Grocery Store Grumblings
If Safeway unloads Tom Thumb, will HEB snatch up the Dallas-Fort Worth stores?
Big changes could be in store for grocery shoppers in the Dallas-Fort Worth, Austin and Houston areas. Some grocery industry analysts are expecting Safeway Inc. to sell its 110 Randalls and Tom Thumb stores in Texas.
The analysts’ prediction comes on the heels of the retailer’s decision to unload its 72 Dominick’s grocery stores in the Chicago area and its 223 Safeway grocery stores in Canada. The prediction also comes amid reports that Safeway, a publicly traded company, may be the target of a takeover bid by private investment firms.
In a note to investors about the possible buyout, Ajay Cain, managing director at financial services firm Cantor Fitzgerald, wrote that as “Safeway’s fundamentals are unraveling for its core operations, we think there is clearly more urgency to sell assets,” including the Texas stores.
The 110 Tom Thumb and Randalls stores may be broken up into pieces. Some analysts speculate HEB could pick up the Dallas-Fort Worth locations.
David Livingston, a grocery industry consultant in Wisconsin, says it makes perfect sense for Safeway to sell its Texas operations.
“Safeway has failed over and over again in Texas — first with its own stores, then with Weingarten’s, and now with Randalls and Tom Thumb,” Livingston says. “It’s insane why they keep trying.”
Most of the Weingarten’s grocery stores in Texas were sold to Safeway and Randalls in the early 1980s. Livingston predicts a sale of Safeway’s Randalls and Tom Thumb stores is “very likely” and will happen “very soon.”
As for the potential purchase of the Texas stores, industry observers say it wouldn’t be just one buyer. Instead, the 110 stores may be broken up into pieces. For instance, some analysts speculate San Antonio-based HEB could pick up the Dallas-Fort Worth locations. Other potential suitors mentioned include Kroger, Walmart, Fiesta, Whole Foods and Winn-Dixie.
“It’s so simple to say Safeway ought to sell [the Texas stores]. What’s harder is to come up with a buyer with money,” Meredith Adler, managing director at investment bank Barclays Capital, told trade publication Supermarket News.
Bob Goldin, executive vice president at food industry consulting and research firm Technomic in Chicago, says an argument could be made for Safeway to hang onto the Texas stores. “I would say that I would think hard about leaving, as Texas is a growth market.”
However, Goldin adds, HEB, Walmart, Whole Foods, Costco, Aldi and several other grocery retailers “appear to be in much better competitive position” in Texas than Safeway.
Goldin points out that Safeway isn’t the No. 1 or No. 2 grocery retailer in any of its Texas markets and isn’t even “a strongly differentiated competitor.” Along those lines, Livingston criticizes Safeway for operating unappealing “cookie cutter” stores in the Lone Star State.
Pleasanton, California-based Safeway bought the Houston-based Randalls chain, including Tom Thumb, for $1.8 billion in 1999. Sales at the Texas stores have plummeted since then, according to Livingston. In fact, he and other analysts think the stores are losing money for Safeway.
Representatives of Safeway couldn’t be reached for comment. The company doesn’t break out sales figures by geographic division.
Analysts said Safeway’s Texas division has been on the sale block for a number of years, but Livingston said he thinks CEO Steve Burd’s ego may have gotten in the way of a deal. Burd was chairman, president and CEO of Safeway from 1992 to 2013.
