25 & Still Alive: The Silver Jubilee of Safeway’s Buyout of Randalls

Editor’s Note: Today’s post is a guest submission from HHR’s good friend Anonymous in Houston. 

I am not a communications or marketing person, but I’ve heard it said before that organizations try to announce news which might be viewed as being unpopular on Fridays since the public is more concerned with their weekend plans and will be less likely to ruminate over the unpopular news. Well, July 23, 1999 was a Friday. It was the Friday where it was announced that Safeway was buying Randalls Food Markets. The Houston Chronicle’s opening words summarizing the buyout on July 24, 1999 summarized the weight of the deal and the importance of Randalls at the time: “Randalls Food Markets, the Houston supermarket chain that redefined grocery shopping in the city, on Friday agreed to sell its 116 stores to Safeway, one of the nation’s largest food and drug retailers, for $1.43 billion.”

I remember reading the news about the buyout on that fateful July Friday in 1999. I was quite conflicted about the situation. I quite liked Safeway during their first run in Houston and I even liked AppleTree, the short-lived unofficial continuation of Safeway in Houston. Safeway, along with Gerland’s Food Fair, were the two supermarkets in my Northwest suburban area back in the 1980s and so we shopped quite frequently at Safeway. The Safeway was basically the hub of activity in my area. Yes, Safeway was a bit more expensive in the 1980s than the Kroger a few miles away without being any more upscale, but aside from that, there was nothing wrong with Safeway. I believe there is some revisionist history in the Houston retail enthusiast community that Safeways were small, dirty, and had poor service, but while these descriptions might have been accurate in describing Houston’s early pre-Super Store Safeways, that wasn’t the experience at my local Safeway Super Store or at other Houston Safeways I visited in the 1980s. They were a middle-of-the-road supermarket that was a bit more expensive than other options. The convenience factor of Safeway being in the neighborhood, Safeway having, in my opinion, great exterior store designs, and Safeway having good quality store brand products like Lucerne meant that we never felt like we were being ripped off shopping at Safeway.

All this said, we also had two Randalls stores in our area, Randalls #25 and #35, and Safeway was no match for The Remarkable Stores. None of the other competitors in the area, including Albertsons and Kroger, especially in the pre-Kroger Signature store era, could compete with Randalls. There was nothing middle-of-the-road about Randalls’ store designs, service departments, and quality of service. Even Randalls’ video rental departments could beat some video rental specialist chains. Randalls’ standard stores were remarkable, the Flagship Randalls stores were truly even more remarkable. Randalls’ pricing was more or less on-par with Safeway’s reputation for somewhat higher prices than the price leaders in Houston at the time, but many Houston shoppers felt the slightly higher prices at Randalls were worth it. In the same 1999 issue of the Houston Chronicle mentioned earlier, a Randalls shopper summarized my thoughts about Randalls: “Randalls’ was a trendsetter with visually beautiful decorated stores, making you feel you’ve come to a country club food store rather than just a grocery store,” said Pat Boatwright, longtime Randalls shopper. “I’ve never had that image of Safeway.”

Some might interpret Pat Boatwright’s comment as being an insult towards Safeway, but being familiar with Houston’s supermarkets at the time, I feel pretty confident in saying that the comment was more of a statement about how great Randalls was more than a statement about how bad Safeway was viewed at the time. All this said, Randalls still operated very nice stores in 1999, but the Randalls of 1999 wasn’t the same Randalls of 1989. It might not yet have been obvious at the store level at most Houston Randalls stores, but Randalls faced many internal challenges in the 1990s. As Mike from HHR chronicles, Randalls was facing business challenges from the pressure from buying out Austin’s AppleTree (former Safeway) stores and Tom Thumb stores in North Texas. Indeed, shortly before 1999, private equity firm Kohlberg Kravis Roberts had bought into Randalls. Randall Onstead was still running things under KKR, but Randall’s father and chain co-founder Bob Onstead was out of the picture during the KKR era.

While Houston Randalls shoppers were mostly insulated from the business turbulence, or at least changes, going on behind the scenes at Randalls, this is a big part of the landscape which helps explain why Randalls was sold to Safeway. The other big part of the story had only just begun in Houston in 1999. 1999 was the era in which Wal-Mart was just beginning to roll-out Supercenters in the Houston area. There was a great fear that Wal-Mart would crush local supermarkets, and even larger grocery chains, since Wal-Mart had immense buying power and since the Supercenter format had been a success for Wal-Mart in the smaller markets where it was tried before getting to Houston. Surely a large grocer like Safeway realized the need to grow to expand their own buying power to better counter the Wal-Mart threat and perhaps there was also a desire on Safeway’s part to try to go upscale in order to offer greater market differentiation as compared to Wal-Mart.  Buying Randalls was perhaps a big part of those strategies.

Based on comments made by Randall Onstead himself in 2003 when he was employed by Safeway to try to help rescue the Dominick’s division in the Chicago area, an ill-fated buyout by Safeway, Safeway viewed the North Texas Tom Thumb stores part of Randalls to be more valuable than the stores actually bannered as Randalls. Given that Tom Thumb remains the strongest part of the assets Safeway bought from Randalls, perhaps there was merit to that belief. It should be noted that when Safeway left Texas in 1987, it wasn’t because the Texas stores had become a complete failure for Safeway, as is sometimes posited by modern-day commentators, even though Safeway was slowly losing market share in both Dallas and Houston. Safeway was dealing with the fallout from a hostile takeover attempt in the 1980s, as chronicled by Mike, which involved financing from KKR to keep the chain at least somewhat intact. Thus, a return to Texas, where Safeway had a long history, probably seemed logical to the Safeway executives in 1999.

Although Randalls was remarkably resilient to the changes in the Houston supermarket landscape in the 1990s, things started to turn in the 2000s. The new challengers in the 1990s, Albertsons, Food Lion, and HEB Pantry Foods, did little to challenge Randalls’ market share in the 1990s even if the added competition shaved profit margins. As chronicled last year at HHR in The Year of Kroger series, it was Kroger’s Signature store concept which most hurt Randalls in the 1990s as Kroger successfully converted a good number of shoppers looking for a more upscale experience by emulating Randalls’ stores while being very price competitive.

That said, when Safeway took over around the turn of the Millennium, they found themselves fighting a new set of competitors. Kroger was still expanding their Signature store format, to the continued detriment of Randalls, but Wal-Mart’s Supercenters proved to be quite the competitor in Houston that analysts thought they might be in the 1990s. Added to that, HEB moved away from their Pantry Foods format and started building full-line supermarkets in Houston in the 2000s. HEB’s second effort in Houston proved to be a much bigger challenge for Safeway than Pantry Foods was for Randalls in the 1990s.

The melding of Randalls’ ‘Remarkable’ stores with the middle-of-the-road Safeway also proved to be a challenge. In order to take advantage of added scale, Safeway moved to replace some of Randalls’ items with ones from the Safeway inventory system. This was viewed negatively with some Randalls shoppers and Safeway at least temporarily tried to pacify shoppers by labeling some Safeway brand items sold by Randalls under the ‘Remarkable’ label. While Randalls and Safeway’s higher prices in the 1980s and 1990s might not have been a huge hurdle, higher prices were a big hurdle for Safeway in Houston in the 2000s and 2010s. Kroger was more aggressive than Safeway in countering the discounting from Wal-Mart and HEB. Given how well Kroger’s Signature stores were viewed by upscale shoppers, this led to further degradation of Randalls’ market share.

As mentioned in the recent HHR post about Safeway’s Lifestyle format, Safeway decided that instead of competing with the Wal-Marts of the world on price, Safeway decided to try to go more upscale. Analysts at the time thought this move was at least partially inspired by Safeway needing to do a better job matching the upscale image of the supermarkets Safeway had recently purchased such as Randalls and Dominick’s. This meant that Safeway closed a large number of Houston Randalls stores in 2005, and in subsequent years, at under-performing locations where going upscale would not work. In Houston at least, this has left a handful of stores, at least relative to the number of stores Randalls had in 1999, which mostly exist in wealthier, built-out areas of the Houston area where there is more limited competition and greater taste for upscale stores even if the prices are less competitive.

Of course, it should be noted that Safeway no longer technically owns Randalls as Albertsons and Safeway merged in 2015 and Albertsons now owns Randalls and Tom Thumb. That said, the Safeway influence is still strong at Albertsons as Albertsons is still continuing to renovate Randalls and Tom Thumb stores into newer variants of the Safeway Lifestyle décor package. Across the chain, Albertsons has reduced some of the higher-end service department features Safeway implemented in Lifestyle stores, but Randalls has not seen as many reductions as some other Safeway divisions.

On the topic of divisions, one of the biggest changes Albertsons implemented post-merger was to close the Houston Albertsons office and distribution center in 2017. This shifted Randalls stores into the Albertsons Southern Division which is run out of North Texas. While being under the leadership of North Texas might insult some Houston shoppers, in my experience, Randalls stores are run better now than they were when the Houston division was still in place. Prior to the shift to North Texas, Houston Randalls stores had several operational issues which proved to contradict Safeway’s efforts with Lifestyle to exude an upscale image. It was not uncommon to find expiring or expired food on the shelves at Randalls during the Lifestyle rollout era and out of stocks, especially on sale items, were common at Houston Randalls stores. Now, they are less common and it seems that Randalls has made some effort to become more price competitive than they were some years ago. Most of the good prices Randalls has these days are on sale/digital coupon items, but at least it has reduced the cost to shop at what are still some of the nicest supermarkets in the Houston area, in my opinion at least. At the very least, Albertsons has removed the need to have a Remarkable Card in order to get regular sale prices at Houston and Austin Randalls stores. For whatever reason, the card requirement is still in place at North Texas Tom Thumb stores, but not at North Texas Albertsons stores. Go figure.

One positive result of Randalls’ move to Albertsons’ Southern Division is that Houston’s Randalls stores have much higher user reviews on Google than they did when the Safeway/Albertsons Houston Division was still operational.  For most of the 2010s, Randalls stores in Houston generally rated in the mid-to-upper 3 range in the ratings.  Since the early 2020s, Randalls’ Houston stores score pretty consistently in the low-to-mid 4s.  The improved scores are surely the result of improved operations and promotions implemented by the Albertsons Southern Division.

It seems that Randalls has found a niche as Houston’s upscale supermarket chain. Thus, in many ways, Randalls is still filling the same part of the market that they filled in the 1980s, but surely that upscale niche is much smaller now than it was in the 1980s as the Houston market has become much more discount store-oriented over the years. While it might be hard to call modern Randalls stores ‘Remarkable,’ in my opinion, they are still nice places to shop relative to the competition. Most Houston area Randalls stores still have nice flooring cover and most now have some sort of colorful Lifestyle décor package, either Colorful Lifestyle v2 or Lifestyle v3. The service department offerings at Randalls are, while less numerous than before the Albertsons merger, still quite nice. I find Randalls’ bakery products to be my favorite between them, Kroger, and HEB. Randalls’ delis still get long lines when there is a Cheep Chicken promotion. The decision Safeway made years ago to not carry Boar’s Head products at Randalls surely infuriates Houston’s Boar’s Head lunch meat fan club members, but given that Kroger and HEB do sell Boar’s Head, I suppose Randalls is the place to go for Houston’s Dietz & Watson fan club.

The biggest challenge to Randalls’ continued existence, at least as we currently know it, involves the proposed Kroger-Albertsons merger with potential divestments to C&S Wholesale Grocers. This divestiture topic was the subject of a recent HHR post by Mike. The Federal Trade Commission has challenged the merger and so now the fate of the merger is up to the courts. The expectation is that the courts will not allow the merger, but that will hardly be the last word on this matter. The private equity behind Albertsons seems to want to sell their stake, merger or not, and that may force Albertsons to sell off divisions if the merger fails. So, with all of these potential changes, it is hard to say what the future will be for Randalls. Whether it is with ownership by Albertsons, Kroger, or someone else, my hope is that Randalls will remain a part of the Houston supermarket landscape and continues to provide an upscale shopping experience as there is a small niche of shoppers who still want the more upscale, traditional shopping experience that Randalls offers their customers.

The Randalls I shop at most frequently, the Champions Flagship Randalls, continues to carry the influence of several supermarket chains. The store still very much has the unique feel of Handy Andy, the chain who originally built that store fifty years ago in 1974. The store still has some upscale aspects implemented by Randalls in the 1980s when they upgraded it to a Flagship Randalls store. The store continues to have somewhat of an upscale feel through the store’s recent renovation to Safeway’s Colorful Lifestyle v2 décor package. It is ‘remarkable’ to me that here fifty years later, that store remains as a very nice place to shop for groceries. With that in mind, if you have any thoughts about Safeway and Randalls, please feel free to leave a comment in the comments section below. We love to hear from our readers!