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The Dallas Morning News reports that on the heels of having to apologize to consumers in Philadelphia because of problems in its management of its Genuardi’s division, and decision to sell its Dominick’s division in Chicago because of declining sales and market share as well as labor difficulties, Safeway Inc., is now facing similar problems in Dallas.

Safeway is consistently rumored to be selling all or part of its Tom Thumb and/or Randall’s division because of declining market share, though officials of the company say they don’t comment on rumors.

"It's clear that Safeway has to think about its long-term direction given that they are clearly struggling with their long-term strategy of making acquisitions," Meredith Adler, a supermarket analyst at Lehman Brothers, told the Morning News.
KC's View:
This is an interesting story because of all the implications for other companies elsewhere around the country. It presents a conundrum for retailers, because it puts into question core strategic decisions that are being made by every day.

Safeway, like a lot of other companies, decided a number of years ago that the best way to be competitive with Wal-Mart was through consolidation and acquisition, by building itself up to the point where it viably could do battle with the Bentonville Behemoth. The value of consolidation still is held in high esteem in the industry; take, for example, Albertsons CEO Larry Johnston’s comments last week about how there would continue to be global and domestic consolidation, and that Albertsons would be a player.

The problem is that consolidation clearly does not work…at least, not just consolidation. Sure, it allows economies of scale…but it can ignore the fact that shoppers don’t necessarily give a damn about economies of scale. Customers like low prices, but they also want the products they want…not just the products that consolidated chain stores want to give them. Striking the balance is key to success; tunnel vision is not a virtue.

Is consolidation bad? Certainly not…at least, not always.

But differentiation is always good. Probably better. And it is our opinion that most retailers -- in every venue -- that do not explore, exploit and promote their differential advantages are destined eventually to fail.