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Article updated: 10/11/2013 7:40 AM

Fate of Dominick's stores unclear as Safeway exits suburbs

By Christopher Placek

Dominick's, a local grocery chain that started with a single store in 1918 on the West Side of Chicago and that peaked in the 1990s with more than 100 stores in the area appears to have reached the end of the road.

Safeway Inc., the West Coast-based grocery giant that bought Dominick's 15 years ago for $1.8 billion, announced Thursday it plans to exit the area by early next year after years of battling unsuccessfully in the ever more competitive Chicago grocery market.

It was unclear how many of the 72 remaining Dominick's stores might be sold to new owners and how many might close. Four were sold Thursday to the parent company of Jewel.

Robert Edwards, president and CEO of Safeway, said the company has started marketing its Chicago assets and so far has "received significant interest."

"We're working on that in earnest with a number of different parties," he said in a conference call Thursday. "The objective is to sell all or as many as we can, as quickly as we can."

Edwards said the decision to leave the Chicago market will allow Safeway to grow its sales and profitability in core markets. The decision, he said, was done with the objective of "maximizing long-term shareholder value."

"The Chicago market, relative to our other markets, is quite fragmented and quite diverse, with independent competitors and an influx of new companies competing there," Edwards said. "When you look at the sales, the losses sustained there, market share, and resources we're allocating to support that business, the conclusion was we just were not able to make as much progress as we would have liked."

Paul Weitzel, managing partner of Willard Bishop Consulting, a Barrington-based supermarket consulting firm, said Safeway's move to exit the Chicago market isn't surprising, considering the strong competition in the region.

"They have been quietly looking for somebody to purchase the (Dominick's) division for quite some time. They would have sold it years ago if they could," Weitzel said. "They have good stores, good locations (that are) modern and well-run, but they just couldn't get the foot traffic because of their pricing. ... I think they just got to the point where they put a lot of money into it and it didn't pay off."

Weitzel said that while Safeway-owned stores are doing well in other markets, the cost structure of Dominick's in the Chicago area is much higher because of a strong employees union.

News that the Dominick's parent company was pulling out of the Chicago market spread throughout the suburbs Thursday.

"We're very disappointed to hear the news," said Ellen Divita, the economic development coordinator for Geneva, which has a Dominick's store on Randall Road.

But while the speed of the exit surprises Divita, the move does not. For the past two years she and her staff have been working with the shopping center's owner on ideas of what to do if Dominick's moved out.

"Signs of Safeway leaving the market have been around for about 10 years," she said.

About 60 people worked full- or part-time at the Geneva store, she said. It occupies 75,000 square feet, next to a Gander Mountain sporting-goods store.

"The grocery market has changed so much," she said. "People no longer have the allegiance to just one store."

Divita said the city has spoken to Roundy's about opening a Mariano's grocery store. Mariano's has been looking at the western Kane County market, she said, in its long-range planning.

Dominick DiMatteo Sr. started the chain in 1918 and bought a second store for his son, also named Dominick, in 1934 when he was 16. Father and son built the chain through the years and it remained in the family until it was sold to Yucaipa Cos. of California in 1995 after DiMatteo Jr., an Inverness resident, died in 1993. Yucaipa sold it to Safeway in 1998.

After reaching a stalemate in a fight with its unions in November 2002 and reporting losses, Safeway tried unsuccessfully for a year to sell the chain before pulling it off the market. The chain had already written off most of the purchase price by then, according to analysts.

Dominick's incurred losses before income taxes of $13.7 million in the third quarter of 2013 and $35.2 million in the first 36 weeks of 2013, the company said Thursday.

Safeway's net income fell to $85.8 million, or 27 cents per share. That compares with $157 million, or 66 cents per share, in the prior-year quarter.

Ÿ Daily Herald staff writer Susan Sarkauskas and The Associated Press contributed to this report.

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