Safeway discussing possible sale

Date : 19 February 2014

Safeway has announced that it is in discussions with regards to the possible sale of the company. Although the discussions are ongoing, the retailer has not reached an agreement on a transaction, and there can be no assurance that these discussions will lead to an agreement or a completed transaction.

Solid platforms for growth vs. maximising shareholder value

This announcement was made as the company reported its fourth quarter and full year results, which were solid overall. The challenge for Safeway is that while it has much to be optimistic about for the future, with a number of key initiatives in place which support future sales and market share growth, it has to balance this against the key principle of maximising shareholder value.

Over recent years the retailer has shown that it is willing to take the strategic decisions to drive value for its shareholders, such as its announcement to withdraw from the Chicago market, and the sale of its Canadian operations to Sobeys. 

The retailer also announced that it is to distribute the remaining shares it owns in Blackhawk to its shareholders, and that it is also exploring alternatives to monetise its investment in Casa Ley in Mexico, in which it has a 49% share.

Market consolidation offers opportunity to unlock value

While it was not revealed whether the discussions are with private equity groups or other retailers, the company has attracted the interest of investor groups in the past.  The US grocery market continues to experience a high level of consolidation, which is viewed as being helpful in unlocking value in more regionally focused retailers as they are combined with other operators to drive synergy and scale benefits.  To an extent this is being driven by both retailers and investor groups.

Benefitting from clustering, localisation and personalisation initiatives

Despite the announcements today with regards to these strategic announcements, Safeway is committed to growing sales and market share. Its network of over 1,300 stores is one of the most modernised in the US, while it also operates one of the most advanced loyalty and personalisation programs in the sector. It also has a presence in the ecommerce channel which provides a foundation for future growth, and a market leading private label operation. 

During 2013, Safeway continued to evolve its customer centric approach through focusing on clustering, localisation and personalisation initiatives. It has started to re-design its centre store offer, to deliver an enhanced premium offer, and improve its Asian and Hispanic offer. It continues to see opportunities in other clusters.

In terms of its ‘Just For U’ loyalty program, it had 6m users at year end and is leveraging this program to partner with CPG suppliers to build unique offers. Its other key pillar, private brands, grew to represent 28.1% of grocery sales, with over 770 new items launched last year.

These all represent solid opportunities for future growth, and Safeway anticipates identical store sales to be in the range of 1.5% to 2.5% this year. As indicated at the top, the management has to balance these opportunities with the need to maximise shareholder value, which may be best delivered through the sale of the business.

Solid set of results for the full year

Total sales for the quarter increased by 0.8% in the quarter to $11.3bn, with identical store sales (ex-fuel) up 1.6%. Sales for the full year increased by 0.2% to $36.1bn, with identical store sales (ex-fuel) up 1.7%. The retailer noted that it was pleased with the progress made during the year, with improved sales growth – it had its best identical store sales growth in the last five years - and its strongest volume growth since 2006. Income from continuing operations fell by 16.4% from $294.6m to $246.3m for the full year.