ARCADIA, Calif. -- Safeway could expand the operating area for its Chicago-area Dominick's Supermarkets chain by 200 to 300 miles, Steve Burd, chairman, president and chief executive officer of Safeway, told the company's annual meeting here last week.
According to Burd, the distance between the Dominick's distribution center in Northlake, Ill., and the store farthest away is only 35 miles, compared with northern California, "where there are fewer than a dozen stores that close to the distribution center, so it's an interesting opportunity.
"Consequently, we could build more stores in the Dominick's operating area than in any other division," he pointed out.
Burd told SN after the meeting that store growth could come from new construction or acquisitions.
In response to a shareholder's question, Burd said Safeway's expansion in Canada is likely to accelerate. "We've gotten more aggressive there, particularly in British Columbia, because our labor contract there [with the United Food and Commercial Workers Union] encourages us to build new stores [as the result of a two-tier wage structure]," he explained.
However, he said, growth in Canada will probably be limited to filling in locations in the Western provinces "and the sliver of Ontario in which we're already operating."
Asked by SN whether Safeway is in talks for future acquisitions, Burd replied, "I do not comment on any acquisition talks, but it's an ongoing process. If you are a company that's interested in acquisitions, you've got to be talking to people, even if they're not interested in selling, to let them know that if they change their mind, we would like them to become part of Safeway."
What Safeway looks for in potential acquisitions, he said during the meeting, is "additional quality assets, not just anything that's for sale."
Burd said Pleasanton, Calif.-based Safeway expects to add stores in California when the merger of Albertson's, Boise, Idaho, and American Stores Co., Salt Lake City, is completed.
However, he said, the number of units may be limited "because we're a formidable competitor and we're probably not the first place they will go with stores that must be sold, which is probably a bit of a compliment to us."
Reviewing the chain's three prior acquisitions, Burd said Vons Cos. here, acquired in April 1997, was accretive immediately, with operating improvements "exceeding our internal estimates by more than 50%"; Dominick's, acquired in mid-November 1998, will be earnings neutral for the first 12 months and accretive sometime in the second 12 months; and Carr Gottstein Foods, Anchorage, Alaska, which was acquired last month, will become accretive in the first 12 months, "although we probably will be able to beat that estimate."
Among other comments to the shareholder meeting, which was held here at Vons headquarters:
Burd said Safeway expects operating cash flow to move from 8.99% in 1998 -- "the most profitable level among publicly held supermarkets in North America," he noted -- to a margin of 9.25%, although he didn't set a timeframe for reaching that goal. "That's not necessarily the ceiling, but we are confident we can reach that level and then reassess if we want to publicly discuss our next target," he said.
Safeway's frequent-shopper cards are electronically linked in all but two divisions, allowing consumers in any of those divisions to use the cards in any other divisions. The Vons division will be linked this summer and the Dominick's division later in the year, Burd said.
Safeway is unlikely to get involved in e-commerce for groceries until the system becomes more viable, Burd said. With Peapod losing at least $20 million a year on sales of $69 million and Hannaford Bros., Scarborough, Maine, losing $11 million annually on sales of $13 million, "Safeway is making sure our investments are properly paced," Burd said.
"It's not a question of 'if' but of 'when,' and once it becomes viable, we will be in e-commerce in a significant way. But it's a timing issue at this point."
The Carr Gottstein acquisition included 17 liquor stores, which are necessary in Alaska since supermarkets cannnot sell liquor, Burd noted. In response to a shareholder question, he said Safeway is likely to learn things from operating those stores, "and if they have general applications, we could explore operating liquor stores in other markets that have similar restrictions, but it's too early to tell."
Safeway switched from getting pharmacy supplies from Bergen Brunswig to sign a five-year contract with McKesson Drugs, Burd said, "which will give us a substantially lower cost of product and additional tools to become more efficient at store level."
He said a recent drop in McKesson's stock price was due to "an accounting glitch and doesn't affect the company's ability to supply us with product."