Pains accompany Associated's gains

Associated Foods Stores, poised to become the state's new grocery market leader, was created in 1940 to help small grocers compete against bigger rivals.

But the deal Tuesday that would make it No. 1 comes at a price for its smaller cooperative members. Those independent grocers, who are able to buy products for less through the co-op, must now compete with 58 company-owned stores.

Associated Foods' purchase of 36 Albertsons supermarkets will push the Salt Lake-based company into the top spot in both number of stores and sales -- capturing nearly 40 percent of the Utah grocery-store market.

Currently, sales rung up by Arkansas-based Wal-Mart take 35 percent of the Utah market share, said grocery industry analyst David J. Livingston of Milwaukee.

"Associated Foods is taking back Utah," said Livingston. "Locally owned means that profits can stay in Utah rather than getting reinvested in Bentonville, Ark."

The Albertsons deal, expected to close in the fall, underscores Associated Foods dual role of operating its own stores while using its purchasing clout to lower prices for its member retailers, said Jim Olsen, president of the Utah Food Industry Association.

"It can be a dilemma," said Olsen. "Associated Foods wants to pump as much as it can into its warehouse to benefit its members. But as it buys up more stores, it's also creating more competition with its retail-store customers."

Associated Foods was founded

nearly 70 years ago in Utah when Donald Lloyd convinced 34 small grocers to contribute $300 each to form a retailer-owned cooperative. Lloyd was convinced that unless small retailers banded together to buy products in bulk, large chains would drive them out of business.

The company changed its direction nearly 60 years later when Associated Foods bought three co-op member chains in 1999: Macey's, Lin's and Dan's. In 2002, it also purchased Dick's Market.

Today, Associated Foods owns 22 stores and is a wholesale distributor to nearly 600 independent owned supermarkets in an eight-state region.

Associated Foods President and Chief Executive Richard Parkinson said the primary mission has remained the same since its founding -- servicing its retail members. Parkinson said that retailers also have the opportunity to purchase company-owned stores.

Parkinson expects that co-op members may purchase some of the Albertsons stores.

Associated Foods also has a history of selling its own stores to new co-op members. Last year, the cooperative sold one of its Dan's stores in Park City to grocer Mike Holm. At the time, Holm had been managing an Albertsons store. When Holm left, 40 other Albertsons employees quit to work at his The Market at Park City, at 1500 Snow Creek Drive.

"Most of us were veterans when we left Albertsons, and when you quit, you lose the benefits, the seniority, everything," said Shane Hunsaker, 45, an employee at The Market. "That's how good a boss Mike is."

The sale of the Albertsons stores is subject to regulatory approval. Associated Foods hopes to provide salary and benefits packages to the 2,700 employees similar to what they had with Albertsons.

Currently, Albertsons ranks third in the Utah grocery market, ringing up 13 percent of the total sales. Its parent company, the Minneapolis-based Supervalu, is expected to use proceeds from the pending sale to pay down debts incurred from its purchase of Albertsons in 2006.

Smith's Food & Drug, a division of Cincinnati-based Kroger Co., is currently Utah's largest chain with 47 stores, according to the August issue of the trade publication Shelby Report of the West . Smith's is No. 2 in sales, with nearly 21.5 percent of the Utah grocery market. Associated Foods' 22 stores have 6.5 percent of the market, followed by the Utah-based Harmons at 6 percent.