To hear Chairman Peter A. Magowan tell it, Safeway Stores Inc. is a far better company for its tumultuous experiences of the past year.

In the wake of Safeway's victory against a takeover bid by Washington's Haft family, Magowan says without hesitation that the nation's largest supermarket chain has become "a better-managed company."

But the improvements have come at a high cost. The company has closed 331 stores and laid off more than 8,600 employes. Heavily in debt, Safeway is losing money. Market share has also dropped, particularly in the Washington metropolitan area.

What's more, although the takeover battle launched by the Hafts' Dart Group Corp. ended last summer -- with Safeway's management arranging a private buyout of the publicly held stock -- the sparring between the two companies continues.

A Haft takeover of the Oakland, Calif.-based company that had $20.3 billion in sales last year would have been a "disaster," Magowan said in a recent interview. "I don't see any indication in their record that they know how to run a large international food chain ... There was a realistic chance that they might have sold off more of its operations than we have had to."

Dart President Robert Haft, once reluctant to discuss his family's plans for Safeway, now eagerly takes issue with Magowan. "We think it's a sad story that these financial players and current management have started to tear apart this fine company," he said, insisting Dart had no intention of selling stores. "We were interested in growing the business, not selling it."

The Hafts -- founders of Dart Drug Stores, Crown Books and Trak Auto -- first expressed their interest in Safeway publicly in early June 1986 when Dart chairman Herbert Haft and his son Robert filed a report with the Securities and Exchange Commission disclosing their purchase of 3 million shares -- 4.9 percent -- of Safeway stock. A month later, Dart offered to buy the chain for $3.6 billion, upping the bid a few weeks later to $3.9 billion. But determined to remain independent, Safeway arranged a leveraged buyout with the financial investment firm Kohlberg Kravis & Roberts Co., using the company's assets to obtain financing to buy the publicly held stock in a deal valued at $4.2 billion.

"I wish it had never happened," Magowan lamented recently. "It didn't deserve to happen to us. We were making progress" in improving corporate earnings, he added. "We were not an undermanaged company."

Yet, he subsequently acknowledged, the buyout has been a good opportunity to create a more efficient company. "A year later I can more clearly see the advantages to operating in an {LBO} environment," he said, pointing to the company's latest financial statement.

Operating profits for the first half of 1987 climbed by 22 percent to $203.6 million from $167.2 million a year ago. The growth was due largely to a sale of hundreds of Safeway stores that had been losing money and a cost-cutting campaign that improved profits at the stores Safeway kept.

"This is the guts of it," said Magowan.

But like the scores of other corporations that have undergone similar leveraged buyouts, Safeway's bottom line remains in the red as a result of the huge interest payments the company incurred from the buyout. With interest expenses of $295 million for the first half of the year -- nearly four times as high as last year -- Safeway recorded a loss of $78.7 million for the first half of this year.

That loss is better than many financial analysts had expected. "They are nine months ahead of schedule," said Randall M. Heck with Gabelli & Co. "They have sold more assets a lot quicker than they thought. The profit margins have improved from 1.5 to 2 percent of sales -- a dramatic improvement for the food industry. They have gotten rid of a lot of excess expenses and sold a variety of marginal properties."

Yet Safeway will have to sell more stores -- perhaps as many as 500 -- by the end of the year if it is to "make all of its interest and principal payments when due," according to a Safeway document filed at the Securities and Exchange Commission.

Safeway has already sold or closed stores in Dallas, Salt Lake City, El Paso, Richmond, Maryland's Eastern Shore, Florida and the United Kingdom. Even brand-new stores have not been spared. For example, Safeway sold its promising but not yet profitable year-old Florida division, with 11 stores, shortly after the buyout.

"We would have continued to develop in Florida had we been a public company, but {under the buyout} we can't afford to have losing operations now that could be profitable later," Magowan has said.

With 1,868 stores remaining, the company is considering selling stores in Denver, Houston, Kansas City, Little Rock, Ark., and Oklahoma. Stores where employes do not agree to major pay cuts are the most likely to be sold, Safeway officials have said. Meanwhile, they reiterate plans to keep stores in the Washington metropolitan area, as well as those in California, Phoenix, Seattle and Portland, Ore.

Where Safeway can't find a buyer for the stores it wishes to sell, it has shown no reluctance to close the stores outright. This was most notable in Dallas, where 141 stores were closed, and 8,600 employes were laid off. Similarly, when union employes on the Eastern Shore of Maryland refused to accept Safeway's demands for pay cuts, Safeway closed seven of the eight stores there, affecting more than 400 employes.

Some of these workers will probably be employed by the independent grocers who have reopened some of the closed Safeway stores. But because these grocers are not unionized, major paycuts are virtually certain. "I would guess employes will get less than half of the $12 to $14 hourly wage and benefit package that they were getting before," said Joe Kerhart, assistant to the president of Local 27 of the United Food and Commercial Workers Union, which represents the Eastern Shore workers.

Even workers who continue to work for Safeway are being asked to take large paycuts -- or face store closings. Safeway had been seeking wage reductions before the buyout, but employes had been reluctant to agree. However, after the buyout, with the threat of store closings, Safeway won major concessions from its unions in Denver, Houston and Richmond. Even so, Safeway is still closing numerous stores in the Richmond area.

"It's been like a cold slap in the face," commented Mike Woodard, who left his post as the No. 2 man in Safeway's Washington division last May after concluding that his career path would be limited by Safeway's smaller size.

"The LBO helped wake everybody up and forced management to do things it should have done years before, such as closing the poorly performing divisions. The LBO cut away the veneer and made Safeway do these things on a timely basis because it no longer had the time to turn these divisions around," said Woodard, who is now vice president and director of marketing for J.M. Jones, a subsidiary of the nation's largest food wholesaler, Super Valu Stores Inc.

For the 38-year-old Woodard, who had begun working at Safeway when he was 16, the decision to leave was particularly painful. "You don't cut your apron strings and walk away without a few tugs of the heart," he said.

Those who remain at Safeway are finding life far different as the debt-ridden chain has dramatically pared its operating costs, reduced its warehouse inventories and cut back its remodeling and store budget.

Given the huge amount of debt that has to be repaid, "we emphasize cash flow more and earnings less," Magowan said. "We are demanding that each of our spending programs produce adequate returns, and we are setting rates stiffer than before."

At the same time, Safeway is working "harder at not spending money where the customers wouldn't notice, such as distribution centers, offices and supply plants," Magowan said.

Additionally, by cutting its overall corporate expense budget by 30 percent, "we've delegated more work that we used to do here in Oakland {such as buyer training, outside truck sourcing and advertising critiques} back to the divisions." And instead of buying new equipment, the company is transferring surplus between regions.

What's more, Safeway has reduced its inventory by more than $200 million and cut its capital spending budget -- which determines how many new stores will be built and old ones will be remodeled -- by about half, to $300 million.

But Magowan contended that that cut is not as dramatic as it appears, given the company's shrinking size. Besides, he noted, by not having to put money in Florida, Dallas and other cities, "we can put a lot more money proportionately into San Francisco, Seattle" and other cities where the company is determined to keep its stores.

Yet food industry officials note that these changes have made Safeway vulnerable to the stepped-up competition from the company's rivals.

"Morale at Safeway this past year declined to an all-time low in all the years I've ever worked with them," said one Washington-area food broker, who declined to be named. "Decision-making really suffered, and their competitive efforts stalled as a result." The uncertainty and corporate restructuring also created out-of-stock problems, particularly in Richmond when the old warehouse servicing the city was shut down and another distribution center took up that role.

"The effect that such weakness has on the competitive environment has been clear," noted a just-released report by Prudential-Bache Securities Inc. "Many of the major players in Safeway's primary markets chose to move quickly to reap the benefits. In Washington, last September, Giant moved preemptively to pry market share away from Safeway." The end result: Giant increased its market share from 43.3 percent in March 1986 to 45.4 percent a year later, while Safeway's share dropped from 33.7 percent to 32 percent.

Those figures bother Robert Haft. "In the Washington market, which is considered one of Safeway's most profitable, the chain now does only a fraction of what Giant does. They used to be neck and neck, but the latest figures show that Giant rings up about $16 million in sales per store a year; Safeway does about 60 percent of that volume, with $9.5 million in sales per unit yearly."

Magowan quickly dismissed Haft's criticism, citing it as proof that an acquisition by the Hafts would have had disastrous effects on Safeway. "It is a very simplistic way of looking at the company ... It's just the type of bold statement that makes me think they don't understand the company or the food business. The sales per store is a reflection not of how bad we are but of how good {Giant} is. Their stores are larger than ours, therefore they do more volume," he said.

Besides, he added, "even though our sales are not up to Giant's standards, they are improving and our profits are excellent in Washington. So we have to be doing something right."

But some Washington-area retailing officials predict Safeway will never regain its neck-and-neck position with Giant.

"Giant is very much entrenched with 45 percent of the market; it won't be giving up its share," commented Michael S. Herman, executive vice president of Shoppers Food Warehouse, the third-largest supermarket chain in the Washington area. "If Safeway is to increase its share, it will have to get it from what is left."

Despite the costs the buyout has imposed on Safeway, Magowan said the company had no choice. "The leveraged buyout was the best alternative we had," said Magowan, who had made it clear from the start that the Haft bid was unacceptable.

To thwart the Hafts, Safeway explored finding another company to buy the food chain. But Magowan, the son of a former Safeway chairman, said, "nobody else really wanted all of Safeway. There was a great deal of interest from companies that wanted parts of us. But we were too big a bite for someone else." Another alternative -- buying another large chain that would make the cost of buying Safeway prohibitive for the Hafts or any other investor -- would have imposed a "difficult debt load for Safeway to handle."

One other option remained: Keeping stockholders happy by buying back some of the publicly held stock at a higher price than the Hafts were then offering. "That never appealed to me too much because it still left the company vulnerable to an attack and may have made it even more likely to happen."

The leveraged buyout has brought some immediate, positive changes, Magowan was quick to note. Chief among them: no annual meetings or costly annual reports, no shareholder relations departments, no director fees or expensive insurance for directors, no time spent with stock brokerage houses to discuss the company's finances.

"That's a lot of expense you can cut out -- in dollars and time," Magowan said. Although those costs may be relatively small, "it's not peanuts in our industry when you make only one cent on every dollar."

Even so, these savings might be short-lived because Safeway expects to issue stock to the public in the next three years. "Our intent is to go public again -- eventually." The exact time, however, will "depend on where the {stock} market is" and how soon Safeway can complete its restructuring, Magowan said.

"We'd rather go public sooner than later because you never know what might happen with the market.