Paul Kitagaki Jr. /

Safeway and other unionized supermarket chains have struggled in the face of competition with the expansion of nonunionized discount stores into the grocery business as well from high-end retailers like Whole Foods.

Safeway ‘in discussions’ regarding possible sale of company

Published: Wednesday, Feb. 19, 2014 - 8:28 pm
Last Modified: Thursday, Feb. 20, 2014 - 7:32 am

Safeway Inc., in a further sign of the turmoil surrounding the U.S. supermarket business, said Wednesday it’s having discussions regarding a possible sale of the company.

The Pleasanton grocery chain would not identify possible suitors or go into any other details. But Reuters reported that New York private equity firm Cerberus Capital Management is holding talks with Safeway. Last year Cerberus bought Albertson’s and several other chains from Supervalu Inc. for $3.3 billion, and it was the subject of earlier media reports last fall that it was interested in Safeway.

Analysts said Safeway’s announcement underscores the increasingly competitive climate facing traditional supermarket chains. Although Safeway has done a reasonably good job of fending off challenges from the likes of Wal-Mart Stores Inc., analysts said it might conclude that it can do better for shareholders by selling now rather than continuing to grind out incremental improvements in the years to come.

The announcement came as part of Safeway’s fourth quarter and full-year earnings report. The company said its earnings for 2013, excluding unusual items, fell to $246.3 million from $294.6 million. Sales were “essentially flat” at $36.1 billion, the company said.

Robert Reynolds, an independent supermarket consultant in Moraga and a former Safeway executive, said the company is facing unprecedented competition from high-end retailers like Whole Foods and low-cost, nonunion discounters like Wal-Mart.

“They’re putting the squeeze on them, and that squeeze is in every location,” Reynolds said.

In the Sacramento area, Safeway was overtaken by Wal-Mart in 2012 as the second-largest grocery chain, according to Scarborough Research. The leader remains Raley’s, although the West Sacramento company has also lost ground in recent years.

The shifting landscape in Northern California was brought home dramatically in late 2012, when Raley’s, Safeway and Save Mart pressed organized labor for significant concessions in an effort to win back market share from companies such as Wal-Mart. All three chains secured concessions, although Raley’s had to go through a short strike first.

A decade earlier in Southern California, Safeway and other traditional grocers endured one of the most difficult strikes in supermarket history, an epic and costly walkout that lasted months. The strike was a public relations disaster for Safeway, which was widely depicted as the main instigator in the crusade to cut labor costs, but the Pleasanton chain was able to win back most of its customers eventually. Since then, analysts said, it has become better at retaining customers in most of its markets through sophisticated customer-loyalty programs and other strategies.

“They’ve rebuilt the business,” said Burt Flickinger III of Strategic Resource Group, a consulting firm in New York. “The business has gone from not-so-good to good to getting better.”

At the same time, the company has retrenched in some ways. Last year it announced it was pulling out of the Chicago market, where it has struggled for years. It also sold its Canadian business, albeit for a whopping $3.6 billion (U.S.) after taxes and costs. Safeway has also spun off its greeting-card business.

Given the tough competitive landscape, Flickinger said selling the business would make sense as a quick way of maximizing value to shareholders. It could take years to raise Safeway’s stock price $10; a takeover could achieve that in a few months, he said.

Anyone buying Safeway inherits the same competitive issues. “The question I have is, who is this potential acquirer and what is their strategy?” Reynolds said.

Safeway shares closed at $34.61 on the New York Stock Exchange and jumped to $35.83 in after-hours trading following the company’s announcement.

Call The Bee’s Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.

Read more articles by Dale Kasler

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