Safeway Pulling Out of the Chicago Market

Dominick's is a grocery chain in the Chicago area that just announced they plan to leave the Chicago market.  They are looking to sell their 72 stores to a variety of competitors.  

Dominick’s has roots in Chicago since 1918 the year that Dominick DiMatteo opened a deli. The deli turned into a small Italian market called Dominick’s Finer Foods..  A second store was opened in 1934 in the depths of the Great Depression.  After World War II, Dominick DiMatteo and his son Dominick transformed the first store into the emerging grocery store concept with great success.  Over the years they grew their chain to 99 stores.

In 1998, the family sold the chain to Safeway for $1.2 billion.  Last year Domick’s had a net loss of $31.5 million on sales of $1.468 billion.  

Per an October 11 article in  The Chicago Tribune:  

In the Chicago area, according to a source with knowledge of the business, Jewel, which also was sold this year, has a 29.1 percent market share; Wal-Mart, 9.4 percent; Dominick's, 8.7 percent; and Costco, 7.3 percent. As recently as the late 1990s, Jewel and Dominick's controlled two-thirds of the market, the source said.

Safeway President and CEO Robert Edwards laid out the problem with Dominick's in a conference call with Wall Street analysts Thursday evening. He said the Chicago market is "fragmented" and noted the increased competition from new companies. Safeway said the Chicago stores are the lowest performing in the company.

"We'd love to find a buyer for 72 stores, but it probably will play out in pieces," Edwards said.

Dominick's, he said, is a liability and a money-loser.

"While these decisions are always difficult to make, the disposition of our assets in the Chicago market will eliminate a noticeable drag on our financial results and a significant gain on our resources, allowing us to focus on our remaining operations," he said.

The fortunes of companies can change very fast.  When Safeway bought Dominick’s, Costco was just entering the market.  Sam’s Club and Target were still newcomers.  Whole Foods and Fresh Markets were not even players.  The classic grocery model was moving to new formats that were embraced by a fickle public that wanted to by some products at deep discount and willing to pay a premium for others.

Dominck’s stores are not bad.  On the contrary they offered a full variety of grocery products.  They have an impressive fruit and produce layout.  Their stores have a substantial prepared food section that has a wide variety of offerings from pizza to sushi.  Their staff are well trained and willing to help to the point of walking customers to the product they were looking for.  Their store brands, Safeway store brands, are of high quality and reasonably priced.

The stores seemed busy but not as busy as Wal Mart and Costco.

Crain's Business Chicago had an interesting perspective in an October 14, 2013 article.

Communities of the 1950s, '60s, '70s and '80s were dominated by one-style-and-size-fits-all traditional grocery stores, whether Dominick's, Jewel or an independent. Until that time, the consumer price index and producer price index tracked about the same. But by the '90s, they diverged, with consumer prices rising faster. Nonfood retailers — gas stations, dollar stores, pharmacies and big box giants like Wal-Mart and Target — realized that, despite tight margins, they could make money selling food, if not directly, then as a lure enticing customers to buy other things. Mergers and acquisitions meant consolidated banners under one often-distant parent company, such as California-based Safeway, which bought Dominick's in 1998. The recession in the early 2000s accelerated the split between high-end and low-end food stores, which is where industry growth and focus continue today. The traditional grocer of yore must find ways to adapt or perish.

Here is our view at CR Supply Chain Consulting on this situation:  

• This business has been losing share since Safeway bought them
• They were unable to stem that tide and were in recent years operating at a loss.
• Because they were unable to turn it around and make their presence in this market profitable, they are abandoning the Chicago market and taking $1.468 billion off of their top line.
• On one hand we want to applaud management for making the hard decision to improve the overall health of their company by eliminiting a part of their business they cannot make work.  This is just good business.
  
  
• On the other hand, this is a sad state of affairs.  We hate to see the failure of any operations.  We hate to see people lose their jobs.  In our hearts, minds, and souls, we believe that any operation can be turned around and improved.  It is what we do.  We help companies improve operations, improve their competitive position, and to win.  

No doubt the Safeway folks tried to execute such a turnaround.  We are sure they were smart guys and probably attempted several initiatives to fix Dominick’s clearly to no avail.  Here’s hoping that the workers all land jobs with whoever buys the stores.