Speed walking through Safeway

I recall there being a wide variety of laundry soap products; now, at one of the largest Safeway (Randall's) stores in the Houston market - there is only a wide variety of liquid Tide. Tide makes my pale, white skin break out, so I was hoping for something else.

They did have sugar-free Popsicles on sale, which was fun. They also still had a bunch of sugar free tapioca cups in the discount bin, so I grabbed a bunch. Either I've gone daft, or they only had a very small selection of bacon. They also had coffee on sale (which was what brought me into the store - I was out of bean). Dunkin Donuts beans are more expensive than Starbucks? Really? Safeway has prices marked in disparate ways, just as do all grocery chains - some containers are marked per pound, some per ounce, some per package. This requires math on the spot - which is the better deal? This one's on sale, but the price per measure isn't converted for the SALE price, only for the original price ..

Calculate, calculate, calculate. This one says it's organic, but is it fair trade? This one looks perfect, but it's decaf.

Finally, I reached a decision.

The little hand basket loaded to overflowing, I wandered over to the cash registers, so loaded up with last minute offerings that one can't see whether a cashier is there until one gets right up on the belt.

I remember when Randall's (before it was Safeway) used to have thirty plus types of mustard. Now, there are five or six.

Not that I don't care for Randall's now - but, how Randall's became Safeway is an excellent example of how American business is so focused on short term profit and not on long term stability and growth.

Back in the distant past, there were four or five grocery chains that dominated the Houston market. Kroger, Randall's and Weingarten's, Safeway, Gerland's and Feista. Feista, I believe was a Spanish market store created by the Weingarten family.

Of those, only Kroger and Safeway were multi-state chains.

Houston has seen and kicked Albertson's to the curb, along with Food Lion and a few others. Weingarten ran for the exits in the 1980s, wisely focusing on their real estate holdings. Gerland's gave up the ghost, although hints of it linger on in the Food Town chain. Fiesta moves from strength to strength. Kroger has been the king of the hill for decades.

Safeway, though, had a very strong market position. In about 1986, Safeway was put "in play" by Robert Haft (who were, at least in the business of running food and drug stores), and the board ran for cover with Kohlberg, Kravis Roberts (KKR) as their savior. This is sort of like leaping into the arms of the cannibal pygmies to save oneself from being eaten by marauding lions. Proving my axiom, KKR required that the company repay the borrowed money by selling off chunks.

Of course, KKR handled the filings and arranged the financing making a blizzard of cash.

The helpful investment house of KKR offered to broker the sale of huge chunks of Safeway, which had been so neatly assembled over fifty years following a strategy set in place by Merrill Lynch. Overseas operations, about half the total was all sold. The Houston operation, including its distribution warehouses and its brand spankin' new dairy factory to the Houston managers.

Who had to borrow the money.

From KKR.

Who made a shitload of money on THAT angle, too.

Enter "Apple Tree Markets".

Apple Tree was actually a TERRIFIC grocery chain, but the debt load was too great to sustain its operations, and pieces of it began to fly off. The dairy plant. Prime locations. The stores started to show their plight.

Finally, Apple Tree stores sold off their pieces to .. Randall's and Fiesta. Mostly to Randall's, which expanded hugely from Apple Tree's failure.

Randall's bought up the Tom Thumb stores in Dallas, along with Apple Tree stores all around the state. And they were large. And they were prosperous-ish.

And they loaded up on debt.

Kroger, being the 800 pound gorilla in the marketplace, only had to burp up a few tenths of a percentage of cash flow to turn a cranky, 1970s Kroger store into a Sak's like emporium, and Randall's had to keep up.

And the money kept flowing in ... (with acknowledgment to Tim Rice). Guess who loaned them the money???? (hint, their initials are KKR)

Well, ten years after taking the company private, the Safeway folks were .. expanding into new markets to replace those 1,000 or so stores that vanished when KKR took the company private.

And, guess how they re-entered Texas? By buying Randall's and paying a blizzard of money for it. That they borrowed. From KKR. But, wait - KKR was the majority owner of Randall's - and had provided Randall's all of the financing - so, how did they .. loan .. uh ..

And now, we have Safeway in Houston again.

And Kroger is still the 800 pound gorilla.

But KKR has made a TON of money! Retail centers have lost tenants, managers and employees have lost jobs, pensions are gone, choices are fewer - but KKR HAS MADE A TON OF MONEY!!!!!!

And, isn't that how it should work? A growing food and drug chain in DC decides to expand their presence, so they start buying stock in a large, publicly traded grocery and drug chain but the board of directors of the large, publicly traded grocery and drug chain want to retain their jobs and their panache, so they bargain with the devil, who requires them to sell off ONE HALF of their enterprise, pay enormous fees and interest, finances the sales of all the ONE HALF of their enterprise to the buyers - making interest and fees, then FIRES ALL THE DAMNED DIRECTORS ANYWAY, and then suggests - hey, you guys - you should be expanding into these markets you're not currently in (because we made you sell the stores you already had there) and SELLS THEM MORE STORES THEY ALREADY OWN.

Seems quite reasonable.

And we wonder why sub-prime mortgages didn't sound so bad.