Raley’s Acquisition of Bashas’ helps Regional Grocers Compete with Big Players Article originally posted on AZ Central on October 5, 2021 After Arizona supermarket chain Bashas’ announced Oct. 1 that it would agree to an acquisition by a regional grocery company in California, the question that pops out in hindsight is: Why didn’t this happen before? As privately owned entities, both Bashas’ and Raley’s increasingly battled tough challenges in a wide-open grocery business from traditional competitors as well as relatively new food retailers from Walmart and Amazon.com to CVS, Walgreens, Target and a slew of dollar stores. The competitive landscape has changed and took a sharp detour during the pandemic last year when the demand for groceries shot up and shortages materialized at a time when companies needed to install protective safeguards and employee turnover accelerated. Edward Basha, president and CEO of his Chandler-based company, cited the pandemic as a factor bringing the two sides together after Raley’s reached out around the middle of last year. The companies didn’t provide a purchase price or other details of the transaction. Basha said no store closings or layoffs would result from the deal after it closes as expected around the end of 2021. Bashas’ stores will continue to operate under their existing signage. History, operations in common In several respects, the two grocery companies are remarkably similar and complementary: Both are privately held businesses with several brands, including AJ’s Fine Foods and Food City for Bashas’. Raley’s stores include those under the Bel Air and Nob Hill Foods brands and the health-focused O-N-E markets. Both are third-generation, family-run businesses founded during the 1930s. Both have a narrow geographic footprint, with no overlap. Raley’s operates in northern California and Nevada. Bashas’ focuses on Arizona with a small New Mexico presence. Both companies have found a niche in underserved communities. With Bashas’ this includes Food City stores that largely serve Latino residents plus the company’s Diné markets in Native American areas, while Raley’s has made the alleviation of food insecurity an issue and has a sizable footprint in rural parts of northern California and Nevada. Both companies also are roughly the same size, with Bashas’ counting around 113 stores staffed by more than 8,000 employees in this year’s Republic 100 list of largest Arizona companies, with Raley’s at nearly 130 stores and roughly 13,000 employees. What Raley’s supports Raley’s said it has a focus on diverse hiring and promotion practices, underscored by an employee base that’s 51% female. In addition to diversity, the West Sacramento, California-based company claims to offer competitive pay and generous retirement and health benefits. It encourages healthy living and said 27% of its employees have managed to reduce their health insurance premiums by practicing a more healthy lifestyle. Raley’s also is striving to reduce its electric and water consumption, recycle more plastics and other materials and cut down on food waste. The company describes itself as a “grocery store built on a higher purpose.” Its stores use what it calls a unique shelf-guide system of icons to help shoppers quickly identify organic, keto-friendly, antibiotic-free or low-sugar foods, those that are nutrient-rich, others produced using sustainable methods and so on. Raley’s also vows to work toward the widespread humane treatment of animals such as with 100% cage-free eggs and antibiotic-free chickens, and it claims to perform independent assessments of how animals are treated in its supply chain. Pressure on regional retailers The pending combination of Raley’s and Bashas’ will result in a larger and presumably more efficient business. But in some respects, the combined company still might not be big enough. “These are regional retailers, and they are competing against Walmart, Kroger (owner of Fry’s Food Stores in Arizona) and others,” said Elliot Rabinovich, a supply-chain professor in Arizona State University’s W.P. Carey School of Business. “To compete more efficiently, bigger companies are better positioned.” Larger companies can spread fixed expenses — such as the costs to run a distribution center — among more stores, Rabinovich noted. Among other advantages, they have greater digital capability to offer online pickup and delivery services, manage inventory and more. They’re also higher up the purchasing pecking order for obtaining sometimes-scarce products like toilet paper and paper towels, as Basha said during the acquisition announcement. Competition dominated by giants Researcher Progressive Grocer ranks Raley’s as the 61st largest food and consumables company operating in North America with 2020 estimated sales of around $4 billion, while Bashas’ was in 78th place with $2.2 billion in estimated sales. Even after the acquisition, the combined company would move up only to 50th place with about $6.2 billion in annual sales, one spot behind Big Lots. By contrast, the leader on the PG 100 list, Walmart U.S., counted $370 billion in 2020 food sales, according to Progressive Grocer, followed by Amazon (excluding Whole Foods, which is ranked separately) with $220 billion and Kroger at $132 billion. Privately held, regional grocery chains have been disappearing for decades, Rabinovich noted. Bashas’, after 89 years of independence, appears next in line. “There’s pressure to expand, and it will continue,” he said.