Safeway San Francisco closing Webster

[storewanderer]

Just accelerating the process. These stores make tons of money and thus backstop the Financials of the smaller Albertsons Companies. They would see measurable deterioration of profitability if they just pulled out of these sites for a one time check. Kroger is substantially larger, and they would be less affected by the loss of these high volume, very high margin owned stores thus they're more incentivized to liquidate them.

So yet another reason this merger is bad news. The company will be less compelled to continue to operate stores on extremely high cost real estate that has redevelopment potential for dense multifamily residential which is obviously a higher/better use of the land than continuing to operate even a highly profitable grocery store that they own free and clear.

[HCal]

It was predicted by some back when Cerberus got control of Safeway they would rape the thing, sale-leaseback all of its real estate, load the store operating unit up with costs it could not afford, and Mervyn it. That didn't happen. Yet.

This is basically what happened to Safeway in the '80s. Entire divisions were sold because private equity decided they were worth more in cash than as going concerns. This included the eastern US, Canada, and even Germany and the UK. I think they sold about half their stores this way.

Private equity is bad news for the retail industry, and history repeats itself.

Ideally, I would like to see Safeway itself develop its San Francisco sites into mixed use developments with a Safeway store, some other businesses, and housing. But I'm not sure they have the time, money or expertise to do that.

[mjhale]

In a redevelopment, why wouldn't the developer and/or the city want Safeway to continue as a tenant in the project? If all of these Safeway sites are redeveloped into housing only where do people shop for groceries? I haven't been to San Francisco in 15 years but back then the only major grocer I recall was Safeway. Is public transit good enough that people could get to a still operating but more distant Safeway location without too much trouble? The other thing I was wondering was if Safeway renting in a redevelopment as opposed to a property they own makes the store unprofitable even with a high volume. Add the now extra costs needed to mitigate for theft and I can see where rent in a high dollar property could tip the scales in terms of profitability.

[ClownLoach]

In a redevelopment, why wouldn't the developer and/or the city want Safeway to continue as a tenant in the project? If all of these Safeway sites are redeveloped into housing only where do people shop for groceries? I haven't been to San Francisco in 15 years but back then the only major grocer I recall was Safeway. Is public transit good enough that people could get to a still operating but more distant Safeway location without too much trouble? The other thing I was wondering was if Safeway renting in a redevelopment as opposed to a property they own makes the store unprofitable even with a high volume. Add the now extra costs needed to mitigate for theft and I can see where rent in a high dollar property could tip the scales in terms of profitability.

When housing is going for well over $1,000 per square foot, then you are losing money by making it available for much cheaper retail usage.

The developers who want these supermarket sites only want enough of a retail development to be able to still call it "mixed use" which currently is enabling them to get around many building regulations and requirements. So they're perfectly satisfied demolishing a full strip mall anchored by a Safeway and replacing it with a Starbucks and maybe a 7-Eleven.

And then look at how deeply Jeff Bezos is personally invested in the developers who want to destroy all of the retail space. They don't want you to have a grocery store or any place else to shop besides Amazon. They won't have a supermarket, but you can be sure they'll have dedicated delivery parking and Amazon mailboxes.

And they sponsor politicians who will keep spinning the lie that there is a housing shortage in the state, which means we must destroy the retail space and make it residential. Never mind the fact that the government census data shows there is in fact a large SURPLUS of housing units in California versus households, and on top of that we know more people are moving out than in.

And what supermarket would be profitable with an average transaction so small that it could be carried on a bus or subway train?

[ClownLoach]

In a redevelopment, why wouldn't the developer and/or the city want Safeway to continue as a tenant in the project? If all of these Safeway sites are redeveloped into housing only where do people shop for groceries? I haven't been to San Francisco in 15 years but back then the only major grocer I recall was Safeway. Is public transit good enough that people could get to a still operating but more distant Safeway location without too much trouble? The other thing I was wondering was if Safeway renting in a redevelopment as opposed to a property they own makes the store unprofitable even with a high volume. Add the now extra costs needed to mitigate for theft and I can see where rent in a high dollar property could tip the scales in terms of profitability.

You got it! If Safeway didn't own these sites they couldn't afford the rent... Nobody could. This is because the developers will price the space astronomically high to make up for the fact that retail is much cheaper than residential. When you can sell residential for $1000/ft, then why sign retailers who want to only pay $4 or $5/ft? You're literally discounting the space 99% if you wanted to rent to a retailer instead of developing another housing unit in the same spot.

I have been saying on this page that there is a real threat in California to all retailers. Basically if you're a developer and there is any form of public transportation within a mile of a shopping center then you can buy the property and tear it down to build housing which really isn't needed (according to the census data we have a gross SURPLUS of housing in California!). You don't have to get permission from anyone, don't have to worry about zoning or parking, and the only thing the city can do is make sure your plans follow the building code.

In the past the multi-million dollar lease severance fees negotiated into leases were enough to keep the landlords honest and prevent them from booting good stores. But now that the same site worth $10M as a store could easily deliver $100M in profits after the costs of redevelopment into high density residential, and that means that paying those fat lease severance fees has become pennies. For these developers, especially public traded ones, they feel they are fiscally obligated to tear down these retail properties because they can easily increase their value a minimum of 10X over.

At my now former company I spoke with the Real Estate Director and they said that nearly 40% of the stores in the state were at risk of being booted at their next lease term exit window and being replaced by housing. And those were just the stores where the landlord outright told us they were considering selling or redevelopment... There are likely more that are keeping it to themselves. Worse, the 40% of the stores were nearly all in the top 30% of sales volume and profit, meaning that if we lost them all due to other fixed costs of offices and warehouses we would probably need to just shut down and exit the entire state as it would no longer be profitable to be here despite being our #1 market... And this is a major Fortune 500 retailer.

[storewanderer]

It was predicted by some back when Cerberus got control of Safeway they would rape the thing, sale-leaseback all of its real estate, load the store operating unit up with costs it could not afford, and Mervyn it. That didn't happen. Yet.

This is basically what happened to Safeway in the '80s. Entire divisions were sold because private equity decided they were worth more in cash than as going concerns. This included the eastern US, Canada, and even Germany and the UK. I think they sold about half their stores this way.

Private equity is bad news for the retail industry, and history repeats itself.

Ideally, I would like to see Safeway itself develop its San Francisco sites into mixed use developments with a Safeway store, some other businesses, and housing. But I'm not sure they have the time, money or expertise to do that.

In the 80's the only thing sold in the east was Richmond division and it was a late sale and for performance reasons. Also the sale of some of the divisions like Texas, Oklahoma, Arkansas, were also for performance reasons (hence the buyers who ended up going bankrupt) as they said their cost structure was too high in those markets (union). They took the money and ran. What did they sell in Canada? Did they go further east in Canada in the 80's? The main Canada operation was not sold until after Steve Burd retired.

The old Safeway had PDC which was to redevelop Safeway Stores into sites with mixed use housing/commercial but Albertsons did not keep that going. I agree with your concern about them not having the time, money, or expertise to get that rolling again at this time and what do you think about Kroger who seems to be rather not good (trying to be polite) at operating big city stores in the first place trying that?

But the old Safeway may have been able to make a go of PDC. Look at how they made a go of the gift card division and spun it off as Blackhawk.

[HCal]

In the 80's the only thing sold in the east was Richmond division and it was a late sale and for performance reasons. Also the sale of some of the divisions like Texas, Oklahoma, Arkansas, were also for performance reasons (hence the buyers who ended up going bankrupt) as they said their cost structure was too high in those markets (union). They took the money and ran. What did they sell in Canada? Did they go further east in Canada in the 80's? The main Canada operation was not sold until after Steve Burd retired.

They had some stores in the Toronto area which were sold in the '80s to Oshawa Group, which was ultimately acquired by Sobeys. I can't find too much information but this thread has some links: https://www.groceteria.ca/board/viewtopic.php?t=1130

The old Safeway had PDC which was to redevelop Safeway Stores into sites with mixed use housing/commercial but Albertsons did not keep that going. I agree with your concern about them not having the time, money, or expertise to get that rolling again at this time and what do you think about Kroger who seems to be rather not good (trying to be polite) at operating big city stores in the first place trying that?

But the old Safeway may have been able to make a go of PDC. Look at how they made a go of the gift card division and spun it off as Blackhawk.

I don't think either Albertsons or Kroger is going to get into property development now. Best case scenario, they sell the site to a developer with a provision for them to lease space in the new development for a supermarket at a favorable rate. Ralphs does well in DTLA, so maybe that concept can be replicated in SF. I would think that having a supermarket in/adjacent to the building will increase rents.

[storewanderer]

In the 80's the only thing sold in the east was Richmond division and it was a late sale and for performance reasons. Also the sale of some of the divisions like Texas, Oklahoma, Arkansas, were also for performance reasons (hence the buyers who ended up going bankrupt) as they said their cost structure was too high in those markets (union). They took the money and ran. What did they sell in Canada? Did they go further east in Canada in the 80's? The main Canada operation was not sold until after Steve Burd retired.

They had some stores in the Toronto area which were sold in the '80s to Oshawa Group, which was ultimately acquired by Sobeys. I can't find too much information but this thread has some links: https://www.groceteria.ca/board/viewtopic.php?t=1130

The old Safeway had PDC which was to redevelop Safeway Stores into sites with mixed use housing/commercial but Albertsons did not keep that going. I agree with your concern about them not having the time, money, or expertise to get that rolling again at this time and what do you think about Kroger who seems to be rather not good (trying to be polite) at operating big city stores in the first place trying that?

But the old Safeway may have been able to make a go of PDC. Look at how they made a go of the gift card division and spun it off as Blackhawk.

I don't think either Albertsons or Kroger is going to get into property development now. Best case scenario, they sell the site to a developer with a provision for them to lease space in the new development for a supermarket at a favorable rate. Ralphs does well in DTLA, so maybe that concept can be replicated in SF. I would think that having a supermarket in/adjacent to the building will increase rents.

The developers who develop these buildings don't care about rents increasing over time. They are in it to build and flip/run. They are running a crash and burn type of operation. They develop and build the thing for maximum revenue meaning pack as much residential into the space as possible at the point they finish it and lease it out and sell it to someone else.

Legacy grocers like Safeway who have too large of stores, too much wasted backroom space, too much wasted space for things like bakery/deli prep, are a poor fit for these buildings. Light grocers like Trader Joe's who basically use almost all of their space for sales floor are much more appealing for these types of developments. Whole Foods has also done some good stores like this with scaled back prep areas (sometimes bring stuff prepared in from outside locations). Trader Joe's and Whole Foods have been growing in San Francisco so maybe one of them will go into this space. But I'm not sure it is what the customers want. Safeway obviously has a wider array of products/services.

[HCal]

The developers who develop these buildings don't care about rents increasing over time. They are in it to build and flip/run. They are running a crash and burn type of operation. They develop and build the thing for maximum revenue meaning pack as much residential into the space as possible at the point they finish it and lease it out and sell it to someone else.

The developers may not care about rents, but whoever they sell the whole thing to will. The higher the future rents, the higher the sale price. So on some level it does matter.

Legacy grocers like Safeway who have too large of stores, too much wasted backroom space, too much wasted space for things like bakery/deli prep, are a poor fit for these buildings. Light grocers like Trader Joe's who basically use almost all of their space for sales floor are much more appealing for these types of developments. Whole Foods has also done some good stores like this with scaled back prep areas (sometimes bring stuff prepared in from outside locations). Trader Joe's and Whole Foods have been growing in San Francisco so maybe one of them will go into this space. But I'm not sure it is what the customers want. Safeway obviously has a wider array of products/services.

Safeway could sell the property on the condition that they receive priority for the ground level supermarket space, but of course that would lower the purchase price. Obviously in a place like San Francisco where space is at a premium, a smaller store would be preferable. While you're right that legacy grocers often waste space, I think it would be quite easy for them to eliminate some departments and fit into a Trader Joe's-sized space if needed. Perhaps their "The Market" concept might work here?

[veteran+]

In a redevelopment, why wouldn't the developer and/or the city want Safeway to continue as a tenant in the project? If all of these Safeway sites are redeveloped into housing only where do people shop for groceries? I haven't been to San Francisco in 15 years but back then the only major grocer I recall was Safeway. Is public transit good enough that people could get to a still operating but more distant Safeway location without too much trouble? The other thing I was wondering was if Safeway renting in a redevelopment as opposed to a property they own makes the store unprofitable even with a high volume. Add the now extra costs needed to mitigate for theft and I can see where rent in a high dollar property could tip the scales in terms of profitability.

When housing is going for well over $1,000 per square foot, then you are losing money by making it available for much cheaper retail usage.

The developers who want these supermarket sites only want enough of a retail development to be able to still call it "mixed use" which currently is enabling them to get around many building regulations and requirements. So they're perfectly satisfied demolishing a full strip mall anchored by a Safeway and replacing it with a Starbucks and maybe a 7-Eleven.

And then look at how deeply Jeff Bezos is personally invested in the developers who want to destroy all of the retail space. They don't want you to have a grocery store or any place else to shop besides Amazon. They won't have a supermarket, but you can be sure they'll have dedicated delivery parking and Amazon mailboxes.

And they sponsor politicians who will keep spinning the lie that there is a housing shortage in the state, which means we must destroy the retail space and make it residential. Never mind the fact that the government census data shows there is in fact a large SURPLUS of housing units in California versus households, and on top of that we know more people are moving out than in.

And what supermarket would be profitable with an average transaction so small that it could be carried on a bus or subway train?

California's population loss is slowing down. Last year was 0.2 %