- The Washington Times - Sunday, February 1, 2004

SAN FRANCISCO - Safeway Inc. Chairman Steve Burd, a strong-willed chief executive who once ordered his supermarket workers to be cheerful, has little to smile about.

His slumping company is embroiled in a costly 3-month-old grocery strike in Southern California, where he is vilified by labor leaders, and his support is slipping on Wall Street. Nearly two-thirds of Safeway’s market value has evaporated in the past three years, wiping out more than $20 billion in shareholder wealth.

Four top Safeway executives have left for other jobs in the past 13 months, raising concern about a leadership void at the nation’s third-largest grocer. Analysts now wonder openly whether Safeway’s board should end Mr. Burd’s nearly 11-year tenure as chief executive officer.

“As right as he was for the company at one time, he may be the wrong guy now,” said CL King & Associates research director Gary Giblen, who hailed Mr. Burd as the supermarket chain’s savior in the 1990s.

Morningstar analyst Mark Hugh Sam believes the rising tensions in the Southern California strike could force Mr. Burd to step down.

“He is very vulnerable right now,” Mr. Sam said. “The labor situation is making it very difficult for Safeway to be led by Steve Burd. He has built an antagonistic relationship with the very same people who he is going to need to increase his stores’ service component to remain competitive.”

Mr. Burd, 54, declined an interview request. Company spokesman Brian Dowling said he won’t make any public remarks until Safeway’s Feb. 12 earnings report.

Analysts say the Pleasanton, Calif.-based company is losing at least $20 million a month in Southern California, where workers angered by increased employee health care contributions struck its Vons and Pavilions stores.

Grocery giants Kroger Co. and Albertsons Inc. locked out their workers in a show of unity and are negotiating jointly with Safeway. The conflict has kept 70,000 Southern California workers off the job since Oct. 11, and contract talks have stalled since December.

Grocery workers in the Mid-Atlantic region are set to negotiate a new contract with Safeway in March.

Labor leaders are convinced Mr. Burd is pushing for a hard bargain. Some liken him to Frank Lorenzo, the executive whose acrimonious relationship with labor unions contributed to the demise of Eastern Airlines in the early 1990s.

“Steve Burd is pursuing such an extreme course that it could destroy the company,” said Greg Denier, a spokesman for the United Food and Commercial Workers International Union.

Mr. Dowling said Mr. Burd simply is trying to keep Safeway competitive as more discount merchants such as Wal-Mart Stores Inc. move into food retailing, forcing traditional supermarkets to lower prices.

The backlash against Mr. Burd turned personal last week when about 250 people marched to his estate in Alamo, an exclusive suburb of San Francisco, delivering 10,000 letters and cards urging Mr. Burd to resume negotiations with a more compassionate approach.

The plea reflected the growing desperation of union workers who have gone without paychecks for months. Their pickets have begun to dwindle, as some workers take other jobs or simply abandon hope of prevailing.

Mr. Burd has clashed with labor before, most prominently in 1998 when he urged employees to smile at customers. Safeway even sent some workers to a one-day class that became derisively known as “Smile School.” Female workers filed a grievance, saying it subjected them to unwelcome advances from male customers. Safeway said it never required workers to be friendly.

Still, it was Mr. Burd who trimmed costs and restructured the company to become more profitable than ever in the 1990s, and long-term investors have done well. When Mr. Burd took over in April 1993, Safeway stock stood at a split-adjusted $3.78 per share. The stock closed out January at $22.59, a sixfold improvement.

But the stock is far from its peak of $62.50 in early 2001, and Safeway’s rivals haven’t felt the pain as acutely as the sluggish economy hurts supermarkets nationwide.

Mr. Burd has profited through good times and bad, pocketing $44 million by exercising nearly 1.9 million stock options, including $16.1 million in the past five months as part of an automatic stock selling program he adopted before the strike began. Mr. Dowling said Mr. Burd’s recent sales involve options that are about to expire.

Mr. Burd has tapped into his wealth and connections to help re-elect President Bush. He already has raised more than $200,000 for this year’s campaign, putting him on an elite list known as “Rangers.” In December, Mr. Burd was appointed to a private-sector subcommittee to the Homeland Security Advisory Council.

A trained economist with a bottom-line approach, Mr. Burd began working with Safeway as a consultant in 1986 after the leveraged buyout firm Kohlberg Kravis Roberts & Co. took it private. He helped engineer a tough reorganization at Safeway, then spent two years running Fred Meyer Stores in the Pacific Northwest.

When Safeway began to stumble in 1992, Mr. Burd came back as chief operating officer. Six months later, he was promoted to CEO, replacing Peter Magowan, whose grandfather founded Safeway and whose father ran the grocer for years. Mr. Magowan remains on Safeway’s board.

Mr. Burd’s fresh perspective, unaffected by emotional ties, quickly revitalized the grocer. Mr. Giblen called him “the thought leader in the food industry.”

But things have gone awry in recent years as Mr. Burd undertook an expansion, buying up other chains. He alienated customers and employees by introducing untested merchandise and service concepts in the newly acquired companies, said Lehman Brothers analyst Meredith Adler — “He made some decisions that were very damaging.”

Safeway was forced to recognize $2.5 billion in losses on its acquisitions of Illinois-based Dominick’s and Texas-based Randall’s. Mr. Burd’s relationship with the Dominick’s employees became so poor that he unsuccessfully tried to sell the chain last year.

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