2 Grocery Chains Fight Over Tract : Superstores: Bidding war erupts over previously ignored site in El Cajon development area.

A nasty fight between rival supermarket chains has erupted in El Cajon over the right to develop an unlikely piece of blighted land in a downtown redevelopment zone.

Smith’s Food & Drug Centers and Lucky Stores are vying for a 12-acre tract to build one of the growing breed of “superstores”--supermarkets totaling up to 100,000 square feet in size, or twice the size of a typical grocery store. Superstores can include groceries, dry cleaners, take-out food and discount pharmacies all under one roof.

In the middle of the tussle is El Cajon’s redevelopment agency, which, to say the least, is unaccustomed to this kind of contention over land in its redevelopment district. Up to now, developers have stayed away in droves from the city’s 1,500-acre redevelopment zone.

Offering circulars prepared by the agency touting the parcel, called The Corners and situated on the northwest corner of Main Street and Magnolia Avenue in the center of downtown El Cajon, went from developer to developer for years without raising much interest.

But all that’s has changed over the past six months. The Corners property has become the object of a bidding war whose outcome may be settled in court.

Smith’s, which is based in Salt Lake City, sees the El Cajon parcel as a vital link in its plan to open up to five superstores in San Diego County over the next year or so and 19 statewide. The fast-growing chain, whose shares are publicly traded, has become a closely watched stock on Wall Street because it is at the vanguard of the superstore phenomenon.

Lucky, which is a California subsidiary of American Stores, also based in Salt lake City, views the parcel as critical to maintaining its market dominance. Lucky’s already operates two Lucky supermarkets in El Cajon.

Tonight, the El Cajon City Council, sitting as the redevelopment agency, may decide the issue. But whichever way the council votes, it’s not likely to be the end of the dispute. Robert Acker, executive director of the El Cajon Redevelopment Agency expects the loser, whoever it is, to file a lawsuit against the city.

The city began trying to find a developer-supermarket team to buy the property several years ago but had little luck until Smith’s came forward “out of the blue” 18 months ago, Acker said, with a proposal to build a giant supermarket.

Acker maintains that Lucky’s and other grocery chains had been approached about building a grocery store to accommodate the many elderly residents of the city’s downtown. But none showed any interest, he said. “We were at a dead end,” Acker said.

After months of exclusive negotiations, the Smith’s chain and the city signed a “memorandum of understanding” last summer. Smith’s at first agreed to pay $9 per square foot for the property. “We knew of no one else who wanted it,” Acker said.

Soon afterward, Lucky’s came forward and topped Smith’s offer, Acker said. A Lucky’s spokeswoman said the the chain became interested after the tract’s size was increased and after Lucky had developed a “superstore” concept of its own.

The two sides then bid up their offers for the property until Smith agreed to pay $13 a square foot or $6.4 million for the land alone. The store that Smith’s has in mind would cost an additional $20 million to build.

Lucky, which has since increased its offer to $16 a square foot, or $1.6 million more than what Smith’s has offered, filed suit to challenge the city’s agreement with Smith’s but then withdrew the suit after the City Council agreed to hold tonight’s hearing and reconsider Lucky’s offer.

Acker defends the city’s decision to stick with Smith’s despite Lucky’s higher offer because it entered into “good faith” negotiations with Smith’s at a time when no other supermarket chain was interested in investing in the area. To back out of its Smith’s agreement s “would send the wrong signal to developers with whom we must negotiate with in the future,” he said.

Lucky’s said it shouldn’t be frozen out of the bidding because it saw the value of the El Cajon property after the city had already begun negotiations with Smith’s. Lucky’s said it was hampered by the exclusive nature of the negotiations between the Smith’s and the city.

“We think we have made a fair market offer for the property, and the difference between our offer and Smith’s offer can be of benefit to El Cajon, and we think that’s what should lead the decision--making process,” Lucky’s spokeswoman Judy Decker said Monday.