Safeway 1999 Annual Report Download - page 16

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COM PANY IN REVIEW
Safeway Inc. (“Safeway” or the “Company”) is one of the largest
food and drug chains in North America, with 1,659 stores at
year-end 1999.
The Company’s U.S. retail operations are located principally
in northern California, southern California, Oregon, Washington,
Alaska, Colorado, Arizona, Texas, the Chicago metropolitan area,
and the Mid-Atlantic region. The Company’s Canadian retail
operations are located principally in British Columbia, Alberta
and Manitoba/Saskatchewan. In support of its retail operations,
the Company has an extensive network of distribution, manufac-
turing and food processing facilities.
In addition, Safeway has a 49% interest in Casa Ley, S.A. de
C.V. (“Casa Ley”), which operates 86 food and general merchan-
dise stores in Western Mexico.
Acquisition of Randall’s Food Markets, Inc.
(“Randall’s”) In September 1999, Safeway acquired all of the
outstanding shares of Randall’s in exchange for $1.3 billion con-
sisting of $754 million of cash and 12.7 million shares of Safeway
stock (the “Randall’s Acquisition”). On the acquisition date,
Randall’s operated 117 stores in Texas. The Randall’s Acquisition
was accounted for as a purchase. Safeway funded the cash portion
of the acquisition, and subsequent repayment of approximately
$403 million of Randall’s debt, through the issuance of senior
notes. Randall’s sales for its last full fiscal year prior to the
acquisition were $2.6 billion.
Acquisition of Carr-Gottstein Foods Co. (“Carrs”) In
April 1999, Safeway completed its acquisition of all of the out-
standing shares of Carrs for approximately $106 million in cash
(the “Carrs Acquisition”). On the acquisition date, Carrs operated
49 stores. The Carrs Acquisition was accounted for as a pur-
chase. Safeway funded the acquisition, and subsequent repay-
ment of approximately $239 million of Carrs’ debt, with issuance
of commercial paper. Carrs’ sales for its last full fiscal year prior
to the acquisition were $602 million.
Stores Safeway’s average store size is approximately 43,000 square
feet. Safeway’s primary new store prototype is 55,000 square feet
and is designed to accommodate changing consumer needs and to
achieve certain operating efficiencies. The Company determines
the size of a new store based on a number of considerations,
including the needs of the community the store serves, the loca-
tion and site plan, and the estimated return on capital invested.
Most stores offer a wide selection of both food and general mer-
chandise and feature a variety of specialty departments such as
bakery, delicatessen, floral and pharmacy.
Safeway continues to operate a number of smaller stores
which also offer an extensive selection of food and general mer-
chandise, and generally include one or more specialty depart-
ments. These stores remain an important part of the Company’s
store network in smaller communities and certain other locations
where larger stores may not be feasible because of space limita-
tions and/or community needs or restrictions.
The following table summarizes Safeway’s stores by size at
year-end 1999:
Number Percent
of Stores of Total
Less than 30,000 square feet 341 20%
30,000 to 50,000 794 48
More than 50,000 524 32
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Total stores 1,659 100%
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Store Ownership At year-end 1999, Safeway owned approxi-
mately one-third of its stores and leased its remaining stores.
In recent years, the Company has preferred ownership because
it provides control and flexibility with respect to financing terms,
remodeling, expansions and closures.
Merchandising Safeway’s operating strategy is to provide value
to its customers by maintaining high store standards and a wide
selection of high quality products at competitive prices. To provide
one-stop shopping for today’s busy shoppers, the Company empha-
sizes high quality produce and meat, as well as specialty depart-
ments, including in-store bakery, delicatessen, floral and pharmacy.
Safeway has developed a line of more than 1,100 premium
corporate brand products since 1993 under the “Safeway
SELECT” banner. The award-winning Safeway SELECT line is
designed to offer premium quality products that the Company
believes are equal or superior in quality to comparable best-sell-
ing nationally advertised brands, or are unique to the category
and not available from national brand manufacturers.