Up From The Cereal Aisle

Ron Burkle was just 13 when he began bagging groceries at his dad's store. He stayed with the grocery business, soaking up every detail. But 16 years later, after working his way up to vice-president of a local chain, it was his turn to get bagged: After bungling a $100 million buyout of the company--despite persuading Warren Buffet to take a 50% interest--Burkle says he was fired on the spot.

Burkle's early stumble only whetted his appetite for action. "Getting fired was the best thing that ever happened to me," he says now. He's right. Today, Ronald Burkle, now 42, has emerged as a new power broker in the rapidly consolidating supermarket industry. On Feb. 6, his Los Angeles-based Yucaipa Cos. announced an agreement to acquire Dominick's Finer Foods Inc., a Chicago chain of 101 supermarkets, for $750 million. That deal comes on the heels of a $1.5 billion merger of Ralphs Grocery Co., a 168-store California chain, with Burkle's other Southern California holdings.

CONFIDENCE. All told, Burkle has rapidly built a $9 billion supermarket empire of 570 stores in five states. His passion for operations and his confident pitchmanship have enabled him to complete a string of megadeals while risking relatively little of his own money. Instead, he relies on backing from the likes of Leon Black and George Soros. Black's Apollo Advisers put up $100 million in cash to help finance the Ralphs deal; Bankers Trust Co. signed on to peddle $2 billion of debt.

Investors say they have confidence in Burkle because he is as well versed in the ins and outs of grocery-distribution systems as he is at hawking a complex five-tranched LBO. "Ron is both a very good businessman and a very good salesman. That's rare," says Stanley Druckenmiller, managing director of Soros Fund Management, which plunked $50 million into an earlier Burkle deal.

Burkle describes his company as a "hybrid leveraged-buyout operation." Like an LBO fund, Yucaipa takes a healthy transaction fee--$20 million in the Ralphs deal. But Burkle also sticks to what he knows and immerses himself in day-to-day operations. "We don't run this business from a boardroom," says George Golleher, president of Yucaipa's Food 4 Less Inc. chain.

The morning after the Los Angeles riots, for instance, Burkle was on the phone with union leaders, assuring them he intended to rebuild three dozen South Central stores. In exchange for keeping workers on the payroll, Burkle got the unions to pitch in for health benefits, saving Burkle $2.50 an hour on each of 2,400 workers. And the unions agreed to let Burkle assign workers such as meatcutters to cleanup duty.

Burkle broke into the supermarket big-time in 1991, buying 142 rundown Alpha Beta Co. stores for $270 million from American Stores Co. He raised $50 million in a private placement to spruce up the fading chain in the midst of California's worst recession in decades. Meanwhile, he began expanding his Food 4 Less warehouse stores. About 20% larger than regular stores, the 51 warehouses have automated racking systems, allowing manufacturers to bypass costly distribution centers.

The strategy seems to be working. Yucaipa, a private company, reported combined operating cash flow of $125 million in 1994, a 25% increase from the year before. Debt has climbed to $2.5 billion, but the cash stream consistently doubles debt-service payments. And an equity offering sometime in the next 18 to 24 months should raise more cash to pay off debt and fund expansion.

Burkle's next step: converting the Alpha Beta stores and several smaller chains into Ralphs stores, to compete head-on with Southern California's other two supermarket titans, Lucky Stores Inc. and Vons Cos. Some dealmakers wonder how long he can keep expanding. "Ron has done a good job bootstrapping his way up," says one adviser. "But when you're leveraged, you can always lose."

Burkle isn't worried. Last year, he purchased a $20 million Beverly Hills mansion where he hosts gala fund-raisers for politicians and local charities. At his birthday party for Willie Brown, speaker of the California Assembly, Barbra Streisand showed up. Bill Clinton dropped by at a fund-raiser for Dianne Feinstein. "Sometimes I pinch myself," says Burkle of his meteoric rise. No more bagging for this grocer.