Closings Pave the Way for Safeway
By George Anderson
That faint giggling you may be hearing is probably coming from Safeway Inc.’s headquarters in Pleasanton, CA.
The supermarket chain has reasons to be giddy. In the past year, it has reinvigorated its business with the rollout of its Lifestyle format and now it finds itself with an unexpected opportunity to grow sales and market share as a result of Albertsons LLC’s decision to shutter 100 stores in five states.
Robert Summers, an analyst with Bear Stearns & Co. wrote in a note to investors: “The biggest potential sales benefit from the store closures is Safeway, who holds the leading share positions in the Northern California markets where most store closures are slated, although it should also benefit from closures in Colorado and, to a lesser degree, Texas.”
Moderator’s Comment: Do you agree that Safeway has
the potential to reap the greatest benefit from Albertsons’ store closings?
What company or companies represent the greatest obstacle(s) to Safeway taking
advantage of this opportunity and what will it need to do if it wishes to capitalize
on the void left by Albertsons’ closings? –
George Anderson – Moderator
Albertsons’ closings will benefit other conventional supermarket chains, such as Kroger and Safeway, best if the leases are sold to nonsupermarket operators, such as big box specialty stores. If the leases are to be purchased by supermarket operators, the remaining firms have to decide if those locations would be better for their own portfolios or their competitors’.
I Think Safeway have been looking in their rear view mirror @ Albertsons for some time now! Safeway has kept their heads down remodeling and building new stores and they have employees that are behind these moves. They have probably taken most of Albertsons customers already. In my opinion, Cerberus has too much catching up to do to make Albertsons successful in NorCal.
Who else benefits from these closings? Well, Supervalu, of course. It avoids the unpleasant challenge of trying to revive or write down the worst 10% of the Albertsons stores, gaining a de facto overall performance improvement before it takes action one.
As for Safeway and Kroger, certainly they’ll gain a few sales in stores adjacent to the closed Albertsons units, but the benefits will be short-term. Nature abhors a vacuum. If there’s unmet consumer demand in the area around the closed locations, someone will step in to meet it before long.
Safeway and Albertsons have long been chasing the same consumer demographic. Many have noted that the closing stores did not have much volume in the first place. The real value to the industry as a whole will be if the locations are transformed from selling groceries to another industry entirely.
Many of these markets already have too many supermarkets and the demand for supermarkets simply does not support the supply. Wal-Mart has added many stores in many of these markets; these store closings may simply bring back a little bit of balance to the supply and demand equation in terms of square footage. That is a good thing for the industry as a whole.
Without looking at the specifics on a map, it is very possible that these locations are going to be turned in to something very different than a grocery store. If that happens, the industry wins, if not, there will simply be more subsidizing of low productivity locations. The address of the lower productivity stores may shift across the street if a better operator moves in, but that would likely be the net result.
Location, location, location. This is Safeway’s opportunity to take advantage of the best areas which Albertsons is leaving behind. The caveat here, which many folks have pointed out, is that Safeway doesn’t want to open a new store in an area which is a poor performing one for their format. This will require much research to ensure that Safeway is maximizing its presence, but it proves to be a great opportunity for expansion, market growth and revenue growth. These opportunities don’t come often, and Safeway needs to act to take full advantage of this shrinkage from Albertsons.
Safeway has a huge opportunity if they play things right. Just because these sites become available, doesn’t necessarily mean that people will flock to the new Safeway store, albeit a better option than the declining Albertsons they used to shop in.
Keep in mind that both Albertsons and Safeway have courted the same demographic for many years, but the new Safeway Lifestyle program should certainly tip the scale in Safeway’s favor.
Safeway needs to be very selective in the sites they choose to go after, keeping in mind that declining sales is declining sales and much may have to do with the location, demographic, market saturation and pricing factors.
The other winners here are the smaller or independent chains looking to expand their operation. The smaller stores have a huge draw right now as they are more in tune with customer service and the personal touch that the big chains seem to have lost these days. There seems to be a yearning from the consumer for a touch of the “old days” when service and quality were the keys, not the mega stores with no service and 17 sizes of Tide. Something that Whole Foods seems to have mastered … how to be a larger enterprise and retain the service and quality that people are looking for.
Remember, shopping needs to be a pleasant experience for the consumer if you want them to come back again.
Yesterday, Federated; today, Albertsons….. between the two of them, I think 2/3 of RW’s comments are generated.
Anyway…. many have commented that these were poorly performing locations: while I don’t doubt that, I’m not sure whether they were unavoidably poor, or simply mismanaged. And some of them were small, older stores that were “replaced” by newer, larger stores elsewhere. In the first situation, the sites are likely to be converted to other uses; Safeway will benefit to the extent that they have a nearby store and can pick-up the volume. In the latter 2 situations – certainly the first of these – I think the upscale competitors (Trader Joe’s, Whole Foods) may benefit: they operate smaller floor-plates, and they cater to the high end customers that Albertsons (at least here in the East Bay) is abandoning.
In some cases, the winner will be Safeway if the box is reallocated for other use or there are absolutely no other competitive moves in the immediate vicinity. The point bears repeating that these are not “big volume” stores, so it isn’t like this is a windfall. Specialty retailers and innovative independent retailers may go into these locations (or already be in the nearby area) and may offer a superior point of differentiation to Safeway.
Without looking at a map, I’m not sure how much it benefits Safeway. If they’ve got a store down the block from a closing Albertsons store, and another grocer doesn’t take the space, it’s great. Those stores will certainly see a sales jump.
But likely many of the closing Albertsons didn’t turn out to be good traditional grocery locations, so I wouldn’t think Safeway would add a lot of units because of Albertsons’ closures. Particularly in Northern California, I’d think this would be a great opportunity for the Wild Oats and Whole Foods of the world to come in. But also an opportunity for other big boxes looking for stand-alone sites like Kohl’s.
And that’ll be the crux of it — if more grocery-sector stores take the Albertsons sites, it could be the worse for Safeway if they’re more successful formats than underperforming Albertsons was. Costco is even experimenting with some smaller formats in urban areas, so if they snap up some of the sites, that’s not going to be good news for Safeway. If it’s Bed Bath & Beyond or Kohl’s taking the sites, that’s a win for Safeway.
If the sites are grocery dogs, and Safeway feels compelled to snatch them up to keep the sites from competitors, they may spend a lot of money for not a lot of return…probably the worst case scenario. Safeway isn’t that different from Albertsons — though they’d like to think they are — so if Albertsons wasn’t successful in a site, if they’re smart, they’ll mostly steer clear.
Great opportunity for Safeway simply because of the markets that have been vacated by Albertsons. In the long term, they need to continue to figure a way to differentiate themselves from the rest of the pack. In the long term, they will now face a much better Albertsons stable of brands run by Supervalu, as well as Wal-Mart entering key Safeway markets.
I would bet that specialty operators will also be winners — Wild Oats, Trader Joe’s and others on a strong expansion path will have their eye on many of those ex-Albertsons that are quicker to remodel and open than building a new store from the ground up. In Colorado, Albertsons has been a poor imitation of nothing for so long that I can’t imagine people have been shopping there for any reason other than force of habit. Some of them are lousy stores in great locations, so it makes sense that the stronger players here, including Safeway and Kroger/King Soopers, will snap them up.
Safeway will undoubtedly be the biggest winner from the Albertsons store closings, but this is a fairly obvious result of where the stores of both companies overlap.
It seems to me that the biggest challenge to Safeway for the sales will be strong and differentiated independents who are able to dominate their local market niches in a unique way.
If this proves to be the case, Safeway will need to activate a micro-marketing capability that modifies the offering of the Lifestyle stores to the needs of the customers around each store. This hasn’t been easy for most grocery chains to do, but the tools are now available to do it. So, let’s watch for signs of how Safeway responds.
Sure, Safeway will receive some benefit. But I don’t think it’s anything to get excited about. The stores that are closing are the worst of the worst and, for all practical purposes, were pretty much closed anyway due to their low volume. If Albertsons closes a weak low volume store near Safeway but Wal-Mart opens a Supercenter, does Safeway really benefit? Safeway will continue to lose sales just because they are Safeway. They will remodel some stores, see some sales gains that might get them back to an average level of performance, but will eventually retreat as other competitors open. This is similar to Winn-Dixie closing hundreds of stores last year. Was anyone jumping up and down because of big sales gains? Not really because you can’t get blood from a turnip. I think Safeway and their stock pumpers are stretching the truth a bit just to increase the price of the stock.
Safeway’s the clear winner here, and it comes at a good time for them. We just did a cover story on the chain, under the headline “Safeway Turns a Corner.” The smartest thing Steve Burd has done during his tenure was hiring Brian Cornell away from Pepsi North America and making him Safeway’s exec vp and chief marketing officer. Cornell is a key driver behind Safeway’s “Ingredients for Life” theme that underpins the company’s efforts to market itself as a brand. Safeway is finally doing a lot of things right, and will be able to capitalize much better than before on the Albertsons disaster. I’ve heard that sales increases in converted “Lifestyle” stores are up by an average of 6% to 8%. I’m hearing increasingly positive buzz from vendors (although they say there’s lots of room for improvement).
Safeway is the winner, no doubt about it. The issue will be in trying to determine how much of a win they get off of Albertsons and how much they get off the conversion to the Lifestyle format. It now appears Safeway may finally have found their way in terms of developing a strategy that can compete against Wal-Mart. Naturally, it helps when their grocery competitors are under more financial pressure than they are.
For the past few years, Dominick’s Safeway stores have been neglected and left in rather sad shape due to the labor contract negotiations and pending sale of the company. Once the labor settlement was agreed on last year and Dominick’s was taken off the sale block, Safeway did a 360 degree turnaround on making Dominick’s successful. It’s a great feeling to see that the corporate parent is taking “TLC” with Dominick’s customers now. Their service has improved, the atmosphere has improved and, most of all, the product has improved. Stores all throughout Chicago, that were dismal even under the last Safeway decor rollout, are now bright and lively destinations.
I live two blocks from one of Dominick’s Safeway’s busiest stores at Canal and Roosevelt in Chicago. The lifestyle concept was rolled out on May 13th and the store is always busy and crowded, and fresh food abounds. Bright lighting in the produce department makes everything sparkle. This is a complete 360 from the plain box that Dominick’s was after the Safeway acquisition. In fact, these stores resemble a lot of what Bob Mariano wanted in the original Fresh Stores of the early 1990’s.
I also visited Winnipeg, MB Canada a few weeks ago for a vacation and the Safeway stores that were remodeled to the lifestyle prototype were very busy and in great shape.
My Albertsons in Rocklin, CA is closing! Where am I going to find Giant Stadium Dogs, an important ingredient in the Doc Banks World Famous Chili Dog? (I guess I’ll have to investigate the mail-order Allen Brothers Hot Dogs that Rush Limbaugh touts.)
Not so fast, Safeway. Whole Foods and, especially, Wild Oats need penetration in NorCal. Kroger hovers and lurks with Ralphs. Winco Foods and Save Mart hunger for more share here. And, Wal-Mart is seriously underrepresented in the area.