Safeway Takes First E-Commerce Plunge in Cloak-and-Dagger Deal

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Food and drug store chain Safeway Inc. said today it will plunk down $2 million in MainStreet USA Corp., a self-styled marketing and technology e-commerce company.

Safeway called the investment "interim funding in the form of a ... loan." Safeway will hold an unspecified minor stake in MainStreet, according to the company, keeping potential MainStreet losses off Safeway's books.

"This is our first publicly announced e-commerce investment," said Debra Lambert, corporate director for public affairs at Safeway, Pleasanton, CA.

The retailer was required by law to disclose its relationship with MainStreet in its proxy statement filed March 29, Lambert said.

Safeway has also signed a nonbinding letter of intent to invest $25 million in MainStreet for a less than 20 percent share of that company. This again is subject to certain conditions, according to Safeway.

Little is known about MainStreet. The privately held company was founded in December and is also based in Pleasanton, some 40 miles east of San Francisco. It does not yet have a Web site of its own.

"At this moment, MainStreet is not disclosing any information about the company or its relationship with Safeway, other than the investment," said Maria Murnane, spokeswoman for MainStreet. "We'll make an announcement later this year."

Safeway's Lambert also declined to dive into the specifics of the deal, including a confirmation that the currently information-only site would start selling this summer.

Safeway operates 1,659 stores in North America. Sales last year were up 18 percent to $28.9 billion, and net income for the same period grew by 20 percent to $970.9 million.

Barring a few sketchy details about MainStreet, Safeway is mum about its e-commerce projects.

William Y. Tauscher, a director on Safeway's board, is MainStreet's CEO. The bonds between the two companies further strengthened on March 28 when Gary D. Smith quit Safeway after 30 years to become MainStreet's chief marketing officer. Smith's last assignment at Safeway was working on Internet strategies.

Still, Safeway is hedging its bets with MainStreet.

"There can be no assurance that Safeway will make an investment in MainStreet," a prepared statement said, "and the timing and terms thereof are yet undetermined."
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