A taste of Calif. lifestyle in Dominick's Chicago stores

DSN Retailing Today, March 28, 2005 by Mike Duff

PLEASANTON. CALIF. -- Safeway is transferring the "lifestyle" format it developed in California to its troubled Dominick's chain in Chicago. In bringing the format east, Safeway seems to be suggesting not only that lifestyle--developed internally under the name POC, or proof of concept-is a format that will work among its several banners but also that it may have decided not to sell Dominiek's.

After all, why should Safeway take a format it has spent time and money developing only to hand it to whoever purchases Dominick's?

Teena Massingill, Safeway's manager of corporate public relations, confirmed that the Dominick's opened just a few weeks ago in Northfield, one of Chicago's affluent northern suburbs, is based on the lifestyle format developed in California. Although only recently expanded from northern California to southern, lifestyle format stores--which feature upgraded perishables and service departments as well as expanded general merchandise-are also slated as a growth vehicle east of the Mississippi.

"We're planning to open more of the stores," she said. "We're bringing more lifestyle stores to Chicago and in our eastern division."

Massingill chose her words carefully when asked what the introduction of the lifestyle stores might mean to Dominick's, but she indicated that format's debut in northern Illinois would weigh against a sale of the Chicago division.

"We are working in our Chicago market, and we feel that it can be a viable market for us," Massingill said. "We obviously are investing in those stores and making them strong players in the industry."

The introduction of the lifestyle format may help arrest the decline in Dominick's operations. Consensus in the supermarket industry held that the upmarket chain was among the better regional supermarket groups in the United States prior to its purchase by Safeway.

Of course, some might look at the introduction of the lifestyle format as an enticement to perspective buyers. But that isn't likely. Recent published reports had the Milwaukee-based Roundy's supermarket chain offering $325 million for Dominick's, but, observers noted, a sale on those terms would result in an almost $1.5 billion loss to Safeway, which paid $1.8 billion for Dominick's in 1998.

Since then, Dominick's cache has dwindled. Its store operations have declined, say many Chicago-area consumers, pushing its affluent customer base toward other retailers. Dominick's has struggled with sagging market share and employee moral. The regional's almost 12,000 union employees have been working without a contract for more than two years. In 2003, Safeway made an effort to sell off Dominick's and failed, in part due to union action.

Safeway is pursuing new negotiations with its unions that, as a goal for the company, "will allow us to be successful in the market," said Massingill.

One analyst, who spoke on condition of anonymity, noted that despite recent rumors, the Roundy's deal is unlikely and other options are limited. "Safeway certainly doesn't seem to be indicating it is still looking to sell Dominick's. And what would its options be? Sell the stores to independents in the city and remain on the hook for the leases?" the analyst said.

Dominick's showed off its new lifestyle store in Northfield during tours held a couple of weeks ago. The store offered features typical of lifestyle units, which first launched near Safeway's Pleasanton, Calif., headquarters over a year ago, including more food-oriented general merchandise products, such as tableware; enlarged organic food, natural and ethnic food sections; an olive bar; a 72-item salad bar; a carving station where workers cut meat to order; a sushi section staffed by a chef; an expanded meat and seafood counter; upscale bakery, deli and wine departments; as well as cedar and redwood fixtures.