PLEASANTON, Calif. -- Safeway here has mastered the art of the fast and smooth transition, said industry analysts.
"Every acquisition they've made, they've done better and faster than the previous one," said Gary Giblen, New York-based managing director of Banc of America Montgomery Securities, San Francisco. "Safeway is the master integrator."
Steve Burd, Safeway chairman and chief executive officer, said last year, "We have a religious zeal to make acquisitions work."
The company is clearly intent on keeping the faith. In the past 12 months, Safeway has made three major acquisitions. It acquired Dominick's Supermarkets, Northlake, Ill., Carr Gottstein Foods, Anchorage, Alaska and Randall's Food Markets, Houston.
Last year, Burd explained the Safeway takeover philosophy: "We believe acquiring companies and taking advantage of additional sales and best practices will boost our operating cash-flow margins, so we must continue to do acquisitions to maintain our high growth rate."
Industry analysts highlight the care Safeway has taken in choosing acquisition targets.
"There wasn't a sick pup among them," said Jonathan Ziegler, San Francisco-based equity analyst for Salomon Smith Barney, New York. "These are all quality players that could stand on their own."
On its own, Dominick's was (and remains) the second-largest supermarket chain in Chicago, a city that is, according to Giblen, essentially a two-chain town.
What's more, it was a chain with a good reputation, said Chuck Cerankosky, equity analyst for McDonald & Co., Cleveland. "It's a strong, quality neighborhood retailer, particularly strong in perishables," he explained. "They had a lot of stores that are well-positioned to serve individual markets."
In acquiring Dominick's, Safeway was easing a move into new territory -- and new territory pretty distant from its California base -- by doing it under the name of a well-established player.
Pre-takeover Dominick's, however, was not without its problems, according to Meredith Adler, equities analyst at Lehman Bros., New York. "Dominick's was in turmoil," she said.
The chain had tried to expand into the warehouse-store format under the Omni banner. Losing money on that effort, it converted the Omni warehouse stores into Dominick's supermarkets, and found itself losing even more money on those units.
Since the Safeway takeover in November, "things seem to be going well," said Cerankosky. "Safeway is accelerating Dominick's growth plan. Dominick's had a very small vision of greater Chicago. Safeway is looking to trade on Dominick's reputation in a much greater metropolitan area, even taking the chain into Wisconsin."
The Carr Gottstein acquisition didn't take Safeway into new territory. The company already operated a dozen stores in Alaska. But in taking over Carr, Safeway wasn't just getting control of a major rival, but getting control of a major rival with the best distribution system in the state.
"Carrs has its own distribution center in Alaska," said Adler. "Most other companies have to ship supplies from Seattle or Portland, Ore. They're more than 1,000 miles away."
The deal gets high ratings from analysts. "Carr Gottstein was a classic acquisition," said Cerankosky. "It's basically a case of consolidating store sites, in many ways more like a real estate operation than an integration problem."
Still, not all the strings from the deal have been neatly tied up yet. Safeway has only until Oct. 13 to sell the seven stores (one from Carr, six from its inventory) it said it would divest in an agreement with the Alaska attorney general's office last spring. Giblen said he expected they will be sold "to secondary competitors" before the deadline.
The Randall's acquisition is very much a repeat performance of the Dominick's deal for Safeway. Once again, analysts said, the company has purchased a popular regional chain. "The name, Randall's, has a special franchise with customers," said Giblen. "People see it as the quality place to shop, and in Texas people of all incomes want quality."
Also like Dominick's, Randall's had run into expansion problems, in this case, analysts noted, through some acquisitions in the 1980s that did not play out as expected and led to a leveraged buyout in 1986.
But, even before Safeway acquired it, "Randall's was on a strong turnaround trajectory," said Giblen. "Randall's is a kind of automatic pilot acquisition for them."
Burd said he expected Safeway to learn a great deal from its most recent acquisition. "There are dozens of things Randall's does better than Safeway, and we won't be shy about borrowing some of these practices," he said.
"For example, part of this business is excitement and theater, and Tom Thumb stores [a 58-unit chain Randall's operates in the Dallas-Fort Worth area] does a better job in that area than Safeway, and that's one area we expect to learn something," he added.
Burd has made it clear he is still looking for acquisition targets. "This industry is still consolidating," he said, "and in Randall's we inherit a great management team with a great track record, so we won't consume our bench strength. As a result, we could easily do another acquisition this year."
While he hasn't mentioned any companies by name, he did rule out any overseas moves: "Our focus is on North America, where we have 7% of the national market share, and there are lots of opportunities to consolidate and merge in the U.S. without burdening our management team by going trans-Atlantic or trans-Pacific."
And at least one analyst didn't hesitate to offer a suggestion. "There are larger companies, like Winn-Dixie, that would make sense [for them to acquire]," said Giblen. "There is no reason why Safeway couldn't [takeover] Winn-Dixie tomorrow morning."
