Safeway acquisitions cause financial indigestion

In 1998, Safeway, Pleasanton CA, paid $1.2 billion for the Dominick’s chain of 113 supermarkets in Chicago. A year later, Safeway paid an additional $1.8 billion for the Randall’s/Tom Thumb chain that operates 134 stores in Houston, Austin, and Dallas TX. Those acquisitions have not proved to be the positive moves at first anticipated. In its release of financial data for the fourth quarter 2002, Safeway has announced that Dominick’s is for sale. The decision is based on low store sales in the Chicago market and on Safeway’s inability to negotiate a more favorable labor contract. The Randall’s chain has continued to grow with 10 new stores opened in Houston in 2002. However, company-wide, Safeway reports a 1.9% drop in same-store sales from 2001. As a result, Safeway wrote down the value of both acquisitions. The charge in the fourth quarter 2002 against Randall’s was $704 million, while the charge against Dominick’s was $785 million.