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Price Co., Costco Merging Warehouse Club Stores

June 17, 1993

SAN DIEGO (AP) _ After leading the way in retail sales of bulk groceries, Price Co. is trying to be part of the first jumbo merger in the hotly competitive warehouse shopping club business.

San Diego-based Price Co., the industry’s second-largest chain, and Costco Wholesale Corp., the third-largest, plan to swap stock and combine operations by year’s end in a deal valued at about $2 billion.

If approved by shareholders and government regulators, the resulting $16 billion company will have 195 membership warehouses in the United States and western Canada, Price Co. officials said Wednesday.

″We just feel we can do a lot more together than separately,″ said Price Co. chairman and chief executive Robert E. Price.

Price-Costco plans to continue expanding in the United States, Canada and Mexico. It also hopes to move outside North America and to manufacture more of the products sold in its stores, Price said.

″We think there’s a lot of opportunities along those lines to explore,″ said Price, whose firm now processes the frozen meat it sells and packages candy.

Price’s father, Sol Price, in 1976 pioneered the idea of the big, no-frills warehouse clubs, stacked to the ceiling with everything from tubs of laundry detergent and 10-packs of paper towels to stereos, TVs and frozen food.

The warehouse clubs, booming ever since, have attracted customers by offering 20 percent to 40 percent discounts on bulk purchases, for an annual fee to customers of about $25.

Costco, based in Kirkland, Wash., opened its first warehouse club in 1983.

Price Co. and Costco each have struggled in recent years with increased competition from other discount clubs, especially Sam’s Clubs, owned by Wal- Mart Stores Inc.

More grocery stores also offer bulk groceries at a discount now. In addition, specialty warehouse stores like Home Depot and Office Depot are cutting into business, Price said.

Overall, the industry slowed from a 35 percent growth rate from 1990 to 1991 to 23 percent from 1991 to 1992.

″Size is the name of the game in the warehouse club industry because of the narrow profit margins,″ said analyst Carol Palmer, of Duff & Phelps in Chicago. ″And obviously, combining Price and Costco means they don’t have to compete against each other anymore.″

The merger is not the first sign of consolidation in the industry. Kmart Corp. said in May that it would sell 14 of its PACE Membership Warehouse stores to Sam’s because of disappointing results.

Costco announced profits Wednesday fell 13 percent in the latest quarter.

Price’s profits fell 15.7 percent in the second quarter of this year, even as its revenues continued to climb. That followed profit declines in the first quarter of 1993 and in 1992.

Costco president and chief executive Jim Sinegal will become president and chief executive of Price-Costco. Price will be chairman of the board.

Costco, which has opened 13 new warehouses in the last nine months, now has 101 stores in the U.S. and Canada. Price has 94, plus several other stores in Mexico, operated through a joint venture there.

Sam’s, with 277 stores nationwide, has sales of about $12 billion.

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