Under pressure from Wall Street to continue growing, Safeway Inc. said Wednesday that it will spend $1.4 billion to open as many as 75 new stores and remodel 250 others next year.
The announcement, made at an analysts conference, is part of the No. 3 U.S. supermarket company's plan to boost earnings 15% over the next five years. That target does not include additional earnings from the acquisition of Houston-based Randall's Food Markets, announced last week. However, a company spokeswoman said that through acquisitions and increased sales, the company's earnings could grow at a rate of more than 18% a year.
In the last five years, earnings of Pleasanton, Calif.-based Safeway have grown at an average annual rate of 34% as it has acquired such chains as Dominick's Supermarkets Inc. and Vons Cos. Safeway representatives would not reveal in what areas of the country it plans to build the new stores. However, Vons officials said eight of them would be Vons stores in Southern California and Nevada.
The capital expenditure plan will accelerate Safeway's current pace of development. Last year the company developed 46 new stores. This year's total will rise to 55 or 60.
Analyst Patrick Schumann of A.G. Edwards in St. Louis said market chains are having to build stores in addition to acquiring them because acquisitions are becoming more expensive. "It's a seller's market, and everyone knows that Safeway is growing aggressively so they are trying to get top dollar," Schumann says. Safeway shares dropped 81 cents to close at $53.44 on the New York Stock Exchange.