Safeway plans Seattle upgrades and redevelopments, but questions remain about timing

Safeway is “reaffirming its commitment” to Seattle, according to a recent flurry of earnest statements by company officials.

The Boise-based grocery chain, which operates 19 stores in or just outside of Seattle, wants shoppers to know it has “imminent plans” to remodel nearly half of those locations and do “complex redevelopments” at three others. The latter projects — in the U-District, Upper Queen Anne and Magnolia — will feature vastly larger stores beneath multistory apartments that together will add more than 600 new units of housing.

In all, it’s welcome news for a city that is struggling both with a housing crunch and a shortage of grocery outlets in some of its poorer communities.

Except that it’s not quite as imminent as some of the company’s messaging might seem to suggest.

For starters, none of the housing projects is actually underway.

The U-District Safeway redevelopment, while furthest along in the permitting process, has yet to break ground. Queen Anne has been delayed for years by, among other things, neighborhood concerns over scale, and the Magnolia Albertsons (the two chains merged in 2015) remains in the most preliminary of phases, with the prospective developer still exploring its economic feasibility.

As for the remodeling program: The list of eight stores slated for makeovers, starting this month at stores in Roosevelt and Lower Queen Anne, doesn’t include the one location that is arguably most in need of an upgrade — a grim and ancient structure near the Othello light-rail station that has long been at the center of community concerns over Southeast Seattle’s marginalization.

Ironically, Othello’s omission from the list may help explain some of Safeway’s recent messaging about imminent recommitment.

Last month, a breathless KIRO news segment strongly suggested that Safeway might close its three Southeast Seattle locations — in Othello, Mount Baker and Rainier Beach — due to concerns about rising crime.

Safeway officials quickly denied the report. In an op-ed in The Seattle Times, Karl Schroeder, president of the 240-store Seattle Division of Safeway and Albertsons, insisted “We have never considered closing our Rainier Valley, Rainier Beach or Othello stores.” He then went on to lay out the company’s “imminent plans to reinvest in our Seattle stores”–plans that the company reiterated in a press release this week.

But even that gets a little complicated, because Safeway has, in fact, considered closing at least one of its South Seattle stores.

In 2008, Safeway put the Othello location on the market for a reported $10.9 million. That led to fears that the community would lose its only real grocery — in part because, according to some media accounts, a deed restriction that would have prevented any buyer from using the site as a grocery store.

Although the sale was canceled, the Othello location remains what one local housing activist calls “the worst Safeway in the whole system, and the least well-maintained.”

Schroeder insists that “there are no plans for us to leave Othello,” and adds that the main issue is that the company has yet to determine whether the Othello location should get a remodel or a full redevelopment to capitalize on the real-estate boom touched off by the opening of the transit station kitty corner from the store.

Still, shoppers there are likely to believe it when they see it — in part because Safeway has never made a secret about the challenges of doing business in Seattle.

In 2019, Schroeder says, the cost of providing security at the Seattle-area stores alone will jump by nearly a $1 million over 2018, “which is pretty significant, when you’re talking about a 3 percent margin on groceries.”

Safeway has also expressed displeasure over the higher costs imposed on business in Seattle by recent city policies, including the $15 per hour minimum wage and last year’s per-employee head tax to pay for homeless services.

On the very day the Seattle City Council enacted the head tax last year, Safeway announced it was closing two North Seattle stores–a Safeway in Greenwood and an Albertsons on Aurora.

Company officials insist that the timing was coincidental: the two stores, Schroeder says, were close to other locations and “were not particularly profitable.”

But at the time, a spokeswoman stated that Safeway was “increasingly concerned about the compounding effect of the various regulations and taxes in Seattle that have dramatically increased our operating expenses in a short period of time.”

Even today, with the head tax dead and buried, Schroeder says Safeway’s business costs are still higher in Seattle than in any of the company’s other markets.

And yet, despite a business environment that might make a company want to “throw out a drag line and go slower on investment,” Schroeder says, Safeway sees potential for improvement. Much of that, he says, will come through “collaboration” between business and government. “And our part of that is to make sure that we’re leaning in and betting on the future of Seattle,” says Schroeder–a position he hopes recent announcements have helped make clear.

Here, too, Seattle shoppers will likely want to wait and see just how solid that bet is.

On top of the uncertainties that attend all housing projects, Safeway faces a few extra burdens, including one that is very much self-imposed.

Albertsons’ 2015 acquisition of Safeway, a megadeal brokered by private equity firm Cerberus, left the merged entity staggering under $12 billion in debt.

Payments on that debt amounted to around $1 billion in 2018 alone. That’s cash Safeway hasn’t been able to spend on remodeling its older stores (many in the Seattle area were built in the 1950s) or on the sort of high-tech “consumer experience” upgrades that competitors such as QFC/Kroger are putting in their stores.

It may not be a coincidence that Albertsons-Safeway continues to bleed market share to QFC/Kroger, according to Jeff Green, a grocery industry analyst with Hoffman Strategy Group.

Or that Safeway continues to rank near the bottom in consumer satisfaction. As recently as June of 2018, Safeway’s consumer-satisfaction scores were lower than any other grocery chain save Walmart, according to Market Force Information. (The top three were Wegmans, Publix, and Trader Joe’s.)

Schroeder acknowledges that the company is carrying extra debt load and also that there is “a finite amount of capital” available for remodels and redevelopments, “and every division is vying for a chunk of it.”

On the upside, he says, the company puts more of that capital in regions with greater growth potential.

And Seattle, for all its complications and costs, apparently still has a lot of potential.

Although he won’t share specific dollar amounts, Schroeder says he is doing nearly five times the number of store improvements in 2019 compared to 2018.

Safeway isn’t just “dreaming this up,” says Schroeder, about the company’s investment plans for Seattle. “Wheels are in motion.”

This story has been updated with the correct locations for an Albertsons and a Safeway that were closed in North Seattle.