The Sunk Cost Fallacy Why Safeway Couldn't Quit

Would you keep spending millions on a project that hasn't met a single deadline in two years? For Steve Burd, the former CEO of Safeway, the answer was a resolute yes.

This behavior is a textbook example of the sunk cost fallacy, a psychological trap where individuals continue an endeavor because of previously invested resources rather than current logic. In business, it leads to massive corporate waste and clouding of critical judgment.

Safeway’s commitment to Project T-Rex, a failed partnership with the startup Theranos, demonstrates how easily smart leaders lose their way. They become so focused on what they’ve already spent that they can't see the exit ramp right in front of them.

Abandoning Logic for Previous Investments

The sunk cost fallacy is the tendency to follow through on a failing project simply because you've already put money, time, or effort into it. In the book Bad Blood, John Carreyrou details how Safeway fell into this trap while trying to reinvent itself as a wellness destination.

Steve Burd wasn't a novice; he'd led the supermarket giant for nearly two decades. Yet, he allowed his past investments to dictate Safeway's future. It's a phenomenon that affects everyone from retail executives to startup founders.

Psychologically, we hate the idea of "wasting" resources. We tell ourselves that if we just spend a little more, we might finally see a return on everything we've lost. This bias turns a bad decision into a catastrophic one.

Psychological Barriers to Sound Business Decision Making

Why We Throw Good Money After Bad

When a project starts to fail, the natural human reaction isn't to stop. Instead, we often feel a sense of ownership over the resources already used. This emotional attachment makes it nearly impossible to look at the project with fresh eyes.

According to the Federal Reserve, the psychological pain of losing $100 is twice as powerful as the joy of gaining $100. This loss aversion drives managers to keep funding losers. They hope that by doubling down, they can avoid the pain of realizing a loss.

Avoiding the Pain of the Sunk Cost Fallacy

Admitting a mistake feels like a personal failure for many high-achieving executives. In Safeway’s case, Steve Burd had staked his reputation on the "wellness play" to revitalize the company’s flat growth. Stopping the project would have meant admitting he was wrong about Elizabeth Holmes.

This desire to save face is a primary driver of corporate waste. Leaders would often rather lose millions of shareholder dollars than lose their status as a visionary. They stay the course to protect their ego, even when the data says to quit.

The Fear of Failed Project Management

Safeway executives watched as Theranos missed one deadline after another. Each delay should have been a red flag. Instead, the company viewed each missed milestone as a reason to stick around even longer to see the "eventual" success.

By the time Burd retired, Safeway had spent roughly $350 million on store renovations for clinics that sat empty. The company was so deep into the project that quitting felt more expensive than staying. This is the ultimate trap of the sunk cost fallacy: the further you go, the harder it is to stop.

Stories of Corporate Waste and Ego

Steve Burd’s obsession with Project T-Rex went beyond simple optimism. He ordered the remodeling of over half of Safeway’s 1,700 stores. These "wellness centers" featured granite countertops and custom wood cabinetry, costing millions before a single blood test was ever performed.

Theranos blamed everything from the 2011 Japanese earthquake to technical glitches for their delays. Burd accepted every excuse. He had already loaned the startup $30 million and committed his company's entire future to the partnership.

Even when Safeway's own medical officers raised alarms about inaccurate test results, the leadership stayed quiet. They were too far in to pull back. They had created a situation where the success of the project was the only way to justify the massive amount of capital already deployed.

Steps to Escape a Failing Project

Three Steps to Exit a Sunk Cost Trap

1. Ignore the past. When deciding whether to continue, act as if you are starting today. Ask yourself if you would invest $1 in this project right now if you hadn't already spent a dime. If the answer is no, you should stop immediately.

2. Set clear exit criteria. Before starting any major initiative, define exactly what failure looks like. Determine at what point the project must be killed regardless of the money spent. Write these rules down early so your ego can't change them later.

3. Bring in a neutral third party. Bias is hard to see from the inside. Hire a consultant or advisor who has no history with the project to give an honest assessment. They don't care about the past $300 million; they only care about the next $10 million.

Where Traditional Persistence Fails

Critics often argue that great entrepreneurs succeed because they don't quit. They point to figures like Thomas Edison who failed thousands of times before creating the lightbulb. However, there is a distinct difference between persistence and the sunk cost fallacy.

Persistence is trying different ways to solve a problem with a viable solution. The sunk cost fallacy is continuing to use a solution that has already been proven broken. When the underlying technology or market doesn't exist, sticking with it isn't brave; it's reckless.

Decision-makers must differentiate between a difficult path and a dead end. Safeway ignored scientific evidence and internal whistleblowers. They weren't being persistent; they were being blind to the reality of their situation.

Safeway's experience serves as a stark reminder of how past investments can paralyze a board. The company spent $100 million more on renovations than its highest projected annual revenue for the clinics. This level of corporate waste is almost always driven by a refusal to let go of the past. To make better choices, evaluate every project based on its future potential rather than its historical cost. Cut your losses today to protect your capital for tomorrow.