Safeway to Leave Chicago

October 11, 2013
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Safeway Inc. said on Thursday it plans to leave the Chicago market by early next year as it continues to narrow its focus and posted a sharply lower profit for the third quarter.

Safeway has also announced, as part of its plan to exit the Chicago, it has sold four of its Dominick's stores in the greater Chicago area to New Albertsons, Inc., which operates Jewel-Osco grocery stores.  The four stores are:

  • 1340 S. Canal Street, Chicago, IL
  • 2550 N. Clybourn Avenue, Chicago, IL
  • 14200 S. Bell Road (at 143rd), Homer Glen, IL
  • 1340 Patriot Boulevard, Glenview, IL

During a short transition period, the stores will continue to operate under the Dominick's banner until Jewel-Osco can complete their conversion to Jewel-Osco stores.  Dominick's will be working with Jewel-Osco and the unions to ease the transition for store employees, and to facilitate continued employment for as many of them as possible.

Safeway has decided to exit the Chicago market and focus its efforts in other operating areas where its business is stronger.

Safeway Shares rose to $33.35 after hours after closing at $31.57 on the New York Stock Exchange, Reuters reported on Thursday.

Chicago is a competitive market for food stores, wrote Reuters. Newer entrants such as Roundy Inc's Mariano's chain, which features piano players in its stores, have gained ground with shoppers looking for a higher-end experience, while Aldi Inc has added more stores that draw cost-conscious customers. Wal-Mart Stores Inc, Target Corp, privately held Meijer Inc and other retailers have also focused more on food sales.

The Dominick's chain in Chicago has been a "noticeable drag" on Safeway's financial results, a "significant drain" on resources and its lowest performing division, Chief Executive Officer Robert Edwards said on a conference call with analysts.

Safeway bought Dominick's in 1998 for about $1.2 billion plus debt. The chain had 116 stores and $2.6 billion in sales back then, when Safeway lauded Dominick's "enviable reputation as a leading retailer in the Chicago region." Safeway now has 72 Dominick's stores in the market, which incurred losses before income taxes of 3 cents per share during the latest quarter.

Safeway has seen "significant interest" since it started to market Dominick's assets and plans to sell all or as many of the stores as it can, Edwards said on the call. Safeway has already sold four Dominick's stores to the company running rival chain Jewel-Osco, it said late on Thursday.

Supervalu Inc got out of the Chicago market in March, when it sold Jewel-Osco and other chains in different parts of the country to an investor group led by Cerberus Capital Management LP CBS.UL.

Leaving Chicago is the latest strategic move for Safeway, which plans to close the sale of its Canadian operations to Empire Company Ltd, parent of Canada's No. 2 grocer Sobeys, during the fourth quarter. It continues to hold a controlling stake in its Blackhawk Network Holdings Inc gift card business, which went public earlier this year.

Safeway expects a cash tax benefit of $400 million to $450 million from exiting Chicago, which it can use to partly offset the cash tax expense on the sale of Canadian assets. It expects to use the cash tax benefit and any other cash proceeds from its disposal of the Dominick's properties to buy back stock and invest in other growth opportunities.

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