The Palisades looks to lose their grocery store because of intransigence on redevelopment of the Safeway site
Known primarily as a West Coast-focused company, Safeway is one of the leading supermarket companies in the Washington, DC area and has been active in this market since the 1920s.
While Giant is bigger, Safeway remained committed to serving DC proper during the many decades that supermarket companies focused on expanding in suburban markets, not that Safeway didn't do that too. Safeway is the biggest supermarket company in DC proper.
Business vicissitudes have buffeted Safeway for the last 25 years. But Safeway has experienced a lot of turmoil over the decades. They've had various takeover attempts, leveraged buyouts, etc., which have changed their cost of capital and debt levels.
A DC Safeway store, circa 1965.
This led the company to close many smaller stores in the city, in favor of replacing neighborhood-based stores you could walk to with larger "regional" stores serving multiple neighborhoods that required a car trip (e.g. closing stores on the eastern and western ends of H Street NE, and other locations, in favor of a much larger store at the then new Hechinger Mall).
Safeway and value destruction. More recently, their previous CEO bought a bunch of regional supermarket companies and then destroyed their unique qualities, while trying to make them "Safeways", costing the company many billions of dollars in value.
The new CEO sold off high-value divisions like Safeway Canada, and shut down the failed divisions in Chicago and Philadelphia.
Redeveloping store sites as mixed use, and opening stores in mixed use locations. Meanwhile they have been actively redeveloping sites in DC, as part of their "Life Style" store format push and investing in new stores, based on a pilot program launched in Portland more than 10 years ago.
They've also committed to opening new locations in mixed use locations like the City Vista development at 5th and L Streets NW (pictured at right).
In fact, a few months ago the new Safeway store + housing above opened in Petworth and it's awesome.
But I still think supermarkets in urban areas could be more urban, as I wrote in an op-ed in the Washington Business Journal a couple years ago, "Urban Safeway Design Misses Mark."
Grocery stores don't make that much money. Generally the profit margin on groceries is pretty low for a supermarket, under 5%. The typical store sells about $500,000 worth of product per week, although an urban store could sell double that.
Circa 1951 photo of a Safeway at 11th and Kenyon Streets NW in Columbia Heights. This is an example of the kind of small neighborhood-sized stores that supermarket chains like Safeway used to have.
Acquisition by a private equity firm focused on realizing value present within underutilized real estate. More recently, Safeway has agreed to merge with Albertsons, owned by the Cerberus private equity firm. One of the reasons that Cerberus has moved into this sector is that many supermarket chains own real estate--store sites and shopping centers--and the value of the underlying real estate can be worth more than the profit stream from store operations.
Cerberus was involved with the first divestment of Albertsons by Supervalu, and closed many stores, selling the real estate, or selling stores to other operators. Last year they bought the rest of Albertsons and other chains (like Acme in Philadelphia and Stars-Shaws in Boston/New England) from Supervalu, with the plan to close stores, sell others, and make money off the real estate ("Cerberus’ $3.3B Deal for 877 Grocery Stores Could Mean More Store Closings: Future of SuperValu, Albertsons Now in the Hands of Real Estate Guys," Costar).
In 2014, they initiated merging with Safeway, in part to graft Safeway's management depth onto the supermarket side of the combined company, while extending the real estate maximization strategy from the Albertsons side of the company to Safeway.
The old Petworth Safeway site was one of many urban site redevelopment projects initiated by the Safeway management before Cerberus.
The new Petworth store is awesome, and about a 2 mile bike ride for me.
Safeway is now less patient when it comes to redeveloping stores and will even walk away. Already the change in regimes is evident. More recently, rather than continue with a project in Tenleytown that had dragged on for years, Safeway sold the property to a local private school ("Georgetown Day School buying Tenleytown properties," Post) and will close the store.
New developments in the Palisades suggest that Safeway will sell the property and close the store, and forbid the opening of another grocery store on the site. In the Palisades, according to ongoing coverage in The Current Newspapers, many residents have opposed a proposal to redevelop the Safeway site there, which like the Petworth project, but smaller, would provide a renewed grocery store on the ground floor, with housing above.
Opposition has slowed down the project considerably and pushed it into the period where the Cerberus firm is in charge.
Now, apparently it seems that Safeway is going to sell the site, close the grocery store, and impose a covenant on the property that will disallow a grocery store from opening there--these types of retail covenants are common and pernicious. A few years ago, Chicago banned such covenants, but DC never has (see the 2005 entry, "Chicago City Council proposes law making retail restrictive covenants illegal").
Safeway supermarket in the Palisades. Google Street View image.
Sure it might just be a strategem, but Safeway has already demonstrated that they are now prepared to walk away. Besides the Tenleytown example, they shut down 72 stores, selling maybe half of them, in Chicago and did something similar in Philadelphia, and they are closing suburban locations in the Washington area too.
According to Supermarket News, separately, Safeway has put its real estate development arm up for sale.
Undesirable outcomes as a distinct possibility: the Square 2986 story and Walmart as the "final" outcome. What's unfortunate and ironic about this situation is that residents often fight projects, not recognizing that there can be worse outcomes beyond their imagination--that the endgame isn't "no development" but "some kind of development you don't have any input into."
For example the large tract of land at Georgia and Missouri Avenues that had been a car dealership, after a long period of opposition, was approved to be redeveloped as ground floor retail with more than 400 units of housing above. Such a project would have been a significant revitalization boost to Upper Georgia Avenue, which languishes due to lack of density and no Metrorail stops between Petworth and Silver Spring.
But by the time approvals came around, financing was unavailable because the real estate market slid into recession. This property, lacking Metrorail access, was considered far less desirable in a period where financing was extremely difficult to obtain.
Eventually the real estate developer, only minimally committed to DC anyway, decided to take a quick profit and signed a 75-year lease with Walmart for a single use project.
The residents and the city are now stuck with that project for three generations because the residents didn't consider that possible outcomes could be much worse, especially if economic conditions changed. Worse outcomes weren't conceivable to them.
No grocery store is the worst possible outcome for the Palisades. It looks like something similar will happen in the Palisades, because now being owned by a company concerned more about realizing profits and earning a high rate of return, not so much about selling groceries, Safeway no longer will pursue a project for many years before it comes to fruition.
Similarly to the residents living near Georgia and Missouri Avenues NW, opponents to the proposed changes couldn't have imagined that one real alternative would be no grocery store at all, forcing everyone to drive a few miles away to the next nearest store.