The future of Safeway in Arizona

[arizonaguy]

with Chicago, Southern California, and Arizona all mentioned as markets in which Safeway might exit and their recent exit from Chicago, what is the future of Safeway's Arizona division?

Unlike other divisions, they really have not closed a ton of stores (a handful over the last few years, but they also opened up a handful of new stores in the 2008 - 2010 time period). Safeway has several stores in Scottsdale, Phoenix, Tempe, and Tucson that all appear to be doing fairly well. In addition, they are the only game in town (or share it with Bashas'') in a lot of rural communities. Yes, the non lifestyle stores are undesirable for anyone but most of the stores have been renovated and of the 114 there has to be at least 60 to 70 profitable stores. The problem in Arizona is that Kroger and Albertsons LLC really could only pick up a handful of the profitable Safeways (as they are generally located near Frys or Albertsons locations) and Bashas' can't afford to buy the profitable Safeway stores.

Can Safeway close the 30 to 40 unprofitable stores and stay in the market? Can someone who operates on the East Coqat buy the Arizona (and maybe Vons divisions)? Or is the future of the stores pretty bleak?

[jamcool]

Safeway is the largest chain in AZ by store count, they make money in the small towns where Walmart won't go into. The same situation is in Colorado.

As to an east coast chain buyout- not likely, the eastern chains have been abject failures operating western grocery chains.

[arizonaguy]

The thing is none of the entrenched chains already in in Arizona really are goid fits with Safeway except for Bashas which operates a similar business model (but Bashas can't afford to buy Safeway's Arizona division which I believe still would have value if someone other than Safeway ran it. Yes 30 to 40 stores in the Tucson and Phoenix metro areas should be closed but a 74 to 84 store chain could still be a viable player. What they should do is make their urban stores a mid to upmarket chain a la Pavilions or Randall's and close the 30 to 40 locals where that kind of format is not viable. They could even sell the valuable urban stores, close the unprofitable urban stores, and keep the rural stores but contact out the distribution to another vendor.

[storewanderer]

I think the Arizona Safeways would be a good fit for Albertsons LLC. Yes, I know, Albertsons has come and gone from a lot of those areas where Safeway operates but I really think Albertsons LLC Southwest Division has a good handle on the product quality, staffing levels, and pricing for its operations in Arizona, New Mexico, and Colorado. They would be an improvement, from the current Safeway operation, on the three fronts mentioned above. There are some merchandising issues with Albertsons LLC but I think the other positives outweigh that area for improvement.

Albertsons LLC expressed interest in Bashas showing an interest to grow in Arizona and particularly to grow in rural towns.

As far as Safeway making money in rural towns, if there is a Wal Mart Supercenter within say 60 miles of those rural Safeways, it has an impact on Safeway. The other thing impacting Safeway in those little rural towns in the ongoing openings of Family Dollar and Dollar General Stores. People in those little towns don't stay in those little towns all the time and they will leave town and make large shopping trips at the lower cost Wal Mart, using their hometown Safeway only for fill in. This I believe is due to Safeway's ongoing pricing issues.

There is a reason the financial results of Safeway have deteriorated so, so much. Safeway has operated for years ripping off small towns with outdated stores and very high prices. Competition has come knocking and customers are fed up and take any alternative they can get.

[Super S]

There is a reason the financial results of Safeway have deteriorated so, so much. Safeway has operated for years ripping off small towns with outdated stores and very high prices. Competition has come knocking and customers are fed up and take any alternative they can get.

A good example is the small town of Clatskanie, Oregon. The only major store is a 1960s Marina Safeway which has received a few "light" remodels which consist of nothing more than a coat of paint, some new wall signs, and occasionally new outside signage. It still lacks a bakery, deli, or pharmacy. I have stopped in this store on occasion as I pass through, but can not recall a single time it has been very busy. It looks like it exists solely as a convenience for local residents who only need a gallon of milk or a few small items. But the prices are just as high as any other Safeway. The town of Longview, Washington is about 20 miles away, where there is Fred Meyer, three full service, modern Safeway stores, WinCo, and two Walmart supercenters, and I would bet that Clatskanie residents do travel out of town for their major shopping.

To be fair, Safeway has kept many stores open in small towns and has a number of locations closer to downtown areas, but that is still no excuse to run an older store into the ground with minimal updating. I have seen some small-town independent IGA stores, which are also the only store in their towns, that look more modern and have more services than some of the older Safeway locations.

[storewanderer]

I have noticed small towns with a good independent are much better grocery stores in the town than small towns that have only Safeway. In the past 10 years, the pricing in the independents has generally been below Safeway's pricing, too (this did not used to be the case 10 years ago). Safeway has a formula for those small town stores and they don't seem eager to do much in the way of adding services. The "lifestyle" remodels to the small town marina stores are a complete joke, more like lifestyle decoration very cheaply applied with no added features to the store whatsoever. The small town independents will do random things in their stores to help complete their mix. Maybe they'll do a garden center. Maybe they'll sell bricks out front. I've seen so many random things, but they seem to work. Maybe they'll add in hot food/fried chicken (this works great in small towns with limited/no fast food), but Safeway will have no part of that since their formula is to either have a full deli or nothing and the towns can't necessarily support a full deli, especially one with $9-$12/pound "Primo Taglio" lunchmeats. Maybe the independent will add in items from a "local" bakery in lieu of having an in-store bakery (store may be too small to fit a bakery, and maybe the store can't sell enough to financially support an in store bakery) but again Safeway will have no part of this (Safeway used to do some "satellite" bakeries where they would truck items from a larger Safeway nearby but seems to have largely stopped that in the rural towns where they are the only store for miles (I have still seen a few of these, Gridley, CA comes to mind, but there are other bakeries in Gridley so what Safeway is doing is probably more to address that).

[jamcool]

The problem with an Albertsons or Bashas' buyout is that Safeway is unionized, Albertsons and Bashas' are non-unionized.

[storewanderer]

Safeway can do that buyout the same way they've done the PA/IL ones. Just close the stores down and sell the spaces off to others. Maybe some of the others will assume union agreements, some won't, it'll be a store by store case.

Not to take this conversation the other way but the union in AZ is very weak as it is, with many starting wages below what Wal Mart starts identical positions at in that market. I am not sure other grocers would have all that hard of a time opening them up as non union shops, as long as there isn't some legal stipulation requiring them to...