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Fitch lowers outlook on grocery chain Safeway

Friday, 26 Oct 2012 | 11:46 AM ET

NEW YORK -- Fitch Ratings lowered its outlook on Safeway Inc. to negative on Friday, citing the supermarket chain's weak sales and shrinking market share.

The rating agency kept its "BBB-" long-term issuer default rating on Safeway, the country's second-largest traditional grocery chain. That's Fitch's lowest investment-grade rating.

It commended the company's "healthy" cash flow from its stores, which it has been updating to lure shoppers.

But Fitch said that the company, like other supermarket chains, has ceded market share. Discounters, such as Target Corp. and Wal-Mart Stores Inc., and other kinds of companies such as drugstores and dollar stores, have bulked up grocery offerings to get a chunk of consumers' food budgets. Safeway also faces tough competition from Kroger Co., the nation's largest traditional supermarket chain, which has a presence in many of Safeway's key markets.

Fitch said sales trends have been "soft" at Safeway's established stores for years.

Shares of the company, which is based in Pleasanton, Calif., fell 20 cents, or 1.2 percent, to $16.37 in late morning trading. The stock has lost about 20 percent of its value this year.

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