Vons could grow even more under proposed Safeway purchase.

The Vons Cos. Inc.'s empire could be prepping for even further expansion.

Last week's announcement that Pleasanton-based Safeway Inc., already North America's second-biggest grocer and a major Vons stockholder, offered to purchase Arcadia-based supermarket operator Vons Cos., sets the stage for further growth in Southern California.

The proposed deal - which values the 325-store Vons/Pavilions operation at about $3.25 billion - would involve a swap of Safeway stock for Vons stock and Safeway's assumption of some $700 million in Vons debt. It would also create a grocery network boasting some $22.5 billion in annual sales.

Safeway currently operates 1,050 stores in the U.S. and Canada. Vons operates about 325 stores in Southern California and Nevada, and had purchased 172 from Safeway when Safeway exited Southern California eight years ago. Vons' market share in the region is second only to the Ralphs chain.

While the proposed merger probably wouldn't have a substantial impact on competition within the grocery business in Southern California, it could boost prospects for selective expansion of the Vons and Pavilions brand names, said Douglas Christopher, an analyst with Crowell Weedon & Co.

Under the Safeway proposal, Vons would retain its name and operate as a unit of Safeway.

"Safeway won't be coming in and opening up stores here - we're really talking about a change in (Vons) ownership," said Christopher. "And Southern California is already one of the most competitive (grocery) marketplaces in the U.S."

However, Christopher continued, an acquisition by Safeway might help facilitate cautious expansion of the Vons chain - given that Vons and Safeway are already operating quite profitably and that the merger could generate further economies of scale.

"They need great locations, and they have to do it right, but (a merger) could help expand the Pavilions format geographically, which would be a tremendous advantage" to Vons' ownership, Christopher commented.

Under ownership by Safeway, the Pavilions format could possibly be expanded throughout California and even beyond as "a national brand," the analyst added.

A merger might also help Vons build its presence in southern Nevada, Christopher noted. "It's a fast-growing area, and I think we could see more Vons stores there," he continued, adding that Safeway operates in northern Nevada but not southern Nevada.

Safeway spokeswoman Debra Lambert said it's premature to discuss a Pavilions expansion, but she noted that her company is already comfortable operating two store formats within the same region.