Safeway Shares Drop Severely

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Jun 13, 2002
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Safeway shares fell 12 percent, their biggest drop in at least two decades, after it lowered profit forecasts for the rest of the year due to restructuring expenses and the growing lure of discount chains to bargain-hunting customers. The third-largest U.S. supermarket chain also says it will close as many as 14 stores, cut jobs, and reduce prices to compete with larger rivals Kroger, Albertson’s and Wal-Mart, according to Bloomberg.com. The latter two have announced plans to expand in California, where Safeway is based.

Reuters reports that Safeway’s announcement sparked a sell-off in supermarket shares as investors worried that conventional grocers could struggle well into the second half of the year, mainly as a result of Wal-Mart expanding it supercenters.

Consolidation of buying and merchandising units appeared to have been hampered by problems in staff integration, which could have led to delays in the shipping of goods to stores, according to Jason Whitmer, an analyst at Midwest Research. Safeway’s efforts to reduce shrink by displaying and ordering fewer goods could also have led to a shortage of certain merchandise, alienating some customers, Mr. Whitmer adds.

Moderator Comment: Has Safeway hit a roadblock? What
does the chain need to regain its sales momentum?

Safeway’s success over the years has largely come about
because of the operational genius of Steve Burd and company. Unfortunately,
it appears as though the chain has largely failed to internalize any of the
merchandising acumen of acquisitions such as Randall’s and Genuardi’s. It is
time for Safeway to focus on what is going over the scanner and not what’s coming
in through the back door. [George
Anderson – Moderator
]

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