November 5, 2007
Report: Safeway Looking to Sell, Roundy’s Looking to Buy
A report by the Financial Times said that, having failed to sell its Roundy’s business, the private equity firm of Willis Stein is now looking to grow through an acquisition of Dominick’s Finer Foods.
According to the Financial Times, Willis Stein attempted to auction off Roundy’s but found no takers as the credit crunch made potential buyers reluctant to invest the reported $2 billion it was seeking for the chain. The thought is that, with the purchase of Dominick’s and a sizeable presence in the Milwaukee and Chicago markets, Willis Stein would be able to attract more suitors.
Roundy’s current management team is made up of a number of former Dominick’s executives. Robert Mariano, chairman and CEO of Roundy’s, once ran Dominick’s and recently chided his former company in an interview with Crain’s Chicago Business for being another “shade of vanilla” while saying his company was comprised of “entrepreneurs and merchants.”
Separately, the Financial Times article reported that Safeway may also be considering a sale of its Canadian business. An unidentified private equity source said the strength of the Canadian dollar made it an opportune time for Safeway to sell the chain, which many believe has limited prospects for growth beyond it core urban locations.
Sobey’s and Alimentation Couche-Tard have been mentioned as possible suitors for Safeway’s Canadian operations.
Discussion Questions: What do you make of the rumors around Safeway considering a sale of Dominick’s and its Canadian operations? Does a sale of these properties make sense at this time? Do you think Roundy’s and Dominick’s together would be a more powerful combination?
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This is an interesting move, and one that could benefit all parties involved. Dominick’s is still a major force in the Chicago market, and while they have lost a considerable amount of market share under the mismanagement of Safeway, they still remain the #2 chain in a very large market. Roundy’s has recently announced a store opening in the Chicago market to compete against Dominick’s. With Milwaukee only 90 miles north of Chicago, combining the two chains makes a lot of logistical sense.
I worked for Dominick’s for eight years and many of their loyal customers from 30 years ago remain. They continue to have a great name in Chicago. And, not that this makes me an expert on Willis Stein, but I sat next to Avy Stein in high school Algebra. He was smart then, and smarter now. Willis Stein isn’t perfect (they recently gave up on Jay’s Potato Chips, a Chicago brand), but they don’t make too many strategic errors.
This looks a positive move for all parties if it happens.
There’s more money to be made buying and selling supermarkets than operating them. Just ask Ron Burkle. Safeway management is doing its job for shareholders by ascertaining the market value of each subsidiary. If the buyout price is higher than the expected future value (discounted cash flow), why not sell?
Whether a sale makes sense or not depends on the price and terms. As to whether it makes sense for Roundy’s to acquire Dominick’s the answer is–as it has been for some time–probably yes.
A combination of Roundy’s and Dominick’s makes strategic sense. It would facilitate Roundy’s move to expand into Chicago and would enable Safeway to move on from a misstep and focus on the business that is working for them.
The question is whether it can work out financially. Safeway will have to recognize a huge loss and Willis Stein would have to raise a lot of capital in a difficult environment. If Safeway also sells their Canadian operations, that might offset some of the pain.
It is probably more likely that Safeway would end up selling some of the poor performing Dominick’s stores to Roundy’s than the whole operation.
Safeway in Canada is no match for Loblaws and the onslaught of new Wal-Mart Supercenters. Regardless of the lifestyles format, they simply can’t compete. Safeway is real good about getting awards from the press for their operations but certainly not the consumers.
Dominick’s has become a laughing stock in Chicago. In the past 9 years, Safeway has managed to shrink sales volumes, decrease market share and close stores. Their sales per square foot is running about 30% below the market average, which is similar to what Winn-Dixie was doing when they filed for bankruptcy. If Dominick’s was a stand alone company right now, performing at their current levels, they would probably be filing for bankruptcy.
Willis Stein’s failure to sell Roundy’s didn’t have anything to do with the credit crunch. The $2 billion asking price was chump change to the private equity groups. It failed because 5 year projections show Roundy’s losing 25% of their sales and market share to all the new Woodman’s, Wal-Mart Supercenters, Super Targets, Costcos, Whole Foods, Sendiks, Aldi’s, and now Hy-Vees entering their markets. Those competitors are not only opening but they are also specifically targeting Roundy’s highest volume and highest sales per square foot stores.
Roundy’s could probably do better since they have all the Chicago talent working for them. How much better, I don’t know. Safeway has dug themselves into a pretty deep hole. They’ve remodeled a few stores, got some good percentage increases, but they are still low volume stores.
Safeway has only ever been (somewhat) successful in Western Canada. The sheer size of the country makes it difficult to be a national retailer unless you truly take on the entire country with an extreme presence.
It makes sense for Sobey’s to have a serious look at Safeway Canada as they proceed through their acquisitions from the Atlantic to the Pacific.
Safeway should dump the Canadian operation and realize a hefty gain from the change in the dollar. They can then use the cash to keep Dominick’s.
Safeway has made some significant changes in their operations over the past few years, and the changes are paying off. In addition, they have indicated their desire to grow both organically and through acquisition.
It makes sense for Safeway to shed some of its existing stores in order to grow in the markets that have the best growth potential. By divesting itself of Dominick’s and its Canadian operations, Safeway will free itself up to concentrate on strategic growth, while taking advantage of the strength of the Canadian dollar.
Uniting Roundy’s and Dominick’s, is a good idea and has the potential to grow and succeed. A marriage of the two makes sense in the upper Midwest region.
If Chicagoans feel anything for Dominick’s as the did for their Marshall Field’s, they’d probably like Dominick’s back under at least a regional. Although, after reading a study on loyalty today conducted by IBM, it maybe too little too late.
Safeway has been looking for a way out almost since their first day in. Even so, ego continued a poor business decision and even worse execution for a long time. While I think it is likely to happen, it may not be pretty. On both ends of this one, there is serious ego to be dealt with, one side trying to save face and the other looking for vengeance. I’m not quite sure that type of passion results in the best decisions.
The once popular Dominick’s brand has been lessened in the Chicago area under Safeway’s ownership but as others here have pointed out, many loyal customers remain hopeful. After enduring what seemed like months of shopping discombobulation while my local Dominick’s was being remodeled department by department, we attended their grand re-opening last month. The floors and bins are dark grey wood-like material, the shelves are warehousy, lighting is low, the space feels cavernous and somehow under-merchandised because of all the open space, and there seem to be few customers. On any given Saturday morning there is a palpable difference between the energy and customer presence in the hoppin’ Jewel Food`Store and the Dominick’s Finer Foods, which are less than a mile apart. Why that is, is the first thing a potential suitor must try to figure out.
I honestly believe that just as Macy’s does not understand this market, neither does Safeway. Selling Dominick’s to Roundy’s would help. I don’t think it is too late.
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This is an interesting move, and one that could benefit all parties involved. Dominick’s is still a major force in the Chicago market, and while they have lost a considerable amount of market share under the mismanagement of Safeway, they still remain the #2 chain in a very large market. Roundy’s has recently announced a store opening in the Chicago market to compete against Dominick’s. With Milwaukee only 90 miles north of Chicago, combining the two chains makes a lot of logistical sense.
I worked for Dominick’s for eight years and many of their loyal customers from 30 years ago remain. They continue to have a great name in Chicago. And, not that this makes me an expert on Willis Stein, but I sat next to Avy Stein in high school Algebra. He was smart then, and smarter now. Willis Stein isn’t perfect (they recently gave up on Jay’s Potato Chips, a Chicago brand), but they don’t make too many strategic errors.
This looks a positive move for all parties if it happens.
There’s more money to be made buying and selling supermarkets than operating them. Just ask Ron Burkle. Safeway management is doing its job for shareholders by ascertaining the market value of each subsidiary. If the buyout price is higher than the expected future value (discounted cash flow), why not sell?
Whether a sale makes sense or not depends on the price and terms. As to whether it makes sense for Roundy’s to acquire Dominick’s the answer is–as it has been for some time–probably yes.
A combination of Roundy’s and Dominick’s makes strategic sense. It would facilitate Roundy’s move to expand into Chicago and would enable Safeway to move on from a misstep and focus on the business that is working for them.
The question is whether it can work out financially. Safeway will have to recognize a huge loss and Willis Stein would have to raise a lot of capital in a difficult environment. If Safeway also sells their Canadian operations, that might offset some of the pain.
It is probably more likely that Safeway would end up selling some of the poor performing Dominick’s stores to Roundy’s than the whole operation.
Safeway in Canada is no match for Loblaws and the onslaught of new Wal-Mart Supercenters. Regardless of the lifestyles format, they simply can’t compete. Safeway is real good about getting awards from the press for their operations but certainly not the consumers.
Dominick’s has become a laughing stock in Chicago. In the past 9 years, Safeway has managed to shrink sales volumes, decrease market share and close stores. Their sales per square foot is running about 30% below the market average, which is similar to what Winn-Dixie was doing when they filed for bankruptcy. If Dominick’s was a stand alone company right now, performing at their current levels, they would probably be filing for bankruptcy.
Willis Stein’s failure to sell Roundy’s didn’t have anything to do with the credit crunch. The $2 billion asking price was chump change to the private equity groups. It failed because 5 year projections show Roundy’s losing 25% of their sales and market share to all the new Woodman’s, Wal-Mart Supercenters, Super Targets, Costcos, Whole Foods, Sendiks, Aldi’s, and now Hy-Vees entering their markets. Those competitors are not only opening but they are also specifically targeting Roundy’s highest volume and highest sales per square foot stores.
Roundy’s could probably do better since they have all the Chicago talent working for them. How much better, I don’t know. Safeway has dug themselves into a pretty deep hole. They’ve remodeled a few stores, got some good percentage increases, but they are still low volume stores.
Safeway has only ever been (somewhat) successful in Western Canada. The sheer size of the country makes it difficult to be a national retailer unless you truly take on the entire country with an extreme presence.
It makes sense for Sobey’s to have a serious look at Safeway Canada as they proceed through their acquisitions from the Atlantic to the Pacific.
Safeway should dump the Canadian operation and realize a hefty gain from the change in the dollar. They can then use the cash to keep Dominick’s.
Safeway has made some significant changes in their operations over the past few years, and the changes are paying off. In addition, they have indicated their desire to grow both organically and through acquisition.
It makes sense for Safeway to shed some of its existing stores in order to grow in the markets that have the best growth potential. By divesting itself of Dominick’s and its Canadian operations, Safeway will free itself up to concentrate on strategic growth, while taking advantage of the strength of the Canadian dollar.
Uniting Roundy’s and Dominick’s, is a good idea and has the potential to grow and succeed. A marriage of the two makes sense in the upper Midwest region.
If Chicagoans feel anything for Dominick’s as the did for their Marshall Field’s, they’d probably like Dominick’s back under at least a regional. Although, after reading a study on loyalty today conducted by IBM, it maybe too little too late.
Safeway has been looking for a way out almost since their first day in. Even so, ego continued a poor business decision and even worse execution for a long time. While I think it is likely to happen, it may not be pretty. On both ends of this one, there is serious ego to be dealt with, one side trying to save face and the other looking for vengeance. I’m not quite sure that type of passion results in the best decisions.
The once popular Dominick’s brand has been lessened in the Chicago area under Safeway’s ownership but as others here have pointed out, many loyal customers remain hopeful. After enduring what seemed like months of shopping discombobulation while my local Dominick’s was being remodeled department by department, we attended their grand re-opening last month. The floors and bins are dark grey wood-like material, the shelves are warehousy, lighting is low, the space feels cavernous and somehow under-merchandised because of all the open space, and there seem to be few customers. On any given Saturday morning there is a palpable difference between the energy and customer presence in the hoppin’ Jewel Food`Store and the Dominick’s Finer Foods, which are less than a mile apart. Why that is, is the first thing a potential suitor must try to figure out.
I honestly believe that just as Macy’s does not understand this market, neither does Safeway. Selling Dominick’s to Roundy’s would help. I don’t think it is too late.