HOMELAND PLANNING TO SELL ALL OR MOST OF ITS OPERATIONS

ELLIOT ZWIEBACH

OKLAHOMA CITY -- Homeland Stores here is for sale.

The 112-store chain, one of the Safeway spinoffs of the late 1980s, has disclosed plans to explore the sale of all or substantially all of its operations.

According to Max E. Raydon, president and chief executive officer, the chain is studying "the possibility of combining the company with a strong industry partner."

The high costs of labor and of financing expansion figured prominently in Homeland's search for new options, according to observers.

The company was explicit in a 10-K filing with the Securities and Exchange Commission in which it said it had engaged "outside advisers [Lazard Freres & Co., New York] to assist with the sale of all or a substantial portion of the operations of the company.

"It is management's intention to negotiate and consummate a transaction during 1994," the 10-K said, "[and] it is more likely than not that the sale of a substantial portion of the operations of the company will be agreed

upon and consummated. If such a sale is not completed, management would pursue other strategic alternatives, including but not limited to mergers, joint ventures or . . . outsourcing."

Homeland Stores was created in late 1987 when Safeway, Oakland, Calif., sold its Oklahoma division to Clayton Dubilier & Rice, a New York-based investment firm.

What is prompting its current actions, industry observers told SN, is not the threat of increased competition from Wal-Mart Supercenters but the high cost of capitalizing expansion.

"Homeland isn't highly leveraged, but there's not much room to expand within Oklahoma without cannibalizing itself," Steve Ruggiero, a securities analyst with Donaldson Lufkin & Jenrette, New York, told SN.

"The markets surrounding Oklahoma -- Texas, Arkansas, Missouri and Kansas -- are all very competitive already and would require a heavy capital commitment. And without adding square footage, how do you get a return on equity?"

Adding to Homeland's cost factors is its union contract, which, despite employee concessions, forces it to pay a higher wage rate than its mostly nonunion competition.

Observers see Fleming Cos. and Scrivner, two locally based wholesalers, as potential buyers, along with Albertson's, the Boise, Idaho-based chain that gained a foothold in Oklahoma two years ago when it acquired 14 Jewel Osco units there.

Homeland operates the only dry grocery warehouse and the only frozen food warehouse in the state, aside from the two wholesalers, Ruggiero pointed out, "and those are very valuable assets."

Albertson's executives declined comment, and officials at Scrivner could not be reached for comment last week. A Fleming spokesman declined comment on specific talks with Homeland but said, "We have previously stated that our objective is to increase the number of company-owned retail operations."

Homeland operates 93 of its 112 stores in Oklahoma, with 12 in the Texas Panhandle around Amarillo and seven in southern Kansas. The Homeland operation, which consisted of 106 stores when it was acquired from Safeway, had total sales of $649 million in 1987. For the 53-week year ended Jan. 2, Homeland's sales were $811 million, down 2.4% from the prior year.

When adjusted to a comparable 52-week year, 1993 sales decreased only 0.5%, while same-store sales also fell 0.5%.

Raydon said Homeland is seeking either a retail, wholesale or investment partner. "We're at a point now where we need to get larger, and we can do that either by joining with a strategic partner or freeing up additional funds to capitalize new-store growth," he explained.

A retail partner would not have to be geographically contiguous, he added.

One factor in Homeland's decision to seek alternative arrangements, Raydon said, is the union situation.

"Although we have made tremendous strides working with the United Food and Commercial Workers Union, and although our employees made significant sacrifices in terms of concessions to help us achieve a level at which we could remain competitive, we are still the only operator with a union contract, and we continue to pay approximately $2.42 an hour more than our competition," Raydon explained.