SAFEWAY'S CHOICE: BUILD DEPOT OR USE C&S

WASHINGTON (FNS) -- Safeway, Oakland, Calif., is weighing whether to replace its outdated Landover, Md., distribution center with a new $85 million facility, which would require contract concessions from 700 Teamster employees, or to contract out its East Coast distribution -- possibly to C&S Wholesale Grocers, Brattleboro, Vt.Safeway officials entered union negotiations last week accompanied with

WASHINGTON (FNS) -- Safeway, Oakland, Calif., is weighing whether to replace its outdated Landover, Md., distribution center with a new $85 million facility, which would require contract concessions from 700 Teamster employees, or to contract out its East Coast distribution -- possibly to C&S Wholesale Grocers, Brattleboro, Vt.

Safeway officials entered union negotiations last week accompanied with a proposal from C&S.

"Both of those options are alive," said Brian Dowling, spokesman for Safeway's 125-store Eastern division, based in Lanham, Md. "We'd prefer to keep greater control of our distribution function and at the same time preserve 700 jobs."

John Steger, vice president of Teamsters Local 639, said it's too early to decide whether the union will grant Safeway any concessions. The first official meeting between both sides was set for last Thursday. If Safeway were to contract with C&S, it would be the latest in a series of high-volume chains that the wholesaler has landed as clients. Within a little more than a year, C&S began supplying Grand Union Co., Wayne, N.J.; Edwards Super Food Stores, a Windsor Locks, Conn.-based chain of Ahold USA, and supercenters operated by Wal-Mart Stores, Bentonville, Ark.

C&S also recently won the contract to supply Mayfair

Super Markets, Elizabeth, N.J., which was purchased by Ahold USA and folded into the Edwards operation, and has supply arrangements with A&P, Montvale, N.J.; Stop & Shop Cos., Quincy, Mass.; BJ's Wholesale Club, Natick, Mass.; Big Y Foods, Springfield, Mass., and Victory Markets, Utica, N.Y. The wholesaler, which had $2.5 billion in sales last year, supplies East Coast stores from its three New England distribution centers.

The 55-acre Safeway distribution center, built in 1952, is deficient in many respects, the company spokesman said, citing low ceilings, poor layout and overall cramped quarters among its problems.

"What we want to do is build a new center on a new site in the same county, and we're willing to invest the money," Dowling said. "Building a new center makes sense only if we can operate a facility efficiently."

If Safeway ends up contracting with C&S, it would be the first time the chain sought outside distribution on a large scale, according to Dowling. He said that while having a third party handle distribution is a money-saver, having a greater degree of control over sourcing operations is a big advantage of keeping distribution in-house.

Neither Dowling nor Kimberley Keyes, C&S assistant treasurer and spokeswoman, would say how much of a savings Safeway would garner by contracting out its East Coast distribution to C&S. However, Keyes noted that Grand Union has said it expects to save $26 million annually by contracting out its distribution to C&S.

According to analyst Debra Levin, vice president at Morgan Stanley & Co., New York, Safeway's interest in exploring an outside distribution contractor is part of an inevitable trend in the industry.

"What it indicates is that companies are looking at their costs very carefully, and when they see an opportunity to reduce costs they'll take it," she said.