37. THE SHAREHOLDER
Key developments: Forced Safeway to make board changes; ongoing influence on company decision-making.
What's next: Keeping an eye on earnings performance at public chains.
Steve Burd won his battle with shareholders this year and was able to keep his job as chairman, president and chief executive officer of Safeway, Pleasanton, Calif.
Yet are Safeway and other publicly owned companies losing the war?
Activist shareholders like those who attempted to get Burd to relinquish his chairmanship have been successful in forcing governance changes at several large corporations. However, the real influence of shareholders manifests itself more acutely in the way publicly owned supermarket companies manage themselves on a day-to-day basis.
"I think there are a lot of things the public companies would like to do, but are limited in doing because they have to meet their numbers in the quarter," said Jason Whitmer, analyst, FTN Midwest Research, Cleveland. "It's no coincidence that several of the most successful companies in the grocery business are private: Wegmans, H-E-B and Publix are top of mind, and companies like Ukrop's."
Many of the regional, privately owned supermarket companies have become customer favorites in the markets they dominate, while their publicly owned rivals have slashed costs to meet profit goals, making Wall Street happy in the short term, but leaving Main Street shoppers disappointed.
Albertsons, Boise, Idaho, and Safeway have struggled in the past to incorporate the acquisitions of successful regional chains when they have attempted to factor the new stores into the profit-driven formulas that have propelled their core banners.
"It's sort of an endemic problem among the big chains," said Gary Giblen, analyst, C L King and Associates, New York. "But I think the culprits are Safeway and Albertsons. I think they're doing the proverbial reducing cleaning of the bathrooms to save money, which looks good on the bottom line. But I would characterize a lot of the things they are doing as penny-wise and pound-foolish because you are driving away customers."
The tendency of publicly traded supermarket companies to consider the shareholder ahead of the shopper also may be restraining their innovation and growth. Publix Super Markets, Lakeland, Fla., for example, has been able to expand into new markets like Atlanta and Nashville, Tenn., because it has been willing to weather short-term hits to its profitability, analysts said.
"Most of those chains are owned by families, and the investment is much different from the broad institutional base," said Whitmer. "Essentially, you can dip into the piggy bank as long as you're not losing money."
Wall Street's influence is also reflected in supermarket companies' ability to make acquisitions and obtain financing, said Neil Stern, senior partner, McMillan Doolittle, Chicago.
"Clearly, supermarket stocks in general are not as in favor as they have been before," he said. "That impacts their ability to access capital and their ability to do deals and to do further acquisitions."
While shareholders continue to exert their influence through their demands for gains in quarterly profits and their shunning of many supermarket stocks, some activist investors are pressing for changes in governance.
Under pressure from a group of pension funds that collectively held a small percentage of Safeway's shares, the chain agreed to make its board more independent through the appointment of three new directors.
The California Public Employees Retirement System, which owns about 2.7 million Safeway shares, said the actions were not enough.
"I don't think we're completely satisfied because Steve Burd is still the chairman," a spokesman for CalPERS told SN. "Our intention is to see what progress the company has made by February or March of next year [when the next proxy season starts]."