Analysts Wary Of Roundy's Decision To Purchase 11 Safeway Stores In Chicago

By Kara Murphy, contributing writer, Integrated Solutions For Retailers

Safeway and Supervalu failed to flourish in the Chicago market

Stock analysts are undecided about the decision by Roundy’s to purchase 11 Safeway stores in metro Chicago. Roundy’s paid $36 million for the Chicago stores, which operated under the name Dominick’s. The stores will re-open under the Roundy’s banner of Mariano’s, with the first scheduled to open Feb. 18.

The purchase doubled the number of stores Roundy’s owns in the Chicago market. The company whose stores dominate Wisconsin’s major cities is looking to expand and to decrease its reliance on that market. Both Safeway and Supervalu tried and failed in the Chicago market, and that’s a fact that could be worrisome to Roundy’s investors. In all, Safeway divested itself of 72 Chicago stores by the end of 2013, while Supervalu sold its Chicago area stores to a group of private investors. But Roundy’s growth plan centers on becoming a national player in the grocer industry. With about 160 stores, it has a long way to go to catch Kroger, the king of the grocery chains, with more than 2,400 stores and nearly $100 billion in annual sales. Kroger also is continuing to grow, recently coming to a deal with Harris Teeter for the sale of $2.5 billion and 212 stores.

Roundy’s stores, which operate under the banners of Pick N' Save, Rainbow, and Mariano's, target value-conscious customers. A Motley Fool analysis says that focus has actually hurt Roundy’s operating margin, because marketing effectively to value-priced customers requires heavy promotions to bring in business. The Motley Fool article also said Roundy’s profit margin has been adversely affected by the healthcare industry’s continued shift to generic prescriptions. That trend continued to negatively impact the company’s pharmacy business, which in the past has accounted for about 16 percent of its total revenue, making it a major source of higher margin sales.

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