Safeway is apparently going to the dogs.
Northern California's undisputed grocery giant has been purchased by the private equity firm Cerberus Capital Management in a $9.4 billion deal that essentially merges the Bay Area's dominant grocery chain with Albertsons.
Cerberus, interestingly, in Greek mythology is the three-headed dog that guards the gates of hell to prevent those who have entered from ever escaping. We're not sure exactly what that says about this merger, but it's certainly looking like the end times are near for the mega-groceries of the past decade, grocery analysts say.
Cerberus, in merging Pleasanton-based Safeway with the equity firm's Idaho-based Albertsons, apparently hopes to cut costs and expand product selection, and by doing so compete in a market that Safeway and Albertsons have been steadily losing to big-box retailers, convenience stores and niche grocers. Industry insiders say Cerberus is likely looking to transform Safeway, which has eight Monterey County stores, into a neighborhood grocer that more closely resembles Trader Joe's than Costco. The days of the bigger-is-better supermarket are apparently numbered.
So what's so appealing about Safeway?
Trader Joe's has earned a loyal following with its private-label products. Yes, the stores are much smaller than the mega-groceries, but shoppers know that if they want the store's, say, Pomegranate Blueberry Sherbet, you have to go to Trader Joe's, which industry experts say keeps them coming back. It doesn't hurt that Trader Joe's tends to have clean stores, lower prices and helpful staff.
Safeway apparently has a booming private-label business, including organics, which last year reached an all-time high of 28 percent of total grocery sales — certainly better than the Albertsons private-label foodstuffs.
Meanwhile, smaller neighborhood markets that tout locally sourced meat and organic produce are attracting former mega-grocery customers with friendly service and one-of-a-kind items. Locally, that bodes well for the future of local markets.
This move away from monster stores is part of a national trend, which the Bay Area News Group's Heather Somerville broke down in a story earlier this week.
Even Wal-Mart has pivoted from big-box to neighborhood market stores that emphasize groceries. Between discount retailers, drugstores, local farmers markets and the Whole Foods or Trader Joe's around the corner, traditional supermarkets have lost 15 percent of the grocery market and are expected to cede even more by 2016, BANG reported.
So what might these new Safeways look like?
Well, under a Cerberus deal, which needs regulatory approval, the Safeway and Albertsons stores — which Cerberus bought in two buyouts, in 2006 and 2013 — could be combined to form regional grocery operations throughout the Western U.S., transforming Safeways into neighborhood-style markets with local flair which cater to local tastes.
One thing we'd say shoppers shouldn't get too excited about — the possibility of lower prices. Safeways rebranded as neighborhood markets offering locally sought-after products at stores filled with helpful employees sounds ideal, but Cerberus Capital Management is a private equity firm, and such companies are solely about the bottom line. The Cerberus investors apparently see a way to save on expenses and increase profits. Lower prices typically aren't part of that equation. The most residents can probably hope for are Safeway stores that more adequately reflect what they're shopping for in a market.