Ralphs has decided it’s better business to keep paying the rent than to allow a competitor to move in and steal business from two Ralphs stores in San Clemente.

The “B” tenants at the center, where the Alpha Beta sat recently with a window boarded up like a plywood patch on a black eye, are furious that Ralphs won’t even talk about installing another food seller.

“We’re just hanging on by our toes. And we’re doing better than most,” said Frank Rivers, owner of Popeye’s, where revenue is off 35%.

The shopping center is 26 years old, but its location isn’t bad: freeway-adjacent, near a prosperous neighborhood of big homes on the coastal bluffs and close to other solid residential areas. Many residents are retired people who like to walk to nearby businesses, Rivers says. But just across the freeway sits a big Ralphs surrounded by dozens of upscale “B” tenants: bagel and juice shops, martial arts and tanning parlors, optometrists and jewelers. And, of course, a Fantastic Sam’s and other places to get haircuts.

Trying to drum up business, Popeye’s lowered its haircut price from $8 to $6 after the anchor closed. And because it has many customers who have come in for decades, Rivers has been luckier than many.

“The big get bigger and the small get destroyed,” says another tenant, whose sales are off 30%.

The 16 now-dark Ralphs-owned stores provide a glimpse into the rough-and-tumble world of grocery store competition. Operating on paper-thin margins, grocery stores are constantly looking for ways to get the upper hand.

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Facing brutal competition from other big chains, independent grocers, warehouse clubs and drug and convenience stores, America’s supermarket operators are cutting costs by closing small stores and opening or remodeling bigger ones.

Although the number of food stores nationally has been holding about even over the last several years, the median size--at 38,600 square feet--is 25% larger than in 1990 and up 19% from just four years ago, according to the Food Marketing Institute trade group.

The Southern California stores that Ralphs closed were mainly small, often just 20,000 to 25,000 square feet, and many of them were near larger and newer Ralphs. But in addition to closing stores, Ralphs has been opening new ones and modernizing others. Since the merger, according to a regulatory filing, it has opened 37 stores and expanded or remodeled 23 others.

Company executives acknowledge that the impact of the store closings has been great on nearby small businesses.

“By definition the anchor is the anchor, and when it leaves, that makes it hard on everyone else,” says Ronald W. Burkle, Ralphs chief executive.

But Ralphs is a business--one with $377 million in mostly merger-related losses in the last two years. And it’s watching every dollar as it guardedly projects a profit for this year and plans for a public stock sale thereafter.

Many leases on store sites Ralphs closed average 30 years to run at $60,000 to $70,000 a year. In effect, those leases lock in 1970s-era rents well into the 21st century.

Burkle says the company’s first goal is to transfer those leases to noncompetitive businesses such as Staples Inc. or Circuit City Stores Inc. Those generate far fewer visits than a food store, but for the satellite businesses are better than nothing. When a nonfood buyer can’t be found, some are being sold to food retailers if the price and the potential for “cannibalizing” sales at nearby Ralphs markets makes the deal pencil out. And when any of those deals don’t look good, some stores are kept dark intentionally.

“There are times that for business reasons we just sit tight,” Burkle says. “That is generally not the case, but it does happen.”

To satisfy antitrust laws, state regulators had ordered Ralphs to sell one of its four San Clemente sites to a competing grocer. Ralphs offered one just off Avenida Pico a few miles south of the Camino de Estrella center. But because of poor street access and other problems, no food retailer wanted it, said James Maginn of Watt Commercial Properties, the landlord.

Now more than half the center’s “B” space sits empty, and tenants such as Imperial Beauty Salon and Surfin’ Chicken are hanging on only because Watt has cut rents.

“That’s the real sad thing. These mom-and-pops really struggle until we can get somebody in there,” said Maginn, who recently struck a deal to buy back the lease from Ralphs and hopes to find a nonfood retailer to take over the space.

Analyst Jonathan H. Ziegler of Salomon Bros. in San Francisco says decisions similar to those by Ralphs are being made by retailers across the country. Wal-Mart, for example, closes 80,000-square-foot stores to make way for its own mega-stores more than twice as large, he says. Some old locations become multiplex theaters. Some sit idle.

Retail experts say chains like Vons Cos. and American Stores Co.’s Lucky also have intentionally kept closed stores dark--Vons in particular after it acquired 172 Safeway Inc. stores in Southern California in 1988.

Competitors say the big chains can deal harshly with small rivals.

Bill Richardson, expansion director for Henry’s Market Place Inc., said his La Mesa-based chain wanted to take over the Camino de Estrella lease but that Ralphs’ representatives wouldn’t even discuss a deal.

And the family that owns Notrica’s 32nd Street Market, which has grown from its original location near USC to a five-store chain catering to inner-city families, says it too has talked with Ralphs representatives about taking over closed sites. But President Morrie Notrica says Ralphs demanded “an exorbitant amount”--up to $1 million--from anyone wanting to take over a lease on a closed store. “I’m not going to be held up that way,” he says. And the Lucky chain, says Notrica, refuses to sell him a closed site under any conditions. “Don’t ask me why.”

Donna Shaver, who owns the Camino de Estrella center, says Ralphs has been difficult to work with in finding a new tenant for the Alpha Beta space. Ralphs says the same about her, but they agreed recently that Shaver would buy back the lease from Ralphs. Shaver says she’s close to signing a new tenant.

“It’s an unfortunate thing. But retail is changing,” says Pat Barber, Ralphs’ group vice president for real estate. “And the little mom-and-pop guys can get hurt, get caught right in the middle of it.”

But the tenants in San Clemente think the big chains have a responsibility to help keep their smaller cousins afloat.

Ralphs CEO Burkle is a civic leader who won the Los Angeles Urban League’s highest honor last year for keeping open inner-city markets. “He has been a superb corporate citizen,” said John W. Mack, the group’s president.

But the “B” tenants in San Clemente disagree. “I can see his side. Legally, they may be right in what they’re doing,” said Popeye’s owner Rivers. “But morally, they’re wrong.”

Popeye’s stylist Chris Miller says there’s only one way to fight: “Since all this happened, I don’t ever shop at Ralphs, even though it’s close to my house. I go to Albertsons.”

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Missing Markets

Aftershocks from Ralphs Grocery Co.’s closure of 74 Alpha Beta, Food 4 Less and Ralphs markets are still being felt in San Clemente, where two former store locations remain empty:

1. Alpha Beta/Closed

Location: Camino de Estrella and Camino de Mira Costa Status: Ralphs closed Alpha Beta here nearly two years ago, but is still paying the lease to keep another food retailer from taking over the site and competing with its two San Clemente stores.

2. Ralphs/Open

Location: Camino de los Mares and Calle Agua

3. Ralphs/Closed

Location: Calle de Industrias and Avenida Pico

Status: Another food retailer is being sought, but there have been no takers.

4. Ralphs/Open

Location: El Camino Real and Avenida Barcelona

Status: Formerly Alpha Beta

Source: Ralphsq Grocery Co.; Researched by JANICE L. JONES / Los Angeles Times