October 20, 2005
Safeway to Close 15 Area Randalls, Revamp Rest
By David Kaplan, Houston Chronicle
Oct. 19--With its market share in Texas continuing to slip, Safeway announced Tuesday that it is closing 26 Randalls and Tom Thumb stores, including 15 Randalls in the Houston area.
The nation's third-largest grocery chain, Safeway said it is closing stores that it considers underperforming so that it can concentrate on upgrading the remaining stores.
"These closings set the stage for fundamentally improving our Texas operation," said Steve Burd, CEO of California-based Safeway.
Once the targeted stores are closed by the end of the year, Safeway will have 112 Texas stores, including 36 Houston-area Randalls.
Since Safeway acquired Randalls six years ago, the chain has seen its market share in Houston fall sharply, from 20 percent to 10.8 percent, according to the trade publication The Shelby Report.
One reason is more competition from newer players such as Wal-Mart Supercenter and H-E-B Food-Drug. Some longtime Randalls customers also think the chain just wasn't the same after the Onstead family sold the business.
Safeway's long-term strategy seems to address that perception by overhauling remaining Texas stores with its new "lifestyle format."
The new format features more perishables, including an expanded produce section with organic fruits and vegetables and more prepared foods and wine, a full-service meat counter, sushi and olive bars, as well as new fixtures and subdued lighting,
Safeway's new model, being rolled out nationally, is inspired in part by the Onsteads' Randalls Flagship store concept, according to Burt Flickinger III, managing director of Strategic Resource Group, a retail consulting firm.
The Onsteads and their executives cultivated at Randalls a commitment to service that became nationally renowned, he said.
"Safeway's initial mistake with Randalls was taking a national approach to a regional business," Flickinger said.
To Safeway's credit, he said, after doing focus-group research, the company realized the need to upgrade quality and service, resulting in the new format.
In the third quarter, Safeway opened an average of one remodeled store a day nationally and plans to do the same in the fourth quarter. Its first lifestyle store opened in 2003.
Two Houston Randalls -- the Meyer Park and Westheimer/Wilcrest locations -- have had the makeovers.
Safeway considered upgrading all of its Texas stores before closing any but decided to first "prune the operation" and eliminate the low-volume stores before launching the lifestyle overhaul, Burd said.
Safeway would not say how many employees are affected by the closings.
"We are working to provide employment opportunities to as many as possible and expect the majority of employees will be able to transfer to other stores," Randalls spokeswoman Connie Yates said, noting that most of those employed at stores set to be closed are eligible for severance benefits.
The decision on which Randalls stores would close was based strictly on store performance, Safeway spokesman Brian Dowling said.
However, in some instances, Safeway may have held on to stores in upscale neighborhoods and closed older, smaller stores that would have trouble adapting to the new format, Flickinger said.
In other instances, Randalls closed in neighborhoods in which it faced too much competition from grocers such as H-E-B and Kroger, he said.
Twenty-three of the stores set to close are leased, and three are on land owned by Safeway.
Houstonian Joann Fritcher, who has been shopping at the Randalls on Blalock ever since it opened, said the news that the store will close made her "sick."
"I just know the store," Fritcher said, standing next to a full cart Tuesday. She doesn't know where she will shop in the future.
Safeway said the cost of closing Texas stores and an employee-buyout charge in Northern California led to a 23 percent drop in its profits for the third quarter.
On Tuesday, Safeway closed down $1.37 a share at $23.02.
By David Kaplan and Bill Hensel Jr. Chronicle reporter Becky Bowman contributed to this report.
THE GROCERY MARKET:
Share of sales in the Houston area and change from one year ago as of July:
--Kroger 28.89 percent +1.30 percent
--Wal-Mart Supercenter 22.60 percent +2.04 percent
--H-E-B 13.73 percent +0.25 percent
--Randalls 10.78 percent -2.03 percent
--Fiesta Mart 6.47 percent -0.90 percent
--Lewis Food Town 2.17 percent -0.12 percent
--Gerland's 1.94 percent +0.03 percent
--Target 1.88 percent -0.17 percent
--Wal-Mart Neighborhood Markets 1.57 percent +0.24 percent
--Sellers Brothers 1.14 percent -0.06 percent
Source: The Shelby Report, Trade Dimensions International
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