Team 4
Table of Contents
Executive Summary .......................................................................................................................2
Introduction ....................................................................................................................................4
Retailers Analysis
History..................................................................................................................................4
Corporate Analysis...............................................................................................................5
Corporate Strategy ...............................................................................................................5
The Current Climate ............................................................................................................5
Hopes for the Future ............................................................................................................7
Retail Market Strategy
Target Audience ...................................................................................................................7
Image/Positioning ................................................................................................................7
Technology ..........................................................................................................................8
Global Presence ...................................................................................................................8
Location Strategy .................................................................................................................9
Human Resources ..............................................................................................................10
Merchandising Strategy .....................................................................................................10
Pricing Strategy..................................................................................................................11
Promotion Strategy ............................................................................................................11
Challenges ..........................................................................................................................12
Competitor Analysis ....................................................................................................................12
Size and Profitability..........................................................................................................12
Competitive Advantage and Competition..........................................................................13
Competitive Threats
Wal-Mart ................................................................................................................13
Kroger ....................................................................................................................13
Comparison with Kroger....................................................................................................14
The Retail Mix
Location, Merchandise .......................................................................................................14
Pricing, Advertising and Promotions, Store Design, Customer Service............................15
Financial Analysis ........................................................................................................................16
Company Financials
Gross Profit Percentage......................................................................................16
Net Margin Percentages .....................................................................................16
Expenses ............................................................................................................16
Asset/Inventory Turnover ..................................................................................17
Sales Per Square Foot/ Sales Per Employee ......................................................17
Competitors ........................................................................................................................17
Location Analysis .........................................................................................................................18
Online Presence ............................................................................................................................21
Recommendations ........................................................................................................................22
References .....................................................................................................................................24
Appendix .......................................................................................................................................26
1
Team 4
Executive Summary
Safeway, Inc. was founded in 1914, and is a top retailer in the supermarket industry.
Safeway’s main product mix includes grocery, produce, and general household items. Safeway
is currently a parent company to many corporations nationwide, giving it the capability to create
many different private labels from high quality brands such as O Organics to the more affordable
brands like Pantry Essentials.
Currently, Safeway is one of the top five grocery retailers, but is having a difficult time
maintaining its market share. The current economic situation and the introduction of new
competitors, like supercenters, are factors influencing how Safeway is conducting business. The
current economic status is reducing the number of people that can afford to shop at average
grocery stores, causing a large portion of the population to switch to grocery shopping at valuebased stores. Supercenters, such as Wal-Mart, are also expanding their grocery lines at prices
that are very competitive, making it hard for Safeway to compete and still maintain a profit.
With such a broad target audience, Safeway must cater to all differing demographics.
After conducting efficient market research, Safeway has implemented both the Just for U
program and its membership loyalty program. Together, they provide invaluable data that helps
understand its customers’ behavior and the ability to provide specific offers related to its
customers’ shopping habits. Through the introduction of the Just for U program, Safeway has
created a competitive advantage. No other grocery retailer currently offers a loyalty and rewards
program similar to this. Thus, this program offers great opportunity for Safeway to continue and
improve its relationship with its customers. Safeway also utilizes its own real estate department
called Property Development Centers in order to gain a competitive advantage when it comes to
the placement of their stores through higher barriers of entry.
2
Team 4
Safeway is having great successes in tracking its merchandise weekly, which ensures
that it is constantly staying up-to-date on which products are selling, and which products are
sitting on its shelves. Safeway has recently implemented an “Everyday Low Price” pricing
strategy to keep up with its competitors, as well as using direct marketing and in-store signage.
Amongst its competitors, Safeway has the least amount of stores, but ranks significantly
behind Wal-Mart and Kroger. Safeway’s largest problems are its overhead expenses and general
and administrative expenses. The company needs to find ways to cut these, whether it be
decreasing store sizes, condensing their supply chain, or finding new ways to decrease in-store
costs. By doing this, the company’s net profit will increase, putting the company in a much
better financial situation.
With Safeway’s online presence at Safeway.com, individuals can order their groceries
online and have them delivered to their homes. Coupons are also available online, and customers
can get personalized coupons by simply logging on to their Just for U accounts. However,
Safeway still needs to update pictures for some of its products and should allow potential
customers to browse merchandise without having to create an account.
To improve Safeway’s success in the supermarket industry, the company must
strengthen its present weaknesses discovered after conducting a SWOT analysis. These
weaknesses include: inconsistent culture between stores, the current economic state of the United
States, and the fact that there are not any key attributes that differentiate their company from
other average supermarkets. To overcome these weaknesses, Safeway should take advantage of
the opportunities they have at hand. These opportunities include: the rising popularity of natural
foods, expansion in the United States and abroad, and the chance to revamp their private label
brands.
3
Team 4
Introduction
Safeway, Inc. is a supermarket chain that was founded in 1914 by Sam Seelig with its
first location in Los Angeles, California. Safeway has expanded over the United States and into
Canada under the names Safeway, Genuardi’s, Randalls and Tom Thumb, Carrs, and Vons.
Based in Pleasanton, California, Safeway, Inc. currently operates 1,678 retail locations and
employs over 178,000 people. Safeway not only operates it’s own supermarkets, but holds 49%
interest in Casa Ley, S.A. de C.V., a food and general merchandise retailer in Mexico, and
Blackhawk Networks, Inc., a prepaid card company. Because of the current economic decline,
Safeway is having a few troubles with its weaknesses. But if the company takes control of these
weaknesses quickly, the future for Safeway will be bright.
Retailer Analysis
History
Safeway Inc. was founded in 1914 by Sam Seelig, and quickly expanded into 240 stores,
covering a large portion of the West Coast. In 1926, these 240 stores were purchased by Charles
Merrill of Merrill Lynch, and by 1928, the company had expanded to 2,020 stores (Pederson,
2007). The company continued to buy out other grocery store chains, including Arizona Grocery,
Piggly Wiggly Pacific, and Vons, and even expanded internationally into Western Canada, the
UK, and Australia. In 2002, Safeway launched Safeway.com, which is a grocery shopping and
delivery service website. In 2005, it introduced its “O Organics” line, which contains over 150
organic products (Hoovers.com, 2012). Today, most stores include deli, floral, seafood,
pharmacy, bakery departments, and many include Starbucks coffee and fueling stations on-site.
Safeway, Inc. is viewed as one of the largest food and drug retailers in North America at this
time (Datamonitor, 2012).
4
Team 4
Corporate Analysis
There is an extensive list of different retailers that Safeway, Inc. is a parent company to.
These retailers include: Genuardi’s Family Markets LP, Pak ‘N Save Inc., Randall’s Food &
Drugs LP, Carr-Gottstein Foods Co., Safeway Australia Holdings, Inc., Safeway Canada
Holdings, Inc., Safeway Corporate, Inc., Safeway Dallas, Inc., Safeway Denver, Inc., Safeway
Richmond, Inc., Safeway Southern California, Inc., The Vons Companies, Inc., Dominick’s
Finer Foods, LLC, GroceryWorks Holdings, Inc., and Blackhawk Networks, Inc. Safeway also
owns many private label brands such as: O Organics, Lucerne, Eating Right, Bright Green Line,
Total Pet Care Line, and Value Red Line (Pederson, 2007).
Corporate Strategy
Safeway’s goal is to provide value to its customers by maintaining superior store
standards and a wide selection of quality products at competitive prices (Pederson, 2007). To
ensure their ability to do this, Safeway focuses on sustainability within its supply chain and has a
strong drive to create virtually zero waste (Vosburgh, 2012). Its private label brands have been
very successful, and now Safeway is establishing new private label standards to create better
quality and innovation so that the products it offers differ from the products offered by national
brands (Gallagher, 2011). In order to ensure an increase in revenue for the future, Safeway CEO
Steve Burd plans on using the new and revamped private label brands, as well as price reductions
and target marketing to increase future sales for the company (Frederick, 2012).
The Current Climate
The supermarket industry is an extremely competitive area of retail. Competition has
been growing substantially, and Safeway is having a difficult time trying to maintain a
considerable portion of the market share. The company’s net income fell 16 percent in the
5
Team 4
second quarter of this year (Choi, 2012). The reduction of success by average supermarket
retailers is due largely in part to the fact that more retailers have begun selling groceries.
Supercenters, such as Wal-Mart and Target, are now selling groceries, including fresh produce.
These have created a “one-stop-shop” atmosphere for consumers who shop at supercenters.
Value-based stores and health food markets are also taking some of the market share that once
belonged to standard supermarkets. Value-based stores, like The Dollar Tree and The Dollar
General, now carry grocery store items as well. Health food markets like Whole Foods, are
offering products that are viewed as fresher and healthier than the products carried at average
supermarkets, but come at a higher price. Competition is not the only factor hurting Safeway;
the current economic conditions are also damaging to the retailer’s success. A higher percentage
of the population has started shopping at value-based stores because people can no longer afford
to spend more on food. Along with this, high fuel prices and the inflating prices of food are
causing Safeway’s prices to rise and profits to fall (Gasparro, 2012).
Hopes for the Future
In an attempt to retain customer loyalty, Safeway has started to personalize the shopping
experience through its loyalty programs. Safeway just implemented its Just for U program,
which targets consumers directly with products they are familiar with by offering special
coupons or discounts. It is expected that 35% of their business will come from this new program
within the next year and will continue to increase to 65 to 70% over the next three years
(DeArment, 2012).
6
Team 4
Retail Market Strategy
Target Audience
Safeway’s target audience is everyone. It virtually caters to all demographics that live
in the surrounding areas whatever that demographic may be, but tend to lean toward more
affluent customers and geographic areas. Its products can range from the practical inexpensive
items to the more expensive luxury items. The psychographic it tries to reach includes people
that are not extremely price conscious and are looking for quality over value.
In comparison to their direct competition, Safeway seems to be the dominant force in
attracting all demographics and psychographics to its stores. However, when competing against
stores like Trader Joe’s and Whole Foods that have somewhat different target audiences,
Safeway is not as strong. Trader Joe’s offers a majority of its own brands, where its target
audience is looking to stretch their dollar a little more for quality products. Whole Foods is more
expensive, but offers products of higher quality for people who live a health conscious lifestyle.
Image/Positioning
The image that Safeway tries to convey is the local and friendly neighborhood grocery
store. It is also changing its image by going environmentally friendly, shutting off lights during
peak hours, and offering reusable grocery bags. Safeway wants to convey that it truly cares for
the environment and the people in it.
Safeway positions itself as the one-stop-shop for all of the consumers’ grocery needs.
If the consumers have a Just for U club card, the shopping experience is personalized for their
specific wants and needs which also gives Safeway the opportunity to monitor how its
consumers behave at each location. Customers are also asked if they would like to donate to the
charity Safeway is sponsoring at that specific time of purchase.
7
Team 4
Safeway’s current image is just a local go-to grocery store that has virtually anything
and everything one would need food wise. This image is also similar to other direct competitors
in the market, but when compared against high-end health food stores (i.e., Trader Joe’s, etc.),
the image differs. Trader Joe’s has a friendlier, personable environment that is more communityoriented, whereas Whole Foods holds the image of the most prestigious grocery store in the
market. Safeway has the opportunity to differentiate themselves among common grocery stores
by offering a friendlier, more personable environment.
Technology
Safeway makes use of technology by including self-checkouts, the Just for U
program/app, and online shopping. It has affected the way the company conducts business by
allowing the shopping experience to be personalized. The Just for U program is a newly
implemented program that allows Safeway to give its members specialized promotions based on
purchasing habits. This is also paired with a mobile app, which allows customers to easily check
and add deals right in the store.
In addition to that program, they hope to increase the use of point-of-sale (POS) scan
data to help improve product replenishment, promotion, and better relationships with trading
partners (SafewayNet for Suppliers, 2012). With Scan Based Trading, the supplier has ownership
of the product until the customer buys it and then is compensated based on the POS transaction.
This helps reduce inventory investment and create sales volume growth because replenishment is
based on actual purchases by the consumer. This also ends up reducing supply chain costs, and
supports more timely deliveries.
Global Presence
Safeway’s global presence is slim compared to its competitors. Countries that it has
8
Team 4
entered are Canada (Safeway Limited in 1929), the United Kingdom (John Gardner Ltd. Stores
in 1962), Australia (Pratt Supermarkets in 1985), Germany (Big Bear Basar Stores in 1964), and
lastly Mexico (Casa Ley S.A. de C.V. in 1981) (Safeway Official Site, 2012). Unfortunately,
Safeway has now divested all of its locations in the United Kingdom, Australia, and Germany.
Today, Safeway still has 49% interest in Casa Ley S.A. de C.V. since the chain had grown to 185
stores by the end of 2011. In Canada, Safeway has expanded the most with stores similar to those
in the United States. Currently, there are 225 stores mainly in British Columbia, Alberta, and
Manitoba/Saskatchewan.
In addition to expanding their stores, Safeway has joined Blackhawk Network, Inc.,
which is its prepaid and gift card business that has expanded to a wider market overseas and is
currently doing well in the United States, Canada, Europe, Mexico, and Australia. Although the
grocery side of Safeway is not currently operating overseas, there is focus on greater expansion
into international markets over the next three to four years (Forbes, 2012). Unfortunately in
Canada, Safeway recently shut down distribution centers due to operating losses, which is a
similar story for many United States retail stores. (Yahoo! Finance, 2012). However, the
company’s prepaid gift cards have been more profitable than the grocery industry. In the second
quarter of 2012, Blackhawk Network, Inc. contributed $32 million of the revenue growth since
the second quarter of 2011 (Yahoo! Finance, 2012).
Location Strategy
Safeway attempts to separate itself from direct competitors and keep its stores at least a
few miles away from other grocery stores. It mainly targets urban and downtown areas,
neighborhoods, and college communities. Safeway has its own real estate department called
Property Development Centers (PDC), and one of its core principles is to “concentrate in urban
9
Team 4
and suburban markets with high barriers to entry” (PDA-Safeway, 2012). This prevents other
companies from easily entering Safeway’s targeted geographic areas and gives it a competitive
advantage in certain areas of the map.
Human Resources
At Safeway, the store managers are responsible for their own store but are also
supported by the corporation in order to ensure all standards and requirements are met (Tamra,
2012). There is also a Human Resource department that is designated to every district office;
there are about 8 divisions in California. For in-store problems that may occur between the
employees or staff, it is brought up to the assistant manager and then to the store manager (Ngo,
2012).
To ensure Safeway employees are well trained, every couple of months they must be
tested on product pricing accuracy and on the company policies; this is known as auditing.
Ninety percent of the employees must pass, but if it is less than that, Safeway send a Human
Resource employee to reinforce the company’s standards (Ngo, 2012).
Merchandising Strategy
Safeway uses a very common and effective merchandising strategy that caters to its
consumers. Every two to three months the company resets and analyzes each aisle. This means
that it tracks and determines what sells at each store and will make a decision on whether to
continue to sell the products, replace them, or expand the line (Ngo, 2012).
The company’s financial strategy is to make as much profit as possible. Using its
supply chain management department, it can attempt to forecast sales. Safeway is in charge of
predicting sales through similar products, time of year, the market, and geographic location. For
example, “Quinoa will not sell as well in Texas as it will in California” (Ngo, 2012). This means
10
Team 4
that it will not stock as much of a certain item in certain geographic areas. It also predicts the
shelf life of a product with consideration of where it is manufactured. For example, if it is
looking to purchase a salad product, it must find a nearby supplier to ensure freshness. No one at
store level has control over what brands are offered. National brands pay Safeway to sell their
products through bidding. According to one of Safeway’s Technical Business Analysts,
Langdon, “We can sell better than the other competing company at a cheaper price” (Ngo, 2012).
Many companies will focus on either breadth or depth, but at Safeway, they do a little bit of
both. The company wants to offer many brands that satisfy consumers’ needs while also
promoting its own private label brand. For example, it is currently making an effort to produce
organic foods, which is why Open Nature is the current largest promotion (Ngo, 2012).
Pricing Strategy
In 2009, Safeway changed to an Everyday Low Price pricing strategy, starting in
Northern California stores. Steve Burd, CEO, stated that Safeway’s prices are “equal to or lower
than the pacesetter in each market and lower than everyone else in those markets” (Zwiebach,
2009). Safeway has now reduced its pricing markup so that instead of two percent higher than
its number one competitor, it is slightly lower, and has moved from two to four percent lower
than its number two competitors (Zwiebach, 2010). Although it has implemented this strategy,
prices are expensive without a club card. Its club prices are lower than other direct competitors’,
therefore customers are compelled to join its club.
Promotions Strategy
Safeway’s approach to advertising and sales promotions is based on direct marketing,
online shopping and delivery, in-store coupons, massive signs that say “SALE,” $5 Fridays, gas
rewards programs and gas stations, in-store Starbucks and quick service restaurants (which
11
Team 4
pertains to its one-stop-shop strategy), banks, and floral department. All of this has been
effective for the company, and in addition it should expect the Just for U program to raise even
more revenue.
Challenge
A potential challenge Safeway may face if it does not take immediate action is that it is
losing customers to more health conscious stores and superstores like Wal-Mart and Target who
have begun to expand their grocery departments. Unlike Wal-Mart and Target, Safeway cannot
offer extremely low prices and still retain a profit.
Competitor Analysis
According to Yahoo! Finance, Safeway’s major direct competitors are the Kroger Co.,
SuperValu, Inc., and Wal-Mart Stores, Inc., all of which are large grocers or have a large grocery
section in its stores. There are also countless other smaller or indirect competitors such as
convenience stores, drugstores, specialty supermarkets, dollar stores, and restaurants
(GlobalData, 2012). These competitors have a much smaller amount of SKUs in which a slight
percentage of these SKUs are products that are sold in Safeway.
Size and Profitability
Amongst its competitors, Safeway has the least amount of stores with a total of 1,678
stores, but it is the fifth largest food retailer (Yahoo! Finance: Safeway, 2012). This amount of
stores is hardly anything when compared to Wal-Mart, who has 10,130 stores and is the largest
food retailer. However, Safeway is not too far behind its main competitor, Kroger, who has 2,435
stores. In terms of revenue and net income Safeway ranks third when compared to Wal-Mart,
Kroger, and SuperValu.
12
Team 4
Competitive Advantage and Competition
Safeway’s Just for U program is the biggest competitive advantage that Safeway has
over all its other competitors. This program is more than just a normal membership program that
provides discounts to all members; it allows customers to receive personalized discounts on
products that it purchases frequently or have purchased before. About 35% of Safeway’s sales
are attributed to the customers that are signed up for the Just for U program (“Safeway:
Reiterated at Neutral”). Safeway wants to promote a lifestyle that goes along with shopping in
its stores. It is even remodeling stores and opening new stores to fit this lifestyle that it wants
people to adopt by shopping at its stores. Although they have this comparative advantage,
Safeway feels as if they have failed in the area of expanding its market overseas. The company
realizes that it need to expand to more markets out of North America and plan on doing so in the
next three to four years (Safeway Official Site).
Competitive Threats
Wal-Mart
The first major competitive threat to Safeway is Wal-Mart. Wal-Mart is the biggest food
retailer and grocer in the United States. With its everyday low price and price matching
strategies, it makes it very hard to compete. Wal-Mart also has a goal to become a “one-stopshop” for all items effectively eliminating all other competition. The company also drops their
prices by ten to thirty percent on promotional items because a rise in sales volume still allows
them to remain profitable even with such small margins (GlobalData, 2012).
Kroger
Kroger is the second major threat to Safeway and it is a much more direct threat than
Wal-Mart. Kroger’s stores are almost identical to Safeway’s which makes them difficult to tell
13
Team 4
apart once you are inside the store. Kroger provides different stores for different income
demographics such as Ralphs and Food4Less (GlobalData, 2012). The new campaign “Get Real
Low Prices” is something that can actually be seen in their stores with easily noticeable price
decreases on up to 10,000 different items (Walzer, 2012).
Comparison with Kroger
Safeway and Kroger have very similar target markets. They both target families as well
as individuals. While each company has different store formats that target different
demographics the target market is basically anyone because they are food retailers. The
additional amenities are even similar. Kroger and Ralphs have Coffee Bean and Tea Leaf in their
stores, whereas Safeway and Vons have Starbucks within their stores. The check out format is
also extremely similar offering express lanes and self-checkout. Redbox and Coinstar make
appearances in both stores as well. Both retailers are involved in charity and doing right by the
community. Kroger “contributes more than $220 million annually in funds, food, and products to
support local communities” (Kroger.com). Similarly Safeway has it own foundation, Safeway
Foundation, which has partnered with Easter Seals, the Special Olympics, the Muscular
Dystrophy Association, the Prostate Cancer Foundation, Breast Cancer Awareness and Research,
and Rebuilding Together (Safeway.com).
The Retail Mix
Location: Location is almost always the same for these two retailers. They like to place
themselves near freeways and urban neighborhoods; sometimes within just miles of each other.
Merchandise: Merchandise for the two retailers cannot be differentiated until you get
down to the private labels because they both carry most if not all national brands. Safeway has
different private labels for different price points but Kroger does not seem to have private labels
14
Team 4
that are targeted to a certain customer behavior.
Pricing: Both retailers are priced competitively against each other but neither ever gets
the upper hand. Safeway’s Just for U program has seen an increase in profits, but Krogers’ “Get
Real Low Prices” campaign is still relatively new. Without a club card to either of the stores the
prices can be seen as expensive which drives the need for one of these club cards.
Advertising and Promotions: They both send out weekly mailers to nearby
neighborhoods advertising the sales for the week. Promotion-wise they have a club member
program where customers signup and get exclusive deals on their groceries. But the similarities
stop there. Although Kroger offer digital coupons, Safeway recently implemented the Just for U
program where they track purchases on a regular basis and give deals that cater to their particular
buying habits. There is also an app that you can download to look for the product that you want
as you are shopping in the store. This makes it more exclusive and entices people to sometimes
buy things that they do not necessarily need. Safeway also has their gas stations where club
members can earn points and get up to a dollar off a gallon of gas every month.
Store Design: Kroger and Safeway have a similar format where they place the eggs,
milk, and meat in the back of the store in order to draw the customer to the back. The bakery will
be placed at the front of the store and the produce section will be placed at the opposite end of
the store. Safeway also adds a few more things to this very simple format such as: a bank,
Starbucks, florist, and a customer service desk.
Customer Service: Neither retailer is known for its extraordinary customer service and
both could use a lot of work. However, Safeway does seem to have better customer service
depending on the location, whereas Kroger falls behind. Both retailers need to work on their
customer service in order to have a more uniform mindset within their stores in order to provide
15
Team 4
the best customer service for their customers.
Financial Analysis
The following financial analysis was conducted of Safeway’s financial performance
over the past three year compared to Wal-Mart and Kroger Co.
Company Financials (Refer to Exhibit 1)
Gross Profit Margin Percentage: The gross profit margin percentages over the past
three years have been on a steady decline. From 2009 to 2011, the gross profit margin has
decreased only marginally by 1.59%, but numbers for this year look to lower even more. This
decrease could be attributed to the recession or new competitors offering products at much lower
prices.
Net Profit Margin Percentage: The net profit margin percentage has fluctuated over
the past three years, but looks to increase at year-end 2012. The Just for U program could be the
reason for this fluctuation. The largest increase from 2009 to 2010, where the net profit margin
increased 4.13%, can be attributed to the initial introduction of this program in 2010 and an
increase in the number of advertisements for this program attracting customer attention. With the
introduction of the Safeway app and the ease of using the Just for U program, net profit looks to
be increasing.
Expenses: Overhead expenses have also fluctuated in the past three years, but will
hopefully stabilize. The over $2,000,000 difference from 2010 to 2011(shown in Exhibit 1) could
be because of the lifestyle remodels done to many of their store locations. Since all remodels
have been completed expenses should stabilize. General and administrative expenses have been
relatively stable over the past three years, 25.3%, 25.4%, and 24.4% respectively, are going to
increase by year-end 2012.
16
Team 4
Asset/Inventory Turnover: Both asset and inventory turnover have increased. The
increase of 0.37 from 2009 to 2011 in asset turnover can be attributed to Safeway’s need to stay
competitive with their prices. Safeway’s inventory turnover is increasing, but at the same time
gross margins are decreasing. The Just for U program may be one reason for this. The lower
prices the program offers has allowed Safeway to sell more products, but because they have had
to lower prices to stay competitive, it may be hurting Safeway’s bottom line.
Sales Per Square Foot/Sales Per Employee: The new lifestyle remodels helped
contribute to the increase of sales per square foot. New fixtures and lighting have helped display
merchandise more efficiently and improve the overall store layout. With a decrease of about
8,000 employees, Safeway has been able to increase the sales per employee by $16,065. This
decrease in employees has allowed Safeway to better manage their employee’s productivity
throughout their locations.
Competitors (Refer to Exhibit 2)
Exhibit 2 shows Safeway’s gross profit margin percentage is marginally greater than
both Wal-Mart and Kroger Co. The numbers based on gross profit margin percentage may show
Safeway is doing a little better than their competitors, but the net profit margin percentage
reveals the opposite. Out of the three, its net profit margin is the lowest, and it has the largest
general and administrative expenses as a percentage of sales. Safeway is spending far more in
costs and expenses than its competitors that are significantly larger and more extensive.
Safeway has out performed Wal-Mart financially in two key areas: inventory turnover
and sales per employee. With more than 7,000 locations less than Wal-Mart, Safeway has been
able to outperform in inventory turnover. Where Safeway is performing significantly better than
Wal-Mart is sales per employee. Exhibit 2 shows more than a $100,000 difference between the
17
Team 4
two retailers’ sales per employee. This shows Safeway stores are much more productive,
especially since at year-end 2011, Wal-Mart had over 2,100,000 employees while Safeway only
employed around 178,000 people.
Kroger is Safeway’s biggest competitor that operates very similar retail locations.
Safeway is the second largest supermarket chain to Kroger, and Exhibit 2 shows that Safeway’s
financial performance is just beneath that of Kroger. Although Safeway does not exceed Kroger
in sales per employee, its dollar value is still relatively high. For a company that has almost
double the amount of employees, it would be expected that sales per employee would be much
higher. Again, this shows the productivity of Safeway locations are quite high compared to its
competitors.
Location Analysis
In our primary research, we visited the Vons (a chain in Southern California owned by
Safeway) in Pacific Beach. For this Safeway site, the trade areas are fairly easy to determine,
given the distance from this certain site to another. The primary trade area is Pacific Beach, the
secondary trade area includes Mission Beach and Southern La Jolla, and the tertiary trade area is
Clairemont Mesa (refer to Exhibit 3). The Vons in Pacific Beach is located at a site that is
isolated from other Vons and other grocery stores in general. The population living in the trade
areas will provide the most potential for this store because it is more affluent, especially in the
primary and secondary trade areas. This Pacific Beach location is ideal because it is in a strip
mall, which has high people traffic. There are also residential areas surrounding the site, housing
a wide range of demographics.
The Vons is consistent between both the interior and exterior of the store with a simple
design. The merchandise is organized very well and signage helps to locate items inside the store
18
Team 4
as well as identify where the store is located. The store caters to both families and single
customers in the area. For example, there are different cart sizes, ample parking, large retail
space with wide aisles that allow multiple carts to travel through, and different methods of
checkout. There are also places for products to promote highlighted items.
When we first walked in, the store’s signage was abundant and very clear. There are
larger yellow signs for sale items to draw customer attention, signs above the aisles to display
what is available in each aisle, and larger sale signs on the ends of aisles with corresponding
products. As for store ambiance, the music is upbeat and loud enough to hear. Lighting was
dimmer and not as harsh as other competitors’ stores. The brightest area of the store is focused
on the aisles where the packaged foods are located, whereas the dimmer areas are located on the
exterior of the store. Most grocery stores are not known for creating a mood, but changing the
overhead lighting has allowed Safeway to try and create a mood in these specific areas. Daily
deals are read over the loudspeakers, which will hopefully influence impulse buying, and may
also lead customers to different sections of the store. Safeway’s theatrical effects mainly revolve
around music and special lighting. The music changes throughout the day for specific times. The
pastry, wine & alcohol, and produce sections all have special fixtures to highlight certain items.
Wine tasting events are offered occasionally. The ambiance of Safeway sets a better mood than
other grocery stores.
A remodel would not be needed at this Safeway location, as many of the fixtures and
features of the store look to be relatively new and up-to-date. Safeway has recently updated
many of their stores with their “lifestyle” remodel—new flooring, earth tones, “greener” lighting,
and wider aisles. Many locations also include a Starbucks, Panda Express, pharmacy, and/or a
financial service provider (bank) located inside the store with ample seating, as well as a gas
19
Team 4
station in the parking lots, creating a “one-stop-shop” for their customers. Fixtures depend on
different parts of the store for example, the alcohol section has expensive products locked behind
a glass case, the floral department looks like a wooden gazebo, and the produce department
separates products and places them separately into wood-like crates. Metal signs are usually
placed in front of the store and are mainly used for promotions that also cater to the holidays.
Safeway is always trying to stay current with the seasons, and makes it easy for its customers to
find the seasonal products.
This Safeway’s store layout is very simple and follows a grid layout, while also following
Safeway’s “lifestyle” store design. However, the particular layout that is utilized is that of a
typical grocery store and most of the departments in the store are in appropriate locations—this
makes it easy for customers to find the products that they are there to buy, but also encourages
them to search for certain items through placement and ambiance. Safeway uses a few methods
for organizing their merchandise—all perishable items are on the outside border of the store; the
frozen items are in the center of the store; produce, floral, and Starbucks are always near the
front of the store. Staple items such as dairy, meat, and eggs are placed at the back of the store to
draw the customers through all the aisles. The produce and deli are placed at opposite sides of
the store so that customers have to walk across the store to get both items. Also, the produce
section is more spaced out and there are no tall aisles blocking the view, so a customer can
quickly scan and look over the entire section of the store; the pastry and deli have a similar
layout. Aisles have a good amount of free space allowing two carts to sit side-by-side while also
leaving room for customers to still walk by. As for featured areas, Safeway nicely arranges its
produce to be as aesthetically pleasing to the customer as possible. The wine and alcohol sections
have special lighting and fixtures to make that part of the store have a different atmosphere and
20
Team 4
impression on the customer.
When we visited the Vons in Pacific Beach, we asked the store manager, Tamra, some
questions about this specific site and how they run their operations. She told us that Safeway’s
profitability is evaluated by number of units sold per store per week—each store buys a certain
number of products, and then measures the number of units that are sold at the end of each week.
According to the manager, Vons’ space is assigned to merchandise by the marketing department
in the Safeway corporation. If the company wants to push something, they will position it so it is
easily accessible for the customer. If an outside company wants to promote a product, there is a
slotting fee for the shelf space or big promotions (Tamra). In spite of the national brands they
sell, Safeway always wants to push its own private label as much as possible. Also, when asked,
Tamra mentioned that plan-o-grams are applied at the store, but the corporation and external
companies will set up each fixture up for them. Overall, Safeway has many methods to increase
their profitability and maintain it, and does it well.
Online Presence
Safeway has a great online presence, including online shopping and home delivery at
Safeway.com. The merchandise assortment and prices are the same as in-store, but the sale
prices and promotions are easier to read online. All of the merchandise is categorized and
organized effectively to skim through or search and find what you are looking for. First time
customers get free delivery of groceries, but normally a delivery fee is charged, and delivery
time is within one hour. The overall website is easy to navigate—you can search for individual
products as well as browse for products by category. The website also allows you to shop by
history; it records your purchase history arranged by category, allowing you to quickly fill up
your cart with your favorite items. The key characteristics that are most important to consumers
21
Team 4
are displaying the prices and providing a picture of the item. The website always displays a price
for the item, but some of the products are missing images. Overall we thought the website was
very easy to comprehend. The only dislikes we had was that the customer must make an account
before they can browse through the products, and that some products have missing pictures.
Recommendations
After conducting a SWOT analysis for Safeway (refer to Exhibit 4), we discovered
certain weaknesses that can potentially harm the company in the long run. For example, there is
no true differentiation from their direct competitors, and there is no established consistent culture
throughout Safeway retailers nationwide. Also, because of the current economy and higher gas
prices, Safeway’s prices are rising to compensate, and are quite expensive if a consumer does not
own a club card. These weaknesses are crucial and need to be addressed.
Although there are a few weaknesses, the future of Safeway is looking on the brighter
side. They have to opportunity to seek more profits and more market shares especially in the
natural foods category. The natural food market is an up and coming trend, and Safeway is
capitalizing on it by expanding their natural foods and their private label brands. Natural foods
have no preservatives and the ingredients are minimally processed. They already have a private
label called Open Nature that is beginning to expand from staple snacks, from granola all the
way to frozen foods. For example, Hostess recently filed for Chapter 11, creating an opportunity
to increase bread and snack production to obtain a greater market share.
If hired as the CEO, we would try to open new stores in more opportune locations,
expanding the market and market shares. They currently have limited convenient markets that
are located downtown which offer fresh local produce and the most popular foods sold in the
regular supermarkets. In addition they should expand more in the East coast and the South and in
22
Team 4
addition internationally. Safeway is currently most dominant on the West coast. Expanding the
company also comes with intensive market research. Safeway must be able to understand the
culture of the locations they plan on expanding to.
Overall, Safeway’s profits and financial situation over the past three years has seen a
steady decline. Although the financial information in Exhibit 1 and Exhibit 2 show Safeway is
staying relatively competitive and holding its position in the market, it needs to focus on a few
aspects to ensure it can stay competitive in the coming years, such as cutting its general and
administrative expenses. Safeway is expecting the Just for U program to help generate more
sales in the next few years and should continue focusing on gaining more customers and
increasing purchases through this program. However, because one of its main issues is rising
prices, the company needs to take a closer look and ensure it is not cutting its bottom line in the
process. Safeway should also focus on decreasing its overhead expenses, as it is spending much
more of a percentage of sales than its competitors. Decreasing store sizes, condensing its supply
chain, or finding new ways to decrease in-store costs may help to decrease overhead and help
streamline processes throughout the company.
For the store layout, Safeway’s new “lifestyle” model has allowed them to capitalized
on wasted space. However, we recommend that Starbucks be moved next to the hot foods and
bakery area so customers don’t have to wander around the store to get a coffee and breakfast or
pastries. We also recommend that Safeway utilize its wall space more efficiently and effectively.
Aside from a few fixtures that hold magazines and cigarettes, there is only minimal signage on
the walls; this space could be used for more or larger signage, as well as extra fixtures. For the
website, we recommend that Safeway update its pictures and allow customers to browse its items
without having to create an account so they do not feel pressured.
23
Team 4
References
Choi, C. (2012, July 19). Safeway profit drops amid growing competition. Retrieved from
http://www.bizjournals.com/sanfrancisco/blog/2012/04/safeway-kroger-walmart-mergerrumors.html?page=all.
Datamonitor (2011). Datamonitor Research Store - Safeway Inc. Retrieved from
http://www.datamonitor.com/store/Product/safeway_inc?productid=1D179D8A-13FA4B5D-A8A4-A129FB80105E
DeArment, A. (2012, July 30). New programs spell loyalty with silent 'you'. Retrieved from
http://www.drugstorenews.com/article/new-programs-spell-loyalty-silent-‘you’
Forbes. (2012). SAFEWAY INC (NYSE: SWY) | buy/hold/sell analysis. Retrieved from
http://finapps.forbes.com/finapps/BuyHoldSellAnalysis.do?tkr=SWY.
Frederick, 2012, J. (2012). Safeway sets sights on nutrition needs. In DSN's Top 50 Power
Players (p. 11). Retrieved from http://drugstorenews.com/sites/drugstorenews.com/files/
AnnualReport_PowerPlayers_042312.pdf
Gallagher, J. (2011, September 26). Safeway establishes new private label standards. Retrieved
from http://supermarketnews.com/center-store/safeway-establishes-new-private-labelstandards
Gasparro, A. (2012, July 19). 2nd update: Safeway profit falls, underlining grocery-industry
woes. Wall Street Journal. Retrieved from http://online.wsj.com/article/BT-CO20120719-713751.html
GlobalData. (2012, November). Safeway inc. (swy) - financial and strategic swot analysis
review. Retrieved from http://www.globalmarketsdirect.com/Report.aspx?ID=SafewayInc-SWY-Financial-and-Strategic-SWOT-Analysis-
24
Team 4
Review&ReportType=Company_Report&Title=Wholesale
Hoovers.com. Safeway Inc. History. Hoover's Inc., 2012. Web. 19 Sept. 2012. Retrieved from
http://cobrands.hoovers.com/company/Safeway_Inc/rryfxi-1-1njhxk.html.
Ngo, L. (2012, Oct 8). QA Technical Business Analysist II, Safeway Inc. Telephone interview.
PDA - Safeway. (2012). PDA - Safeway. Property Development Center, Web. 10 Oct. 2012.
Retrieved from http://www.safewayrealtyholdings.com/pdc.cfm44.
Pederson, J. (2007). International directory of company histories. (Vol. 85). Gale Group Pub.
Safeway - Official Site. Safeway. Retrieved from http://www.safeway.com/IFL/Grocery/Home.
SafewayNet for Suppliers. (2012). Scan based trading. Retrieved from
http://suppliers.safeway.com/usa/edi_us/edi_scan_trading.asp
Tamra. (2012, Oct 7). Assistant Manager Vons Pacific Beach, Safeway, Inc. Personal interview.
Vosburgh, R. (2012, September 17). Sn whole health: The smart way with safeway. Retrieved
from http://supermarketnews.com/health-amp-wellness/sn-whole-health-smart-waysafeway
Walzer, P. (2012, July 29). Kroger begins discounting thousands of items. Retrieved from
http://hamptonroads.com/2012/07/kroger-begins-discounting-thousands-items
Yahoo! Finance. (2012, Sept 6). Safeway plans IPO of gift card arm. Retrieved from
http://finance.yahoo.com/news/safeway-plans-ipo-gift-card-201432008.html.
Zwiebach, E. (2009, July 27). Safeway Plans EDLP Rollout Campaign. Retrieved from
http://supermarketnews.com/latest-news/safeway-plans-edlp-rollout-campaign
Zwiebach, E. (2010, May 19). Safeway Pledges ‘Innovations,’ Bigger Dividend. Retrieved from
http://supermarketnews.com/retail-amp-financial/safeway-pledges-innovations-biggerdividend
25
Team 4
Appendix
Exhibit 1: Safeway Financial Information 2009-2012
2009
2010
2011
2012 (So Far)
Gross Profit
Margin Percentage
28.62%
28.28%
27.03%
26.5%
Net Profit Margin
Percentage
-2.69%
1.44%
1.18%
1.16%
Overhead Expenses $10,659,100,000 $10,448,100,000 $10,659,100,000 $7,415,800,000
General and
Administrative
Expenses as a
Percentage of Sales
25.3%
25.4%
24.4%
24.4%
Asset Turnover
2.52
2.73
2.89
2.10
Inventory Turnover
11.43
11.47
12.50
12.33
Sales per Square
Foot
508.09
510.57
542.66
509.99
Sales per Employee
$236,131.21
$237,283.24
$252,196.53
$171,005.62
Exhibit 2: Safeway Financials vs. 2 Competitors
Safeway
Gross Profit Margin
Percentage
Net Profit Margin Percentage
Overhead Expenses
General and Administrative
Expenses as a Percentage of
Sales
Asset Turnover
Inventory Turnover
Sales per Square Foot
Sales per Employee
Wal-Mart
Kroger
27.03%
1.18%
$10,659,100,000
25.02%
3.5%
$85,265,000,000
21.13%
1.4%
$15,345,000,000
24.4%
2.89
12.50
542.66
$252,196.53
19.07%
2.40
9.08
418.1
$117,272.72
16.98%
3.53
12.96
614.79
$266,589.97
26
Team 4
Exhibit 3: Vons in Pacific Beach – Trade Areas
Purple Star – Vons Location in Pacific Beach, CA
Green Circle – Primary Trade Area
Blue Circle – Secondary Trade Area
Red Circle – Tertiary Trade Area
Exhibit 4: Safeway SWOT Analysis
27