Dominics

As Dominick’s checks out of Chicago, the market shifts

Safeway Inc.’s decision to jettison the remaining 72 Dominick’s supermarkets in metro Chicago upsets legions of loyal shoppers, of course. It also threatens the business of everyone from commercial real estate giants to Chicago’s biggest retail bank. It could cost 6,600 people their jobs, most of them well-paying union gigs that increasingly are hard to come by. And it could create a rare opportunity for rivals to snare instant market share.

Competitors were checking out Dominick’s sites even before Safeway, which is based in Pleasanton, Calif., said last week that it was giving up on Chicago after 15 years.

Cincinnati-based Kroger Inc. has indicated interest in at least 15 Dominick’s locations, according to sources with knowledge of the matter. Kroger intends to put its Food 4 Less banner, which has 17 sites in the suburbs and Chicago, on the stores.

Meanwhile, sources say Roundy’s Inc. of Milwaukee, owner of a dozen Mariano’s stores in metro Chicago—with another seven under construction—has expressed interest in 20 Dominick’s. More than a year ago, the sources say, Roundy’s offered to buy 29 local stores, but Safeway rejected the bid as inadequate.

Finally, sources say, the Jewel-Osco chain, whose parent, New Albertson’s Inc., announced last week that it just bought four Dominick’s, is hoping to land perhaps another 10. The Itasca-based chain, which ranks No. 1 in metro Chicago with 30 percent of grocery sales, is moving cautiously out of concerns that the Federal Trade Commission could raise antitrust objections. (Wal-Mart Stores Inc. ranks second here, with Dominick’s far behind, at just 9 percent.) Spokesmen for the would-be buyers were unavailable for comment.

Quick sales would limit the hit to nearby retailers that depend on shoppers making that weekly trek for groceries. But while Safeway says Dominick’s will be gone next year, there’s no guarantee anyone will snap up all 68 remaining sites. “If the Dominick’s closes, then your pizza guy, your sandwich guy, those people that are feeding off the Dominick’s traffic, are going to have issues,” says Allen Joffe, principal at Chicago-based Baum Realty Group LLC.

Inland Real Estate Corp. of Oak Brook owns seven local Dominick’s properties. Inland also owns three centers in which the grocer is an anchor, but Dominick’s owns its own stores. “In the end there’s no doubt the loss of an anchor tenant will have an impact on traffic at a center,” says Scott Carr, Inland’s chief investment officer, who adds that management thinks its Dominick’s properties are on good locations.

JPMorgan Chase & Co., which has bank branches in 53 Chicago-area Dominick’s, risks losing more than 10 percent of its 441 area retail locations. The fact that Safeway is likely to sell Dominick’s stores to multiple parties will make it harder for Chase to hang onto those locations, says Terry Keating, banking consultant at boutique investment banking firm Amherst Partners in Chicago.

Minneapolis-based U.S. Bank has branches inside eight Dominick’s stores that represent 9 percent of U.S. Bank’s 90 Chicago-area branches.

A Safeway spokesman says the banks’ destinies will depend on agreements with store buyers.
Jewel-Osco, Dominick’s chief competitor, has a long-standing arrangement with TCF Bank of Wayzata, Minn., for branches within its Chicago-area grocery stores.

Some 4,000 Dominick’s employees are members of Local 1546 of the United Food and Commercial Workers International Union and an autonomous union that covers retail food and drug employees.

Eric Bailey, spokesman for Local 1546, says Jewel’s union contract is virtually identical to that of Dominick’s and that Jewel historically has been a better company with which to negotiate. Other competitors, including Kroger and Highland, Ind.-based Strack & Van Til, also use union labor. Other buyers would be under no obligation, however, to retain Dominick’s employees and almost certainly wouldn’t keep union shops.

Founded in Chicago by Italian immigrant Dominick DiMatteo in 1918, Dominick’s grew to a peak of 130 stores in the late 1990s. Safeway paid $1.8 billion for the chain in 1998. In recent years, the market has become crowded with discounters such as Target Corp. and Wal-Mart and high-end chains including Whole Foods Market Inc. Dominick’s and Jewel fell uncomfortably in between. “The middle ground lost its footing, and Dominick’s was late in reinventing itself,” Chicago-based food consultant Mari Gallagher says.
Now the grocer’s customers may be forced to shop elsewhere.

Susan Kelly, a stay-at-home mother in Chicago who shops at a Steeterville Dominick’s for basics while going to Whole Foods and Costco for other goods, says she’s not concerned about the name on the building. She just wants a handy, full-line supermarket.

Source: ChicagoRealEstateDaily Brigid Sweeney and H. Lee Murphy October 14, 2013
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