Associated Foods buying most of Albertsons supermarkets in Utah

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Associated Foods Stores is poised to overtake Smith's Food & Drug and Wal-Mart to become the state's No. 1 grocery chain by number of stores with its purchase of 36 Albertsons supermarkets in Utah announced Tuesday.

Officials said the sale by Supervalu Inc., Albertsons' parent company, is expected to close this fall pending regulatory approval. Under terms of the deal, Supervalu would receive $150 million in after-tax proceeds to help pay down debts incurred from its 2006 purchase of Albertsons.

Associated Foods is a retailer-owned cooperative whose 500-some members in the Intermountain West include Ream's, Winegar's, Kent's and Harmons. The cooperative also owns 22 stores operating under the Macey's, Dan's, Lin's and Dick's Market banners.

Once the cooperative owns and operates the Albertsons stores, shoppers may see lower prices as Associated Foods introduces its Western Family brand and the stores benefit from the cooperative's wholesale buying power, officials said. Shoppers also likely will see more products grown or manufactured in Utah.

Associated Foods hasn't decided what it will name the newly acquired stores or whether customer loyalty cards or double-coupon deals will continue to be offered.

The 2,700 Albertsons employees in Utah face interviews to keep their jobs, but Associated Foods President and Chief Executive Richard Parkinson expects that more than 95 percent of the work force will be rehired.

"We need these people's expertise," he said. "Letting them go would be counterproductive to what we want to achieve."

The Albertsons stores will be part of a new Associated Foods division headed by Dick King, a senior vice president of the cooperative. He worked for Albertsons for 36 years, including as president and chief operating officer, before joining Associated Foods in 2001.

The sale "pole vaults Associated Foods to the No. 1 position" in the Utah market, according to Simeon Gutman, a New York-based analyst at Canaccord Adams, a financial firm with headquarters in Vancouver.

He added that the cooperative is paying a relatively attractive price for the Albertsons stores, "that arguably is below replacement costs."

Still, the sale puts Monte Peterson, owner of Peterson's Marketplace in Riverton, in an awkward, competitive position.

He is board chairman of Associated Foods, which provides products and services to his family-owned store.

At the same time his store, located at 777 W. 12600 South, is across the street from an Albertsons supermarket, which will be offering many of the Associated Foods products Peterson now sells.

"I've put myself in a hard situation, I'll be competing against myself in a lot of ways," Peterson said. "But I feel that we can differentiate ourselves enough to thrive, and it's for the betterment of the Associated Foods system."

Bob Harmon, Harmons' vice president for the customer, said the acquisition stands to benefit Harmons shoppers in that Associated Foods Stores will have greater purchasing power for the Utah market, resulting in lower grocery prices for everyone.

A shopper at an Albertsons store at 900 E. 1700 South in Salt Lake City is fine with sale -- as long as it means few changes at the store. "As long as they keep the employees and the atmosphere the same, we'll keep coming back," said Mike Seipp, a customer for the past seven years.

Supervalu will retain its three Albertsons stores in the St. George area. And its Salt Lake City distribution center will remain open to serve Albertsons stores in Idaho, Wyoming and Montana.

The sale will allow the Minneapolis-based chain "to focus on our greatest growth opportunities" and help pay down debt, the firm's CEO, Craig Herkert, said in a statement.

Sales for Associated Foods increased 3.3 percent to nearly $1.69 billion for the year that ended March 28 compared with the previous year. The company employes 5,000 people, primarily in Utah.

In reporting first quarter results Tuesday, Supervalu said its sales fell 5 percent to $12.72 billion for the quarter ended June 20. The company said its first-quarter profit dropped 30 percent.

Tribune reporter Andrew Maddocks contributed to this story.