Two of the supermarket industry’s most iconic companies – Safeway and Ahold – have in recent years defined themselves, in part, by their expansion attempts.
Ahold, with a $3 billion acquisition kitty on hand, has been very aggressive in seeking to broaden its market share in the Mid-Atlantic and Northeast. Beginning with Laneco about a decade ago, continuing with Clemens in 2006, Ukrop’s in 2010 and last year with five Foodtown stores in Central New Jersey and three King Kullen stores in Staten Island, Ahold’s USA unit has done pretty well with “in-market” acquisitions and geographic expansions. While Ukrop’s (which now trades as Martin’s) continues to be a challenge, the numbers are slowly improving and Ahold USA is also aggressively seeking new buying opportunities. During that period, the company has also been decisive in cutting its losses, selling Bi-Lo and Bruno’s to Lone Star and dumping Tops on Morgan Stanley Private Equity.
As for Safeway, as great a leader as CEO Steve Burd has been for more than 20 years (he’s a certified first team Hall of Fame member by any account), acquisitions have never been his strong suit.
That seems obvious by the track record of major deals the retailer made during a three year period from 1998-2001. Those less than successful results speak volumes about the Safeway’s unwillingness to get in the acquisition game over the last 11 years.
The recently announced agreement in which Ahold USA’s Giant/Carlisle unit would acquire 16 Genuardi’s stores seems to capture the expansion mindset of each company in a nutshell.
And one of the reasons (at least from a historical perspective) that the two companies have had significantly different track records is the ability of Ahold to better assimilate itself into the culture of the acquired company while making the necessary improvements and changes that the retailer it acquired was unable to execute.
In Safeway’s case, we’ve seen little of that. In fact, in all three key acquisitions that Safeway made in the aforementioned three year period – Dominick’s, Randall’s and Genuardi’s – its unwillingness to utilize the strengths of those successful retailers was a prime reason those chains lost market share and suffered from diminished employee morale very shortly after they were purchased.
And specifically in the case of Genuardi’s, the rapidity of the plunge after its 2001 acquisition could be a case book study. Almost immediately, the company foisted its “corporateness” on one of the best groups of employees in the entire Northeast. As a result of the “vanilla-izing” of the look and feel of the once perishables-driven stores and a radically changing product mix, Genuardi’s, which was founded in 1920, lost a lot of its mojo during the first year of Safeway ownership. To be fair, leaders like Karl Schroeder (former president of the Eastern division who now runs Safeway’s largest unit in Northern California) worked hard to staunch the bleeding, but too much internal damage had already occurred. It didn’t help Genuardi’s cause either, that a slew of new and growing competitors entered the market and took share at the expense of the once strong performer.
Clearly, Safeway has learned that the “one size fits all” modus operandi of running stores doesn’t work anymore – today’s major markets are both overstored and filled with a multitude of diverse retailing styles.
For Giant/Carlisle, the Genuardi’s acquisition could increase its market share to almost 10 percent of the nearly $20 billion Delaware Valley market (which would include all retail channels selling food and drug). Its store count there would rise to about 65 units, all in Pennsylvania.
And despite the difficultly in having to tell several thousand associates that their careers at Genuardi’s are over, from a business perspective the shedding of 27 Genuardi’s stores will provide a long-term benefit to Safeway.
While the $106 million in proceeds thus far will most likely be utilized for future store-related investment, the emotional and financial drain that Genuardi’s had become will now be eliminated and Eastern Division management can better concentrate on its core Baltimore-Washington stores.
And as I’ve stated several times over the last year, the Genuardi’s deal is likely only the first of several other sales/closures in the Northeast in 2012, especially when you consider the recent track record of A&P’s store performance as well as that of Supervalu’s banners – Acme, Shaw’s and Shoppers.