Now, Safeway's earnings report shows the depth of the company's problems. It lost $1.1 billion in the fourth quarter and $828 million for all of last year.
Moreover, in each of the last three quarters, sales at stores open at least a year declined from the year-earlier period. These figures - called comparable-store sales - are a key measure of a retailer's performance.
Safeway, it seems, has unhappy customers, not only in the Philadelphia area, but also in Chicago, Houston and Dallas - markets it entered through acquisitions.
The Pleasanton, Calif., company bought the Dominick's chain in Chicago in 1998, and in 1999 acquired Randall's, which operates Randall's stores in Houston and Tom Thumb supermarkets in Dallas. The only acquisition that seemed to go smoothly was of Von's, a California grocery chain, in 1997.
Yesterday's financial results included a fourth-quarter charge of $704.2 million because Safeway said the Randall's division was worth less now. For Dominick's, the company recorded a $583.8 million charge as a discontinued operation.
Last fall, Safeway announced it would sell Dominick's and leave Chicago after the chain's unionized employees rejected the company's last offer for a new contract and vowed to strike. Dominick's is still up for sale.
To be sure, Safeway, which said 2002 sales grew a slim 1.9 percent, is not the only grocer with problems.
Analysts said weak sales at supermarket chains resulted partly from the uncertain economy, which has prompted some consumers to trim their grocery spending.
Increasing numbers of shoppers also are using Wal-Mart supercenters, other discount stores, or dollar stores for some or all of what they used to buy at supermarkets, according to ACNielsen, the marketing information company.
"Customers are generally trading down a little bit," said Dan Geiman, a supermarket analyst with the McAdams Wright Ragen brokerage in Seattle. "Instead of a hunk of beef, they're buying chicken and generally going for lower-priced products."
But the write-downs on Safeway's recently acquired companies indicate that its customers are punishing the company for the way it has managed its stores in the new markets, including Philadelphia.
Safeway's strategy of acquiring well-positioned regional supermarket chains was designed to increase its buying power with wholesalers and manufacturers, thus lowering its costs, said Andrew Wolf, who tracks supermarkets for BB&T Capital, a Richmond, Va., investment bank.
Safeway began aggressively pushing its own Safeway Select and other private-label brands, such as its Primo Taglio deli products that replaced the popular Boar's Head brand, he said.
The strategy worked well at Von's, Safeway's first acquisition, Wolf said. But it has not worked with Genuardi's customers in the Philadelphia area - or with customers in Chicago, Dallas and Houston.
"One reason it hasn't worked is that they went too fast with the merchandising strategy, putting in their private label," Wolf said. "Tom Thumb and Genuardi's both had Boar's Head. Safeway developed Primo Taglio. It's actually good stuff, but nevertheless, customers at Tom Thumb and Genuardi's were Boar's Head customers."
In the Philadelphia area, sales at Genuardi's were flat in the 12 months ended March 31, 2002, compared with the year before - even though it had opened three more stores, according to an annual survey conducted by Food Trade News, a regional industry newspaper. Even worse, Genuardi's market share of area supermarket sales slipped to 12.55 percent from 12.73 percent.
More recent surveys in Chicago, Dallas and Houston - by Market Scope, which is published by TradeDimensions International Inc. of Wilton, Conn. - found that changes in Safeway's market share were even more pronounced.
In Chicago, the Dominick's stores had a 21.2 percent share of the market in 2002, compared with 28.2 percent in 1997, Market Scope found. At Tom Thumb stores in Dallas, the market share slipped to 17.4 percent in 2002 from 20.1 in 1998. In Houston, Randall's market share plunged to 13.7 percent in 2002 from 20.5 percent in 1998.
Genuardi's spokeswoman Maryanne Crager said the company was pleased with the results of the advertising campaign, which uses the tagline "Genuardi's is back" to send the message that the stores are once again selling many items that had been removed.
"We found it has been quite successful in bringing people back into the stores," she said. Store employees have "recognized faces [of customers] who hadn't been in in a while."
But Genuardi's still has a long, difficult road ahead to regain ground, said Jeff Metzger, publisher of Food Trade News.
Philadelphia "is a very tough city," he said. "People are very passionate. They're very loyal."
And in a business as fiercely competitive as supermarkets, Metzger said, "if you lose a customer, there's no guarantee you'll get them back."
Contact staff writer Tom Belden at 215-854-2454 or firstname.lastname@example.org.