Burd Pledges Aggressive Remodeling for Dominick’s – On One Condition
Editorial By George Anderson
I have to admit it. I don’t get Steve Burd.
Yesterday, Mr. Burd announced Safeway would “aggressively remodel” its Dominick’s stores in and around Chicago “if” (intended as a big IF) the labor union that represents 7,900 of its workers approves a new labor deal negotiated between the parties.
The stores to be remodeled would be redone in Safeway’s “Lifestyle” new concept format designed to appeal to more upscale consumer tastes.
To date, Safeway has only remodeled one store in the Chicago suburb of Northfield (another is scheduled to open in December). According to the company, the location’s sales jumped and it is now in the top five percent of company stores. Dominick’s operates 99 stores in the Chicagoland area.
Why then, I have to ask, has Mr. Burd held back on remodeled stores that, by his own account, significantly improve sales? Doesn’t he owe it to Safeway’s shareholders and other stakeholders to do everything in his power to generate sales and profits for the company?
Even if he was setting up the company for sale because Safeway decided it couldn’t make it in Chicago, wouldn’t he get more for the company and its shareholders by demonstrating that consumers actually want to shop in the stores?
His admission that he’s waiting on a union deal makes clear that he has neglected the Dominick’s business and the Chicago market. In doing so, he neglected the shareholders and company he is supposed to represent.
Moderator’s Comment: What is your assessment of Safeway’s past Chicago strategy? What do you think about its plans for the future?
Morningstar analyst Mitchell Corwin told the Chicago Sun-Times that Safeway’s plan for Dominick’s represents “a significant change in direction.”
The company now appears as though it is ready to attempt to make a go of its business in Chicago instead of selling it off. –
George Anderson – Moderator
We have often heard
Encouraging word
From a shrewd Steve Burd.
“I love Dominick’s.”
Sounds good, true and slick
But is it a trick?
Upgrading stores is a given
To earn a retail blue ribbon
If really seriously driven.
Chicago’s tough unions were always there
Before Safeway took on Chicago’s dare.
Thus, is this new “intimidation” fair?
It’s time to do Dominick’s a favor
One that employees can truly savor
Sell, sell and stop this foolish behavior.
In the last quarter, Safeway remodeled about 5% of their stores. At that rate, they have the flexibility to choose to remodel the stores where they believe it will do the most good. If Chicagoland has labor uncertainty, that encourages the chain to remodel other stores where that isn’t such a concern.
Returning to the thread of 5/18, I suggested that the stock market was indicating that Safeway would make gains on its rivals and outperform those darlings of the pundit community, Costco and Wal-Mart. In the time since, Safeway’s shares gained 6.81%, Costco gained 4.81% and Wal-Mart’s shares FELL 4.07%. Meanwhile, the S&P sank 0.77%. Notably, in the same timeframe, even though Albertsons went so far as to publicly court an acquisition premium for its shares, the share price of Albertsons has gained a less than Safeway’s.
So… with respect to whether Safeway is protecting or neglecting its shareholders’ interests, when their stock price is beating the overall market and holding up well against the performance of its benchmark competitors, it’s self-evident.
Moving along, by a shareholder’s yardstick, the hottest ‘markets’ in Chicagoland are the Chicago Mercantile Exchange and the Chicago Board of Trade. Wow!
I think everyone has pretty much summed up Safeway’s problems. But in a way they are the same problems we have seen at other publicly held supermarket bureaucracies. A&P announced yesterday they want to reinvent Farmer Jack. This was expected because about every six months they start over from scratch and reinvent themselves. Albertsons feels they can’t compete in Dallas so they are taking the low road with SuperSaver. Safeway can’t compete so they are taking the high road with Lifestyles stores. Neither concept will work because no one can beat Wal-Mart on price and no one is going to beat HEB or Whole Foods for quality and service. Regardless of what Safeway, Albertsons, or A&P (or any other vanilla chain store) does, it will always be too little and too late. No matter what the sign says out front, inside will be a skeleton crew of employees wondering how long this is going to last. All the bold talk by these millionaire accountant CEOs who have no meaningful supermarket experience is nothing but a charade to hide the real problems they have caused. It is so insulting to have to listen to their twice annual reinvention strategies which typically results in disaster. There are plenty of good supermarket companies out there who stand and rejoice every time one of these accountant CEOs comes up with another brilliant idea.
Mr. Burd has a very challenging job – he has internal issues like HR and trade promotion efficiencies to deal with and then there are union problems and Wal-Mart. It really is a bit overwhelming, but he needs to either divest non-core stores (the volume argument only goes so far) or devote enough resources to make those store viable competitors in their individual marketplaces. Kroger is able to make their disparate network of chains work, so it is possible. My advice to Mr. Burd is to get out to several Dominick’s stores (and Randalls and Tom Thumb and Genuardi’s. etc.) and rely on local expertise. Hopefully, that will show him where to put the resources and where to pack it in.
Why Bother, Mr. Burd? The magic was in the old Dominick Fresh Stores and, especially, the Fresh Meals Cafe and Starbucks combined. You drove out the winning management team that had the excellent and profitable approach!
This Cafe reality was on target with the consumers of Chicago, and was noted by many in the industry as one of three superior approaches to foodservice, meals, catering, deli, beverage, Asian, pizzeria, and bakery combined. Separate entrance, decor, service level, ambiance, etc were all in place.
So Safeway broke down the Dominick’s Fresh Stores, took out labor and shopper service, and now it is saying remodeling stores and converting to a Safeway Lifestyle approach will bring back shoppers. Did Safeway forget the very different culture need?
Tough task! But Jewel isn’t offering anything special. The poor Chicago meals/food and grocery shopper has no alternatives, but to go to some very excellent independents, and/or combination foodservice/ meals/ and groceries outlets.
I love Chicago and have lived there four times. But, the grocery business is unacceptable. Hmmmmmmmmm
Have to agree about Burd. He has shown that he can take several well run operations, and turn them into below average players in short order.
It appears that both Safeway and Albertsons have tried growing through acquisition, which is good if you don’t take your eye off the ball.
While regional player Marsh has entered the Chicago Market with just one but a very innovative and well executed operation, their expansion will only sink the already foundering Dominick’s.
Dominick’s used to be the leader, as well as Randalls and other Safeway road kill.
Safeway should know by now that they really are not so good at operating retail supermarkets beyond California. I don’t think Dominick’s will see any meaningful changes. Right now, Dominick’s are poorly run stores. If they remodel to the Lifestyles concept they will only be poorly run remodeled stores.
If this Lifestyles concept was working, they would have implemented it chain wide at Dominick’s long ago. Instead, they only did one store and I don’t think the results are as spectacular as they lead us to believe.
I don’t think Steve Burd wants to publicly admit that he has single handily ruined not only Dominick’s, but also other other chains as well, due to his lack of knowledge in supermarket retailing. Dominick’s really only has one course to follow and that would be to sell to Roundy’s at a deep discount and let an experienced, proven retailer like Bob Mariano rescue this dying chain.
Labor relations can be tricky. Sometimes it’s best for executives and labor leaders to make their deals in private, and sometimes public posturing helps move things along. Of course, the opposite can also be true, and the posturing can polarize. All legacy supermarkets have the same huge problem, and none (to my knowledge) are facing it appropriately: their new competition has a much lower cost structure in a low-margin industry. Until the legacy supermarket chains form a strong alliance with the union to get Wal-Mart, Whole Foods, Target, and other new competitors unionized, the path to destruction is guaranteed. The union and the legacy employers have the same interest and they’ve done almost nothing (except in Suffolk County NY) to help each other face a common mortal enemy. This is a pattern in other major industries, too. The failure of the unions and legacy employers in the auto and airline businesses has made the new, nonunion entrants nicely profitable. The legacy airlines, with only one exception, have all gone bankrupt or merged at least once. And the exception’s debt is rated “junk.” Two of the Big 3 legacy auto manufacturers have their debt rated “junk” (the next step lower is bankruptcy) and the other was bailed out by a merger partner. Whether the stores are renovated or not, Safeway has no long-term future until Wal-Mart, Target, Whole Foods, etc. are unionized.
LOL! Classic Burd.