ALASKAN STORE BUYERS WANT SAFEWAY TO PAY $7M

ELLIOT ZWIEBACH

SEATTLE -- The owners of six shut-down Alaska Marketplace stores said last week they are seeking an arbitration hearing to force Safeway, the stores' former owner, to pay $7 million in monetary damages.

The request for the hearing was filed by Associated Grocers here and Northwest Retail Ventures, an investment company that includes AG that was formed to buy the Alaska-based stores.

When the parties finalized the deal for the stores in August 1999, they agreed to submit any disputes to a hearing in King County, Wash., conducted by the American Arbitration Association. Under that agreement, the hearing must be conducted no later than three months from the date of the claim -- a period that would expire in early May.

It is possible the two sides could negotiate a settlement before the arbitration hearing, industry observers said.

A Safeway spokeswoman told SN the claims against the chain are without merit.

Robert E. Hoyt, who joined AG last July as interim president and chief executive officer, said some of the $7 million AG hopes to obtain would be used to pay creditors.

He also noted that AG is having trouble finding buyers for the six stores and would like to sell them to a non-grocery operator. However, in the agreement that required Safeway to divest the stores, the Alaska attorney general ordered that the divested stores be operated as grocery stores for three to five years.

Asked about the pending arbitration, Hoyt said, "We're trying to determine how such a good operation could deteriorate so fast."

The situation arose from an order by state officials in Alaska in 1998 that said Safeway would have to divest seven stores in Alaska to win approval for its acquisition of Carr Gottstein Foods Co., Anchorage, Alaska. Six of the stores were eventually sold to Northwest Retail Ventures, a partnership that included Associated Grocers, which became the stores' primary wholesaler; Bristol Bay Native Corp., comprised of Native Americans in Alaska; and individual investors.

However, after suffering heavy losses, three of the stores closed in August 2000 and the other three closed in December.

According to documents filed by AG here, Safeway's conduct included "negligent or intentional misrepresentations or omissions of material facts [and] intentional interference with prospective or existing contractual relations."

Charges detailed in the documents include the following:

Poor inventory practice. The documents charge that Safeway permitted "inventory rundowns, poor product rotation, product discontinuation and other conduct."

Poor maintenance. Safeway permitted the stores "to fall into disrepair prior to the closing of the sale and failed to maintain standards of cleanliness acceptable in the retail food business," the documents declare.

Unfair pricing. Safeway increased prices of products in the stores knowing that "AG would be unable to control those prices or implement sales or discounts for a critical initial period of two to three weeks," according to the documents.

Poor personnel practices. Safeway "transferred less qualified personnel to the stores, failed to fill vacancies and interfered with the hiring and retention of personnel by the new owners by inducing employees to terminate their employment," the claim alleges.

Inaccurate financial records. Safeway supplied financial documents that did not accurately reflect key financial information" such as transportation costs, according to the claim.