Dominick’s to leave Chicago market by early 2014
BY MITCH DUDEK, SANDRA GUY AND BECKY SCHLIKERMAN Staff Reporters
Say goodbye to Dominick’s grocery stores.
Safeway Inc., which operates 72 Dominick’s stores in the Chicago area, will be exiting the market by early 2014, the company announced Thursday.
“We expect to use the cash tax benefit and any other cash proceeds from the disposal of Dominick’s properties to buy back stock and to invest in growth opportunities,” Safeway said in a news release.
Safeway CEO Robert Edwards said Thursday that exiting the Chicago market was necessary to “eliminate a noticeable drag on our financial results and a significant drain on our resources.”
He said Dominick’s was the lowest-performing of Safeway’s business divisions, and he is “highly confident” the stores would be sold.
Dominick’s, which was founded in Chicago in 1918, employs 6,600 people in its 72 stores throughout the Chicago area, with the “vast majority” unionized workers, said Safeway spokesman Brian Dowling.
The sale of four stores to New Albertsons, Inc., which operates Jewel-Osco grocery stores, was announced later Thursday. Two are in Chicago: 1340 S. Canal and 2550 N. Clybourn; one is in Homer Glen and another is in Glenview. For a short time, the four stores will operate under the Dominick’s banner until Jewel-Osco can convert them to Jewel-Osco stores, according to Safeway. Other stores are expected to be snapped up piecemeal by Dominick’s competitors.
A Dominick’s employee at the Clybourn store that will soon be a Jewel put it this way to a Sun-Times reporter: “We’ll get new shirts.”
David Livingston, a market consultant in Milwaukee, speculated Thursday that other companies interested in the remaining Dominick’s stores may include Walmart, Whole Foods, Caputo’s Fresh Markets, Strack & Van Til and Tony’s Finer Foods. “There are 25 to 30 really good locations,” Livingston said of the remaining Dominick’s stores.
There is also speculation that Mariano’s, a quickly expanding grocery chain with 12 locations in Chicago, will make a play.
Roundy’s, the parent company of Mariano’s, played coy by issuing the following statement Thursday: “It is the fiduciary responsibility of our board of directors to evaluate any opportunities that may enhance shareholder value.”
The CEO of Wisconsin-based Roundy’s is Robert Mariano, a native of the Jefferson Park neighborhood who started his grocery career as a part-time deli clerk at a Dominick’s in Des Plaines and ran the company from 1995 to 1998.
Safeway anticipates having plans in place for the remainder of the stores by early 2014, the company said in a statement. “Over the years we have worked hard to strengthen Dominick’s position in the Chicago market. While we have made some progress, it has not been enough to justify further investment.”
Kenneth Boyd, head of United Food & Commercial Workers Local 1546, which represents 4,000 union workers employed by Dominick’s, said Thursday’s news was “dropped like a bombshell.”
Boyd said he had received phone calls from people worried about feeding their families and providing for the holidays. “It’s not the employees’ fault. They are dedicated, long-term employees, their heart and souls are with Dominick’s,” Boyd said. Boyd said he spoke with Dominick’s head of labor relations, who told him the company would close the stores it cannot sell.
“We have to sit down with the company and bargain,” Boyd said. “They owe a lot of money to the pension plan that they will have to pay.”
Rumors have been rampant for years that Safeway sought to sell the Dominick’s chain, with the rumbles growing louder after Safeway’s three-year battle with Dominick’s unions over a contract.
Dominick’s workers approved new contracts in November 2005 that ended the battle. During the fight, workers threatened to strike, prompting Safeway to try to sell the chain before reversing course.
Safeway closed 26 Chicago-area Dominick’s stores from 2004 to 2007 to jettison stores with slow sales. In 2006, Safeway started a major renovation campaign to turn the remaining Dominick’s into “lifestyle” stores more akin to Whole Foods.
“Dominick’s has been putting money into their stores, refreshing them, keeping an upcale modern look,” said Paul Weitzel, managing partner at Willard Bishop, a Barrington-based consulting company.
“The challenge with Dominick’s was that they had a strong union, so their wage rates were above market average. And they just never got the foot traffic because their prices were high, but they had to maintain those prices to pay for their union structure. So they were kind of stuck. I know for years they looked for a buyer but couldn’t find one, they just couldn’t get their prices in line with their costs.”
Union leader Boyd argues that organized labor is not to blame, pointing out that Jewel has a similar union structure.
Dominick’s market share in the greater Chicago region had plunged to 7.4 percent, compared with Jewel’s 25.9 percent, independent stores’ 15.9 percent and Walmart’s 13.5 percent, according to a recent trade magazine report. Dominick’s had held market shares of 14.5 percent six years ago and 24.4 percent in 2002, according to the report
The Streeterville store at 255 E. Grand was one of the first to showcase Dominick’s sleek format changes. It houses a pharmacy, a dry cleaners, a Chase bank branch, a 150-car parking garage and a Starbucks with seating for 50 in front of a gas fireplace, as well as twice the amount of organic produce as an old-fashioned Dominick’s.
Dominick’s also stepped up marketing of its gift card sales for retailers as diverse as Nordstrom, Bass Pro Shops and rival grocery stores.
The gift-card program, which is now partly owned by Safeway and partly publicly traded, has proven lucrative, and epitomized parent company Safeway’s efforts to create new, quick-moving and technologically savvy subsidiaries to boost revenues. The strategy dramatized how former Safeway CEO Steve Burd, who retired in May, sought to reinvent the traditional grocery store company by incubating fast-growing subsidiaries with no unionized labor and with a national presence.
Dominick’s incurred losses before income taxes of $35.2 million in the first nine months of 2013.
Dan Hyman, president of Millennium Properties, said the influx of new grocers such as Target, Walmart and Trader Joe’s has created a cutthroat market.
“In the past few years, Chicago all of a sudden became like a big battleground, and the battle is probably not over.”
On the Near North Side, customers at a Dominick’s on Division Street near Clybourn were shocked to hear the neighborhood grocery chain would be closing.
“It breaks my heart,” said Lashawn Jones, 36. “This can’t be happening. I need Dominick’s.”