Six years after the purchase of Dominick’s, Safeway Inc. continues to struggle with a strategy to recover market share, resume growth and stop the revolving door in the executive office of the Chicago chain.
Bruce Everette, who was appointed chief executive last week, is the fifth Dominick’s CEO since it was acquired in 1998 for $1.8 billion, including the assumption of $646 million in debt.
Dominick’s has lost money for each of the past three years, according to Safeway. And Dominick’s has seen its market share skid to the low 20 percent range from the high 20s, while rival Jewel Foods has seen its share rise slightly.
Furthermore, Safeway’s market cap has plunged 55 percent, to $8.9 billion from $19.9 billion, since it bought Dominick’s. Safeway’s stock has dropped 52 percent in the period, to Monday’s closing price of $19.94 from $41.34.
Despite these problems, Safeway remains committed to Dominick’s, said spokeswoman Wynona Redmond.
“We’re in it for the long haul,” Redmond said.
However, some analysts insist that it is only a question of when, not whether, Safeway will jettison the chain.
“They can continue to plug along losing money, but eventually it will all catch up,” said David Livingston, a principal with DJL Research in Pewaukee, Wis. “Safeway has failed miserably.”
Livingston said that Safeway likely will lose $1 billion on the purchase once it decides to sell. He said Roundy’s Inc., a Milwaukee-based grocer now run by a former head of Dominick’s before it was sold, would be the one chain most interested in the acquisition.
Safeway had been trying to sell Dominick’s until last fall. It abandoned those efforts after a potential buyer could not negotiate a new contract with the unions representing most of the chain’s 11,500 workers.
In the meantime, the company will continue providing new executives to manage the struggling chain.
Everette was named to replace R. Randall Onstead Jr., who stepped down to return to Texas and assist in “administering the family’s portfolio of investments.” His father, Robert R. Onstead, was co-founder of Randall’s Food Markets, a Texas chain that Safeway acquired in 1999.
Onstead was named CEO last November in an effort to nail down a contract with the two unions representing most of Dominick’s employees and to stem the bleeding by bringing back many of the products that had made Dominick’s special.
He failed to secure a contract, largely because Safeway is involved in contentious contract disputes in several other markets, according to the union and the company.
But Redmond insisted that Onstead made progress in efforts to woo back customers who deserted the chain following product changes.
“He wanted to bring back the identity of Dominicks. He put back things that were specific to our market, like Orange Crush pop and the various flavors of Jay’s potato chips,” she said.
“He definitely did what he said he was going to do,” Redmond said.
Livingston, however, said Onstead was blocked from doing many of the things needed because of Safeway’s reluctance to provide the necessary capital.
Redmond conceded that capital infusion has been limited.
“There has been a new capital commitment but it is very conservative until we have a union contract,” she said. A “lot of things will be finalized after there is a contract.”
Negotiations for a new contract are continuing, according to Redmond and two locals of the United Food and Commercial Workers.
Still, Safeway has warned that the future is not bright for Dominick’s.
“Additional store closures may be necessary depending upon the outcome of those negotiations. Safeway believes a more competitive labor contract is vital to Dominick’s future viability,” the company said in its annual report earlier this year.
