Safeway Again Hunting for Merger Target

PORTLAND, Ore. — Safeway plans to follow the lead of rival grocer Fred Meyer Inc. when it comes to expansion--just shop for another supermarket chain.

Portland-based Fred Meyer announced Monday it will acquire Salt Lake City-based Smith’s Food & Drug Centers Inc. in a $2-billion deal pending approval of shareholders.

On Tuesday, Safeway president and chief executive officer Steve Burd told shareholders at their annual meeting in Portland that the Pleasanton, Calif.-based chain already is hunting for takeover candidates of its own.

Last month, Safeway completed its $2.55-billion acquisition of Vons Cos., one of the biggest supermarket chains in Southern California with 325 stores.

“It was the first of what we expect to be a series of mergers for Safeway,” Burd told stockholders Tuesday.

He added that Safeway could improve the profit of any rival it buys.

“Our cash flow will be such that we’re going to want to do another acquisition after we get the Vons deal absorbed. What we want to buy are assets that are in good market positions, No. 1 or No. 2 in their market.”

Burd said Safeway didn’t expect a formidable challenge to its position as the top grocer in the West from the new, expanded Fred Meyer. He hinted that Fred Meyer could face problems of its own in absorbing Smith’s.

“It’s an event for Fred Meyer,” he said. “To the extent it’s an event, we’ll try to take advantage of that.”

The Fred Meyer deal is the latest in a series of big mergers that are transforming the grocery business in the Northwest and across the nation.

Local and regional grocery chains rapidly are evolving into potential national franchises. Industry experts say the spate of mergers will create lower costs for companies and lower prices for consumers.

“It’s eat or be eaten,” said J’Amy Owens, a consultant for the Retail Group, based in Seattle.

“Each deal increases the pressure on others to do deals. If you sell more, you can lower your costs and your prices. You have to keep up, or you fall behind.”

Big chains also want the ability to command lower prices from suppliers.