For many Americans, "going to Safeway" is synonymous with "going to the grocery store." Safeway is one of North America's largest food retailers, with some 1,675 stores located mostly in the western, Midwestern, and mid-Atlantic regions of the US, as well as western Canada. It also operates regional supermarket companies, including The Vons Companies (primarily in Southern California), Dominick's Finer Foods (Chicago), Carr-Gottstein Foods (Alaska's largest retailer), Genuardi's Family Markets (eastern US), and Randall's Food Markets (Texas). Safeway owns grocery e-retailer GroceryWorks.com. Outside the US, Safeway owns 49% of Casa Ley, which operates about 185 food and variety stores in western Mexico.
Safeway rings up 85% of its sales in the US, with the remainder originating in Canada. About a third of its supermarkets are in California. It also has stores in Alaska, and owns a minority stake in Mexico's Casa Ley.
Safeway divides its US grocery business into nine geographically-based divisions. (It is exiting the Philadelphia area with the sale of its Genuardi's stores in 2012.) With pharmacies inside more than three-quarters of its stores, Safeway is a leader in pharmacy sales among US grocery retailers. The company also sells gas at about 400 fuel stations adjacent to Safeway stores. Fuel and pharmacy sales together contributed 20% of the company's 2011 sales, up from 17% in 2010. Its bakery, dairy, and food processing operations span the US and Canada with 32 manufacturing plants, which supply Safeway stores with many of its private-label product.
Safeway also operates a lucrative third-party gift card subsidiary, Blackhawk Network (established in 2001) and property development business (launched in 2008).
Sales & Marketing
Safeway's advertising and promotional expenses exceeded $491 million in 2011, down from nearly $509 million the previous year. To lure shoppers back from discounters, Safeway launched a $100 million marketing campaign that positions the grocery chain as a more stylish alternative to discount chains. The Ingredients for Life campaign focuses on about 1,500 Safeway, Vons, and Pavilions stores in the western US, as well as Canada, Maryland, and Washington, DC.
With its heavy exposure to economically-strapped California, and continued weakness across all of its grocery divisions, Safeway has had a tough couple of years. While total sales rose about 6% in 2011 vs. 2010, net income fell more than 12% over the same period. Aided mostly by an increase in fuel sales and a favorable change in the Canadian dollar exchange rate, Safeway's same-store sales rose more than 4% in 2011 vs. 2010. Excluding fuel, same-store sales rose just 1% over the same period, primarily due to inflation. With shoppers continuing to trade down to discounters, such as Wal-Mart Supercenters and limited assortment ALDI, for some grocery items, Safeway warns that the economic factors that have plagued it for the past three years, may continue in 2012.
To boost its bottom line, Safeway is looking beyond its low-growth core supermarket business. Encouraged by the strong performance of its gift card business, Safeway announced in late 2012 that it is preparing its Blackhawk subsidiary for an initial public offering in 2013. New non-core opportunities being contemplated include a wellness program. Safeway is also cutting its losses at its most troubled chains, including Genuardi's on the East Coast, where it has recently been selling stores to other grocery chains in the area. In 2012 it tapped new leaders for its Vons and Dominick's divisions. To compete with discounters, Safeway has aggressively cut prices and improved and promoted its private-label products, which cost less than national brands.
Safeway has shuttered about 65 stores since 2007 as it wrestles with an ailing economy and changing shopping patterns. A key element of its long-term marketing plan is the conversion of its store base to the Lifestyle format, which features expanded perishables departments, warm lighting, custom flooring, superior customer service, and other amenities designed to make grocery shopping an inviting experience, as opposed to a chore. Since 2006, Safeway has converted about 1,000 locations to the new format, representing a major expense for the company leading up to and during the deep recession. Indeed, by the end of 2011 87% of Safeway's stores were Lifestyle stores. (Eventually, the company expects to convert most of the remaining locations to the Lifestyle format.) Safeway is betting that when the economy finally improves shoppers will prefer its spruced-up Lifestyle stores to those of discounters. – less