OAK BROOK, Ill. — Safeway's “lifestyle” store may rescue its Dominick's franchise, but not every Dominick's location.
Dominick's here said it will close 14 money-losing Dominick's stores by April, while proceeding with plans to renovate 20 stores and build at least one new store during 2007.
Observers said the stores marked for closing appear to be located in neighborhoods that wouldn't support the lifestyle concept, which Safeway is using to reposition its stores nationwide. They said the locations could be recycled as discount supermarkets or for other retail uses.
“These stores are older, lower-volume, non-profitable stores. Some were in difficult neighborhoods where remodeling them into the lifestyle format would not have paid off,” David J. Livingston, a consultant based in Pewaukee, Wis., told SN. “I think some locations will find their way into the hands of other supermarket operators, most likely those who cater to a lower-income, ethnic clientele.”
The closures will reduce to 83 the number of Dominick's locations. The division had 111 stores when Safeway purchased it in 1998.
Safeway was slow to introduce the lifestyle store to Chicago as it battled union labor, attempted to sell the chain, and saw its sales and market share erode, sources said. But by last year the chain had committed to reviving itself through lifestyle renovations, Steve Burd, Safeway's president and chief executive officer, said in a presentation.
Dominick's converted 20 of its stores to the lifestyle concept last year, including a “state-of-the-art” location in the Streeterville neighborhood in downtown Chicago.
“We are encouraged by the favorable consumer response to our lifestyle stores and intend to build on that momentum during the coming year,” Don Keprta, Dominick's president, said in a statement. More than half of Dominick's stores are expected to be upgraded to the lifestyle format by the end of the year, he added.
Neil Stern, senior partner at McMillan Doolittle, Chicago, said the renovations appear to improve Dominick's appeal among upscale consumers. The stores may also help Dominick's gain market share from conventional competitors like Supervalu-owned Jewel, and stem loss of shoppers to alternative formats such as Whole Foods and Costco.
“I happened to shop in one of the stores they re-did several months ago, and there's no question, traffic is up since the renovation,” Stern told SN.
“What the lifestyle store provides isn't just the products inside, but that it's a very good shell within which to merchandise,” he added. “That's important, because trends change.”
Dominick's has a 14.2% market share, second behind Jewel's 37.5%, in the 14-county Chicago metropolitan area, according to Metro Market Studies.
Safeway said it will incur lease exit costs associated with the closures but that those costs will be offset by the elimination of operating losses and unrelated real estate gains.
Three Dominick's stores set for closure are located in Chicago. Others are in Bridgeview, Calumet City, Crestwood, Downers Grove, East Dundee, Glendale Heights, Glenview, Naperville, Niles, Riverside and Round Lake Beach, Ill.