Dominick’s a Good Deal if Roundy’s Can Get It

By George Anderson
At $325 million, Dominick’s Finer Foods would be a bargain if Roundy’s can get Safeway to part with it. The grocery wholesaler/retailer, which recently picked up $225 million in cash after selling two distribution centers to Nash Finch, is led by former Dominick’s boss Robert Mariano.
Steve Burd and company paid $1.8 billion for the Chicagoland chain seven years ago and have spent recent years trying to fix missteps of Safeway management’s making, reach a peace with its unions and sell the business.
An unidentified source described by The Chicago Tribune as being close to Roundy’s told the paper, “Yes, we would be interested in buying Dominick’s. We think it’s a good fit for us, but Safeway isn’t quite ready to sell it until it at least has a deal with the union over a new labor agreement.”
Roundy’s and others were rumored in the past to be on the verge of acquiring Dominick’s. Deals were scuttled, however, because Safeway and the unions representing workers at Dominick’s, primarily the United Food and Commercial Workers (UFCW), were unable to hammer out a contract.
Safeway spokesperson Brian Dowling has declined to comment on sale rumors but did offer an update on the Dominick’s labor situation. “We have made some good progress with the Teamsters union, but it’s taking longer than we expected with the UFCW.”
Moderator’s Comment: What is your reaction to the possible sale of Dominick’s to Roundy’s?
We’d hate to be in Steve Burd’s position in this mess.
The Dominick’s purchase has been an unmitigated disaster and while it will require some pride swallowing to sell the business for $325 million after buying
it for $1.8 billion, it has to be done. Safeway cannot fix Dominick’s.
Unfortunately for Mr. Burd’s reputation as a manager, Robert Mariano may be the one person with the right team to fix Dominick’s. The only thing worse than
selling the chain at a huge discount to what you paid for it was watching the next guy come in and make it a success. –
George Anderson – Moderator
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10 Comments on "Dominick’s a Good Deal if Roundy’s Can Get It"
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It may not be the price, but it will happen. It’s likely it won’t be much more than that. It’s also likely that at some point Mr. Burd may be traded for a number one draft pick and a severance package that could last most of us a lifetime.
Never happen at $325 million. That’s just an opening gambit. We’ve all bought houses that way. I’m sure Safeway will sell at some point, and wouldn’t be surprised if it were sold in a couple pieces to max out the cash from competing interests and put a bit of a smokescreen up to ease the pain and embarrassment.
Truly embarrassing for Safeway. In the “times sales” business-purchase model, the multiple for supermarket chains is traditionally 1, creating a selling price of 1X annual sales. For Dominick’s, there are reasons that the multiple is less than 1.
Safeway allowed the stores to deteriorate, along with the deterioration of their union relationships. Both of these factors can be financially quantified and subtracted from the selling price, since the purchaser will have to invest these amounts to make the stores perform well. With preventative maintenance, it costs less to keep a car running properly than to pay for substantial repairs later on. Safeway neglected to change the oil at Dominick’s, and now must factor the cost of an engine overhaul into their selling price to a new owner.
It’s a real shame that Steve Burd’s ego and worry about his legacy are more important than the health of Dominick’s. I am sure that he would be more worried about Mariano making a success of it than he is the actual selling price. The only thing that would be harder on his ego than what has already happened is to see someone else make a success look easy.
Counting the winners in the Safeway/Dominick’s debacle is much easier than the losers. The only winners that I can think of are all Dominick’s competitors, especially Jewel. The losers are all the employees and their customers, both present and former.
Warren is probably right in that Steve Burd will probably sell Dominick’s in pieces which will prevent some one from making an easily identifiable success of the whole chain. It would be so much better if Safeway were sold or better yet if they had new senior management.
Safeway still has one card to play in its Dominick’s hand – the “Lifestyles” store concept – basically, a new rendition of the old “Fresh” store. The numbers from the opening of this concept store in Northfield this week will tell the tale. If the numbers are there, they will expand the rollout and try to breathe life back into Dominick’s. If the numbers aren’t there, look for a sale. I think that taking the same product and putting it into a new wrapper won’t help as much as they need.
What happened to Dominick’s and its Fresh Store format, that represented – before Safeway – an example of the future supermarket approach to the perishable business, AND addressing the consumers’ needs for meals, catering and other superior perishables, just might be rekindled.
Mariano built a strong team to create the Fresh Store format and, importantly, knows the Chicago market.
How long can Dominick’s status last? Maybe not much longer.
Now that the new Roundy’s corporate headquarters is in Milwaukee instead of Gurnee, Illinois, it’s even more obvious why Bob Mariano is pushing to get Metra trains to extend up to Milwaukee from Chicago.
Original URL: http://www.jsonline.com/news/metro/feb05/305009.asp