PLEASANTON, Calif. -- Safeway here said last week it has agreed to acquire 11 units of Abco Desert Markets in Arizona from Dallas-based Fleming for an undisclosed price.
The transaction leaves Fleming with 42 Abco units. Fleming had said in April 2000 it was developing a strategic plan that could result in the sale of nearly all its 161 conventional stores, while it proceeded to focus on its wholesale and value-pricing retail businesses.
In September, the company revised its original plan, saying it would retain most of one chain, Rainbow Foods, Minnesota, while continuing to shop around the Abco stores, 24 of its 34 Sentry unions in Wisconsin and its 16 Baker's Supermarkets in Nebraska. Late last year, it sold the Baker's units to Kroger Co., Cincinnati, while the other stores have remained on the market.
The company said it expects to complete the transaction by early March and to close each store for remodeling "for a short period of time" before reopening under the Safeway banner.
Observers told SN the stores -- seven in Tucson and four in Phoenix -- will strengthen Safeway's market share in both regions, with Safeway solidifying its No. 2 ranking behind Fry's Food Stores (a Kroger-owned chain) in Phoenix and moving past Abco for the No. 2 spot behind Fry's in Tucson.
The stores are among 53 Abco units Fleming has put up for sale. A Safeway spokeswoman said Safeway chose the 11 Abcos because they did not overlap any existing Safeway locations and because they are newer. She also said the stores range in size from 36,000 to 42,000 square feet -- about the same size as Safeway's existing stores.
Safeway's Arizona division includes 44 stores in Phoenix, 10 in Tucson, 35 spread around the state and one unit in Gallup, N.M. Safeway said Abco employees will be given first priority in applying for jobs at the new Safeway locations.
A Fleming spokesman said the distributor expects to sell the remaining Abco stores "in different batches" by the end of the year. "These deals will come at their own pace," he added.
Fleming will lose the volume from the 11 stores Safeway will buy, since Safeway is self-distributing. However, the Fleming spokesman said the distributor expects smaller independents who are Fleming customers to buy most of the remaining Abcos.
Jonathan Ziegler, San Francisco-based managing director of Deutsche Banc Alex. Brown, New York, said the Abco acquisition "buffs up" Safeway's market share. "But this is simply a small in-market acquisition, whereas the [pending] Genuardi's acquisition is more meaningful because it buffs up Safeway's operation in an adjacent market in the East."
Safeway agreed late last year to acquire 39 stores from Genuardi's Family Markets, Norristown, Pa., in a deal expected to close during the first quarter.
Meredith Adler, an analyst with Lehman Brothers, New York, said the Abco acquisition will boost Safeway's position in the Tucson market while strengthening its standing in Phoenix. "Abco should have left those markets 10 years ago, but Fleming bailed them out twice," she noted.
Abco was established in 1984 following a leveraged buyout by the executives who managed the Arizona stores for Alpha Beta Co., a California-based subsidiary of American Stores Co.
Abco began receiving loans from Fleming, its wholesaler, in 1988 and subsequently went through financial restructurings in 1991 and 1992. In mid-1995, it fell into default on the loans and gave up a 45% equity stake in the company to Fleming to settle those debts.
Fleming became Abco's majority owner early in 1996 when it foreclosed on the chain's assets. At that time, Abco operated 71 stores, with sales of approximately $624 million.