|Dominick DiMatteo Sr., center, stands with family members and customers in 1935 in his first store, at 3832 West Ohio St. He gave it his first name to make it 'homey.' — Chicago Tribune|
|Night stockman Alex Miladinovich loads sales items into a basket in Dominick's Finer Foods at 6009 North Broadway on June 15, 1972. — Chicago Tribune, Oct. 10, 2013|
|Check-out counters at Dominick's Finer Foods at 115th and Western Avenue. —|
Chicago Tribune, April 17, 1975
Burkle had roots in the grocery industry; his father managed a Claremont, California, supermarket, part of the Stater Bros. chain. From the age of five, Burkle spent time with his father at the store, sweeping up and stacking shelves. As a teenager and college student, he worked part-time at the store, saving up some $3,000, which he successfully invested in the stock market. As an adult, Burkle maintained a dual interest in investing and the grocery industry. Although he intended to study dentistry at the California State Polytechnic College, he dropped out in 1973 and went to work full-time for the Stater chain. In 1981, Stater's corporate parent, the energy firm of Petrolane, decided to sell the chain. Burkle and his father, who was now Stater's president, assembled a buyout group which through a series of fortuitous circumstances grew to include Warren Buffet's partner, Charles Munger. Although the Burkles' bid had the support of Petrolane's president, the father and son team failed to vet their interest with the chairman of the board. When they made their pitch to the board of directors, they were promptly sacked.
Ron Burkle busied himself with his investments until 1986 when he decided to form a holding company with two former Stater colleagues to invest in supermarkets. He named the new company Yucaipa after the town he lived west of Los Angeles. The firm's first deal came in 1987 when it acquired the Kansas-based Falley's chain. A series of other acquisitions followed, all with a similar pattern: the deals were highly leveraged, with Yucaipa contributing a modest amount of the funds and taking back a portion in cash fees. It was often a high-wire act but one that Ron Burkle performed skillfully.
Yucapia planned to continue Dominick's expansion program, which included rolling out more stores adopting the chain's new European-style, open market "Fresh Store" concept that featured in-store dining, restaurant-quality take-out food, upscale meat and produce departments, specialty bakeries, and floral shops. Not only did consumers like the Fresh Stores, but these units also produced higher grosses and stronger profit margins than conventional supermarkets. In fiscal 1996, Dominick's opened eight Fresh Store outlets, followed by another 15 the following year. The Omni warehouse format, on the other hand, had fallen out of favor with consumers, and management opted not to open any news units. Another improvement to the bottom line was expected to come from the introduction of upscale products carrying a new private label called Private Selection, replacing the tired Heritage House brand Dominick's had been carrying. Another initiative the chain was pursuing during this period was the introduction of in-store banking branches, in partnership with First Chicago NBD Corp., the first opening in 1995. To help fund the chain's growth, Yucapia also looked to cut operating costs, realizing some savings through administrative efficiencies and even more by closing down less profitable stores. Although it opened more Fresh Store units, Dominick's remained essentially the same size and even lost some market share. Moreover, sales were flat, in the $2.5 billion range, but a $7.5 million profit in 1995 turned into a $10.6 million loss a year later, the result of servicing the debt taken on by Yucaipa in buying the chain. While Dominick's was losing market share in Chicago, Jewel edged over 31 percent and other competitors entered the fight. To gain some much-needed cash, Yucapia took Dominick's Finer Foods public through a parent entity known as Dominick's Supermarkets. In October 1996, the offering was completed, raising $144 million on the sale of eight million shares of common stock priced at $18 per share. Most of the money was used to pay down bank debt.
Following its initial public offering, Dominick's launched another expansion and remodeling effort, and once again made gains in market share. In 1997, the chain acquired two area Byerly's Inc. grocery stores and also decided to convert its 17 Omni stores to the more profitable Fresh Store format. It appeared once again that Dominick's was on an upward trajectory, as reflected by the company's rising stock price. At this point, Burkle elected to sell the chain considered a prize catch in the rapidly consolidating grocery industry, which was becoming national if not global in scale. For any of the major supermarket holding companies that wanted to gain an immediate presence in the desirable Chicago market, acquiring Dominick's was a quick fix. The early favorite in the spring of 1998 was the Dutch giant Ahold, but by the autumn of the year, it was California-based Safeway Inc. that succeeded in buying Dominick's at a price tag of $1.2 billion, as well as the assumption of $646.2 million in debt. For Burkle and his partners, their ownership of Dominick's, which lasted less than four years, resulted in a tidy profit, an estimated sevenfold return. Safeway, on the other hand, gained a major stake in the Midwest, augmenting the stores it already owned in Indiana.
Safeway brought in their own man to run Dominick's, Tim Hakin and instituted a number of changes to bring the chain in line with the way the corporate parent did business. Most of those steps proved to have adverse, and in some cases disastrous, consequences that resulted in the steady erosion of market share. Safeway tried to save money by having the California office handle buying, in the process eliminating a host of middle managers who knew the tastes of local consumers. While pricing and marketing executives were lopped off, other significant members of management quit on their own, resulting in Dominick's losing touch with its market. Familiar products were replaced by the higher-margin Safeway Select house brand of products, foreign to Chicago consumers. For years Dominick's had carried a wide selection of products. But now, as the Wall Street Journal explained, "a chain with a 'reputation for having truffle oil and four different kinds of sun-dried tomatoes' had shelves filled with unfamiliar products." Moreover, Safeway ended a longstanding practice of Dominick's filling customers' special order requests, indicative of Dominick's di Matteo's formula of offering personalized neighborhood service that had made the chain a success in the first place. Customers did not like the changes and showed their displeasure by shopping elsewhere, resulting in Dominick's market share dropping to 22.8 percent by the end of 2001. It was a perilous time to be losing a grip on customers, as several major players prepared to enter the Chicago market, including Target Corp., Kroger Co., and Wal-Mart Stores Inc.
In 2002, Dominick's faced new difficulties, this time from a labor negotiation. Management insisted the leaders of the United Food and Commercial Workers union, representing nearly 9,000 Dominick's employees, accept a cut in wages, putting them in line with non-union Jewel, as well as sharing costs in health care. Should the union strike, Safeway maintained that it would not attempt to operate any of the Dominick's stores and would simply shut down the subsidiary. When workers voted to reject management's offer and authorized a strike, management attacked the credibility of the vote, claiming that some employees were intimidated or given misleading information about the offer and demanding that the union conduct a revote. The two sides had clearly reached a stage where neither side trusted the other. Ultimately, a short-term deal was reached that allowed Safeway enough time to find a buyer for the Dominick's chain. The agreement was set to expire by the end of July 2003.
Once again Dominick's was on the block, with Safeway expected to only receive a fraction of what it paid for the chain just four years earlier. Ironically, Burkle and Yucaipa, which had profited nicely from their involvement with Dominick's, emerged as a leading candidate to buy the company. The union had enjoyed good relations with Yucaipa management and reportedly approached the company about reacquiring Dominick's during the recent labor fight. If Yucaipa indeed reacquired Dominick's, unlike the first time around, it would be taking on a chain in need of a turnaround rather than a business that was in the midst of an expansion program. It was likely, however, that the union would be more receptive to granting givebacks to Yucaipa than it was with Safeway, although in return the workers might gain an ownership stake.
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