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Reprint from four years ago - SWY

Friday, February 10, 2012, Orlando, Florida, USA

This is a reprint from four years ago
We are in Orlando for a Money Show, and after all is said-and-done, and in a couple of days, we find out that one of the things we miss most is a Starbucks! Huh? Yes, other than the pretty blonde better-half, the heir-to-the-mortgage, and the four (now two) hounds, we miss a Starbucks at least a couple days a week. Our morning routine, if we aren't content with green tea at home, is a short drive to the neighborhood Safeway store (SWY), as the sun comes up over the hills of Prescott, for our quad-latte. But the spiffy Orlando Gaylord Palms has neither a Starbucks nor a Safeway! The Starbucks "drive" had been a lot longer, as the first in town to open was close to the wonderful Courthouse Square, so we had gotten used to brewing-up our own green tea and/or coffee at home. But, over the course of the last summer, a Starbucks (SBUX) was opened inside the nearby Safeway grocery store, and our morning latte from SBUX has once again become a two-three times a week enjoyment.

We may own some SBUX stock and have a few option positions, and have written of and been both long and short positions at various times of our other favorite stores (COST, ABS, JWN, KR, KSS, WMT, WAG, SHLD, BBY, and SPLS), but in spite, during the winter months, shopping at Safeway at least weekly, have not had a stock or options position in this great company in a few years. SWY is the second largest supermarket chain in North America, with over 1,750 stores. Headquartered in Pleasanton, California, the successful food giant had estimated 2006 sales of over $40.5 billion, and based on 2005 revenues, was the 10th largest retailer in the United States. Whew! That's a lot of groceries.

It was 1915 when Marion B. Skaggs bought out his father's grocery store and began the growth of the Skaggs' Cash Stores in the Pacific Northwest, which merged with Sam Seelig's California grocery stores in 1926. Charlie Merrill, the founder of Merrill Lynch, put the deal together and actually left his brokerage firm to run the newly formed Safeway Stores in the 1930s, when the combined company already had a list of over 1,000 stores. Safeway continued to expand and by the time of an unfriendly takeover attempt in the mid-1980s by Herbert and Robert Haft, the successful operation was taken over by "white knight" KKR, who immediately spun off some of the firm's foreign divisions, along with groups of stores in several U.S. cities. Now back to it's basic west coast roots, and after selling nearly half their stores and a great deal of their debt, the chain could once again begin to expand, and was taken public again in 1990.

Safeway continued to expand, and even bought out one of our favorite Chicago grocery chains, Dominick's Finer Foods. It took 5 full years of family infighting, but after store founder Dominick DiMatteo died in 1995, SWY was able to close the Chicago deal in 1998, and has had a presence in the midwest market ever since. We don't know if it was a purely Chicago thing or not, but the Chicago Sun-Times has reported that old-time Chicago mega-store, Sears Holdings Corporation (SHLD), may be in the hunt for a grocery chain, and that Safeway could fit nicely with their current national distribution plan and overall corporate goals. The deal would be in the billions, quite a long way from the $1,089 price tag that young Marion Skaggs paid his dad to take over his grocery store in American Falls, Idaho back in 1915.

We were once told a great Safeway versus Ralph's grocery store story, it is somewhat of a long tale, and one that has to be told in person. So, next time we meet, remind us of good old California grocer Ralph, and we will explain the loss-leader story in detail.
"The grocery store is the great equalizer where mankind comes to grips with the facts of life like toilet tissue”-- Joseph Goldberg
(* = FHW position)

What's Frank Thinking? | 2/10/2012 9:19:28 AM | 0 Comments