Safeway INC
Edoardo Cuomo, Jillian Kupcha, Joseph Joyce,
Mathew Fogel, Gianna Riccoboni
Market Placement and Segment
Letter to the CEO
The Firm
Safeway is currently the second largest supermarket chain in North America and one of
the top 15 retailers in the United States. The company is headquartered in Pleasanton, California.
Safeway earns its profits by providing expedient products and services to an extensive
geographic and demographic population. The products and services offered in store are as
follows: bakery, dairy, delicatessen, dry cleaning, frozen foods, fuel, grocery, lottery, pharmacy,
photographic processing, produce, seafood, snack food, liquor, flowers, and Western Union
banking. According to the 2013 fact sheet, the company earned over $44 billion in sales and
revenue for the year ending December 31, 2012 (Reference 1). In addition to revenues and sales,
Safeway is a public company that is traded on the New York Stock Exchange. Safeway currently
trades at about $30.15 per share, creating potential for a large return on investment.
Safeway offers a wide range of products so that they can satisfy the needs, wants, and
demands of a variety of customers. Because of this, Safeway orders its supplies from many
different companies around the country; those being different food wholesalers and retailers such
as common know brands for all different products and foods. There are four main factors that
Safeway considers when choosing suppliers. First is whether the supplier has enough products to
meet the customer demand. Next, Safeway inquires as to whether or not the company has
effective marketing devices, such as coupons and product sampling. Safeway also pays close
attention to product quality. Lastly, Safeway looks into the sales history of a product and if they
think they can replicate its past success.
Safeway purchases all it’s produce, meats, and dairy products from local farms. With
these fresh ingredients, Safeway produces its own lines of specialty products in company-owned
plants. Safeway offers brands such as Pantry Essentials, The Snack Artist, and Eating Right;
which offers various snack foods. There are also lines that provide meals such as Marcela
Valadolid, Open Nature, Signature Café, O Organics, Rancher’s Reserve, and Primo Taglio. In
addition to these brands that are owned by Safeway, they also provide the hundreds of
competitive brands that are provided at most grocery stores (Reference 2).
Safeway products are available to many different geographical areas and customer bases.
The company now has over 1,600 stores across the United States. These include 251 Safeway
stores in Northern California, 279 Vons stores in Southern California and Nevada, 114 Randalls
and Tom Thumb stores in Texas, as well as 35 Carrs stores in Alaska (Reference 1). All of the
other stores that Safeway owns have different markets and strategies, but we will focus on
Safeway as it pertains to its brand name stores. At these stores the company attempts to
personalize its product selection through market analysis of consumer’s habits (cultural,
personal, social, and psychological factors). Safeway does not target high-income or low-income
customers or a specific age group of customers, they are in the middle of the industry with an
unclear target market and segment. Over the past few years there have been so many changes in
the economy and industry that Safeway had suffered from their unclear image and position in the
industry.
Over the past few years there have been many changes in the grocery industry and some
of them have had lasting affects. When the housing market crashed in 2007, leading to a
recession (which we are still fighting our way out of now), our economy changed considerably
especially regarding the spending of money. Many consumers started switching to store brands at
the grocery store because they felt that they were getting great values at lower prices. According
to Choices Magazine article, “The private label share of total sales increased from 16.5% among
U.S food retailers in 2006 to 18.2% in 2008” (Reference 4). This is a very dramatic change for a
two year time period and represents the fact that people are looking for the best value. As we
come out of this recession, this trend will persist. Buying store brands during the recession
showed customers the value of store brands that the majority of them previously ignored. With
the satisfaction that they have found in store brands, customers will continue to buy store brands.
Safeway can successfully adapt to this substantial and unrelenting industry change by placing a
greater emphasis on the marketing and distribution of generic brands. By increasing the quality
of their own products and lines they can enter a new more specific piece of the market.
Another industry change currently taking place within the supermarket industry is food
delivery services. Until recently, grocery delivery services have not been a profitable
venture. However, contemporary trends provide an inclination that this service has a very bright
future. Consider the rise of two working parents households across the country. According to
Forbes, from 1962 to 2012 there has been a 28% increase in the employment rate of American
women of prime age (Reference 5). Many wives, who were conventionally the “stay at home
parent,” are now joining the workforce. This has led to a decline in “stay at home parents.” In a
household with both parents work, grocery delivery is an appealing and practical alternative to
conventional food shopping. Online shopping has increased rapidly, mainly because of its
irrefutable convenience. Food delivery services offer the same convenience, and could help
Safeway target higher gross income families that are willing to spend more on groceries.
At current Safeway does not have a clear identity as a cost leader or quality leader. As a
grocery chain they do not have a strong identity and are threatened by many of the competitors in
the low cost segment. They face strong competition and possibly losing their market segment
because they share similar suppliers and customers. So as a firm Safeway needs to re-evaluate its
brand and position in the market.
Financial Analysis
On November 4, 2013 Safeway sold off a large part of its company. (Reference 6) This
sale took place between Safeway INC and Sobeys INC, which is located in Canada. The total
price for the 223 stores in Canada (Reference 7) was a total of $5.8 billion before taxes and an
estimated $4.0 billion after taxes. This money was received within the last year and so gives us a
lot to work with, because it could not have been all used within the past 6 months. According to
the Safeway press release (Reference 6) 400-450 million of that $4 billion will be used to buy
back stock, leaving around $3.5 billion sill to be used. While Safeway had planned to use a large
sum of that $3.5 billion to buy back stocks as of there last quarterly announcement and press
releases they still have not used any of the money to buy back stock. So what that means is we
can use anywhere from $100 million to $200 million for our five new stores that we plan to roll
out and test over the next three years. We will leave the other $3.3 to $3.4 billion for possible
paying down of our debt and stock buy back.
What we plan to do to each of the five newly renovated stores is create a smaller grocery
and update all the stores to make them more modern and clean. Now these renovations will cost
we assume on average $20 million. At current Safeway spent $927 million building 9 new stores
and renovating 12 (Reference 7). So if you assume that each new stores cost at least 10 million to
build just put up the building, there are many other things that then add to the price. So in total
about 80 million for the new stores to be built. Which in total for all 9 nine stores would be about
$720 million. That would leave $207 million for the 12 renovations. So that would average about
$17.25 million per renovation for each of the five stores we would be renovating over a sixmonth period (Reference 7).
We plan on having a $700,00 dollar expense for the initial installation, and training. The
average salary as shown by the bureau of labor is 20,000 (Reference 8) and we would employ
any where from 10 to 20 workers depending on the success of the program, that would cost
around $200 to $400 thousand in salaries alone, plus all of the materials that would be needed for
the day care would be another $100,000 because it would include many different toys and cribs.
And then of course we would have to pay for training. So over estimating the total cost to put in
the child care centers would be around $700,000.
We would then be spending money to market our new customer rewards programs and
advertise in different ways then before. Currently spending 20 million on newspaper ads, if they
take even just $500,000 and us it towards different social media promotions it could go a very
long way.
Lastly we plan to give our employees in the five new locations some new training on
quality control and customer service. According to a company named GTFC they offer food
quality and customer service training that is about $525 per person and having staffs of around
120 people that would cost a total of around $100,000 which is more then reasonable for in store
training (Reference 9).
We estimate that our delivery and pick-up service will cost around $450,000 due to
around $100,000 of that going to trucks for delivery and then the rest going to hiring new
employees, training them, and keeping up to date with the web site and trouble shooting.
So overall the total of all of these estimates comes out to be $19 million per store. We
allocated around 20 million per store or a total of 100 million for this whole project, which
leaves room for us to make changes since we took out a total of $200 million.
The Challenge
Safeway is a grocery retail store located mainly on the west coast that has been around
since the beginning of 20th century. While once having a very strong hold of the market, things
have changed drastically since the beginning of the 21st century and Safeway’s market share has
continued to decrease. In addition, the industry has changed a lot due to increasing competition
and the new uses of technology.
While online and delivery food services have not proven profitable ventures in the
supermarket industry, this budding service has potential to become a lucrative mainstay in the
near future. Right now, Safeway offers both on the basis of staying competitive with other
supermarkets that offer those services. The challenge Safeway faces is turning their current
investment of a ‘dog’ into the creation of a ‘star’. There are two factors that will feed into the
profits of online and delivery food services: the decrease in time that parents have to shop and
the rising inclination to order products online rather than physically purchasing them.
In the past, there were more stay-at-home parents. According to the Department of
Labor, the percentage of US children that have all of their residential parents working has
increased by 8% from 1985-1997 (Reference 9). The factors that contribute to this continuing
trend are America’s weak economy and the rising status of women. While it appears the
economy will rebound, the number of women joining the workforce is only going to rise. The
attitude towards working mothers has dramatically increased, with employers more readily hiring
working mothers (Reference 10). With more women joining the workforce, and less stay-at
home-parents, parents will not have as much time to shop. This will make online and delivery
food service an enticing endeavor for Safeway to more vehemently pursue.
Aside from the introduction of online grocery services, Safeway could also use some
improvements regarding its physical retail stores. Safeway has been overwhelmed with the
increase in competition from nonconventional supermarkets; in particular Wal-Mart, Kroger, and
Target. These three companies have gained an unrelenting market share in the food retail
industry with Wal-Mart and Target introducing more encompassing grocery services. According
to a Daily Finance article released in 2012, Safeway has had a less than stellar five year sales
growth; Target, Wal-Mart and Kroger have had increases of 2-5% while Safeway has only had a
meager .48% five year growth (Reference 11). It is our belief that Safeway is having trouble
adapting to industry changes, in particular changes in competition, because it lacks a clear and
distinctive market position and image that it wishes to manifest. Safeway falls on the spectrum
between discount grocery and high-end grocery and is torn between which sector to more
strongly cater to and how it wants to be portrayed in the market.
With all of the changes that have occurred in the past five years, Safeway needs to start to
plan for the changes ahead if it wants to improve sales and keep up with the competition.
According to the Daily Finance article, “Competition in the grocery-store sector is cutthroat.
Wal-Mart now has about one-third of the market share, with Target, SUPERVALU, Kroger, and
Safeway all claiming less than 10%” (Reference 12). This is a huge change for Safeway
considering that twenty years ago, Wal-Mart was not even on the map as a prominent grocery
competitor. Safeway never really had to worry about its market placement because it was always
able to entice customers with its customer rewards program and great value. As the competition
and market scope has changed, Safeway has not yet fully adapted to the new markets and
industry. If Safeway does not conform to new industry standards, then they eventually will get
lost in the market basket of large retail grocers, this is why we feel this is the most pressing
challenge Safeway is facing, And by developing a firmer stance in the market, it will create an
established image and brand reputation for the company, which is one of the ways to solve this
problem.
In addition to the aforementioned areas of concentration, another challenge that Safeway
faces would be catering to their customers. While Safeway did a great job of strengthening
customer relationships when they introduced the “Just For U” membership card, they could
improve this service. The membership personalizes and eases your shopping experience by
providing offers on the products that one typically buys. This is a peculiarity that none of the
competitors have. Another change that could help Safeway to have an edge over the competitors
is to improve its ambience.
Safeway is currently the second-largest food retail company in the United States. One
strategy that brings Safeway much success is the ability to understand and analyze its customers.
The company understands consumer behaviors and uses this information to cater towards certain
demographics. Safeway considers the company to be between the low-end and the high-end
grocery market. In addition to this wide array of customers in their target market, Safeway also
works to attract Hispanics and older folks, as a result of the aging Baby Boomer population
(Reference 12).
Market
I. Our challenges are breaking into e-commerce, positioning ourselves as higher end, and
creating stronger customer loyalty. We will focus on distinguishing ourselves as higher end.
II.
·
Current market: Total market share for Safeway is 6.37%.
·
Future Market: Our market share should be substantial relative to the ‘high-end’
competition we seek to acquire
III.
·
Safeway currently competes with many different companies across the country, including
Wal-Mart, Target, Kroger, and Costco. There are many competitive advantages that these
companies possess over Safeway, and they provide many benefits that Safeway does not offer.
One of Safeway’s main competitors is Kroger, which is a retail grocer that is quite similar to
Safeway. Kroger offers a wide variety of organic products and they focus a lot of energy and
capital on the promotion of their products as well as customer loyalty programs. Another big
competitor of Safeway is Target. While Target is very similar to Wal-Mart in that consumers can
buy in bulk and the company offers cheaper prices than other grocers, Target offers greater
quality goods and a better shopping experience for customers.
IV.
Safeway is in a unique position in the supermarket industry. Right now, its competition
is centralized in the ‘super store’ segment of the market. However, Safeway cannot compete
with the low prices that Wal-Mart and Target offer. Instead, Safeway needs to position itself as a
‘high-end grocery store.’ This entails competing with the likes of Whole Foods, Wegmans,
Trader Joes, and Harris Teeter. This segment is more profitable for Safeway because of its
relative store volume within the market. Safeway would have the largest volume of stores within
the ‘high end’ market segment, creating an immediate source of advantage.
Our first response will be to strengthen Safeway’s online food delivery service. Online
food delivery service has a massive profit potential. While no company has fully taken advantage
of online service to this point, the company that breaks the trend and invests gravely in online
delivery service, may become the preliminary market leader and enjoy much revenue as a result.
Online retail is a lucrative industry; IBIS World Research predicts an 8.6% increase in online
retail per year through 2018 (Reference 13). If Safeway emerges as the strongest player in the
online grocery delivery service market in the upcoming years, it can be the leader of what will
likely have a prominent future in grocery shopping. In a survey performed by the Wall Street
Journal, 70% of people preferred to shop for their favorite retailer online. Half of the
smartphone owners in the group claim they use those devices to make their purchases. Couple
this with the climbing increase in smartphones, and the reality that new markets are constantly
entering into the e-commerce market, and online food services has a capable future (Reference
14).
Exploiting this young market will position Safeway more advantageously, giving them a
competitive advantage and a more diverse business model. High-end grocery competitors will
have a tough time imitating Safeway because of their small volume of stores, but superstores will
eventually have no trouble imitating an online delivery service. Yet by being the first to deeply
penetrate this market, Safeway can grab hold of a large percentage of the market share and
generate brand awareness and customer loyalty. In addition, Safeway will have a more powerful
image as a supermarket than will superstore competitors, and we believe this will entice people
to purchase groceries from Safeway as opposed to Walmart, Target, etc.
Our identified challenge refers to the market placement of Safeway and its interaction
with different competitors in its current market segment. Again, our recommendation for
Safeway is to compete in a higher end market and to leave its indistinctive market position
behind. Safeway currently competes with Target and Walmart, but if the company follows our
suggestions, soon it will have a more focused service and market strategy and be able to compete
with high-end grocers, with which they will be better able to contend, and increase sales
exponentially. Our plan is to differentiate Safeway from all other grocery stores. Our response is
to make Safeway a more service oriented grocery store, mostly targeting customers looking for
an unsurpassed shopping experience. Safeway will be offering higher quality at comparably
affordable prices.
Our goal is to attract a smaller, more specific demographic that is looking for an
improved experience at the grocery store. We plan on enhancing this experience by adding many
distinctive amenities to Safeway’s currently operating stores. First would be a free day-care
center where children could be left while their parents shop. Next would be a newer, more
updated area to eat prepared foods. In addition, we would recommend updating the take away
food sections, as so many families are on the go and more likely to be taking out and eating
prepared foods. We also suggest improving Wi-Fi quality to attract more business lunch
customers. We would make a Starbucks mandatory in all of the stores. These ‘renovations’ may
also necessitate removing some of the amenities that are already provided in order for us to have
a higher-class image including gas stations, as we believe this does not, in our opinion,
contribute to the image of a high-class grocer.
The final identified challenge pertains to gaining a larger consumer base as well as
producing customer loyalty. Our response is that Safeway begin a rewards program for
customers. This program will offer discounts, coupons, free samples, and other goods to those
customers that shop frequently with Safeway. When customers are aware that they will receive
discounts on products if they continue to shop at Safeway, then they are more likely to keep
returning to its stores to buy their groceries. This will, in turn, lead to greater customer loyalty,
which hopefully will develop brand awareness and recognition and lead to a more encompassing
customer base.
Consumers, obviously, play a vital role in the outcome of our response to begin a reward
program for Safeway’s shoppers. We hope that implementing the strategy within the company
will lead to more steadfast customers. By offering discounts and coupons to repeat customers, we
plan to see a larger number of returning customers at Safeway. By receiving rewards for being a
loyal customer, consumers with modest economic backgrounds may decide to shop at Safeway,
as opposed to some of our biggest competitors such as Wal-Mart and Target. Safeway plans to
expand its consumer base and gain loyalty from all of its current and potential customers.
“Just For U” is a great Safeway strategy that is very appealing to Safeway’s competitors.
The competitors would have the second mover advantage, developing the flaws that Safeway had
incurred. Safeway, however, seems to have the perfect kind of products for this rewards
program. It has a mix of fresh products, and so the inventory needs to be restocked and
invigorated often.
Current competitors might react to this “Just For U” promotion to keep up with
Safeway’s increase of sales. Costco, as well as K-Mart, already apply promotions, changing
them on a monthly basis. However, these companies, following the marketing strategies they are
following now, will not be able to match Safeway’s benefits that the “Just For U” promotion
brings. Safeway’s promotion, unlike Costco and K-Mart’s, is personalized for each individual
shopper. The two big retailers would have difficulty personalizing benefits for each individual
shopper. In addition, Safeway targets higher price higher quality products compared to Costco
and Kmart, drawing in more customers. When Safeway offers these promotions, people are
willing to buy more at Safeway, seeing a bigger difference in both the quality and the price
change of their products than those found at Kmart or Costco.
After a rewards program is fully implemented, future competitors might play a big role in
sales. Whole Foods, for example, serves very fresh and high quality products. They could
respond to this new idea but also introducing a similar rewards initiative for frequent customers.
The customers will be very satisfied by these promotions and it would push them to buy more
products from these grocers. However, one advantage that Safeway has is being a bigger
company and being able to purchase products at a lower price as the result of economies of scale.
Whole Foods, on the other hand, has developed a niche strategy, and does not have the luxury of
production that is afforded to Safeway.
By entering the high-end grocery segment, capitalizing on its online grocery delivery
service, and creating a stronger customer loyalty program, Safeway can significantly improve as
a company. It will gain a better position in a more manageable (profitable) market, taking
advantage of both the wants of consumers and the standards of competition. In conclusion, we
believe Safeway will thrive in its new environment with the aforementioned strategic business
improvements.
Responses
Safeway is a company that sells groceries and also specializes in food delivery, and take
away. The company could benefit from capitalizing on those services and prepared foods. Right
now, Safeway uses food delivery to keep up with other supermarkets. Safeway is ahead on that
scenario by having a higher volume of stores across the country compared to many other grocery
companies, making the delivery inevitably smoother and quicker as well as available at more
locations. Safeway is also classified as the 3rd highest company in sales revenue in a ranking
conducted to determine the most profitable groceries companies. Safeway has also been building
a better reputation and brad loyalty among their customers when compared, for example, to WalMart, who is known for their violated human rights across the country. Safeway is also ahead of
Amazon when it comes to delivery in terms of prepared food, as the colossal company does not
provide the service yet. Among the disadvantages, however, Safeway is considered more on the
high-hand side of the spectrum, making it accessible only to a smaller slice of the population
who is willing to pay extra money to enjoy the take away and cooking-free food. Also, Safeway,
having a smaller customer base due to its higher prices, has a less fluent accustomazation to
shipping, which even its broad volume of sales can’t compensate due to its high prices and
smaller accessibility when compared to other supermarket chains.
The premise of this strategy is: Safeway can outperform supermarket chains, while
keeping a better brand image than the superstores. Amazon and Wal-Mart make larger profits
than Safeway, and have much more volume, for example. However, Amazon offers an
interesting dilemma, because they currently offer an array of high-end products. There would
not be so much of an image issue for Amazon, which gives them a huge competitive
advantage. Our only way to fend them off is to be the first out of the gates, establishing and
exploiting brand loyalty for as long as we can. Data and statistics suggest that people are
increasingly relying on supermarket chains to get their groceries in for the week, in fact
according to Forbes, 77% of 1,200 people across all generations bought groceries from a nongrocer in 2013 → 96% said they will in 2014 -Forbes (Reference 15). As Walmart accounts for
51% of retail food market - Choice Magazine (Reference 3), according to Choice Magazine, the
only way we can beat their customer flow and volume of sales is to build a better image and
reputation when it comes to delivery and take away foods, which being a relatively new market,
won’t require too much challenge.
As of market placement, Safeway already is a pricier company compared to Wal-Mart
and other big names, however, our plan is to change Safeway’s current location in the market by
making the company even more geared to the higher end of the supermarket industry. We plan
to do this by enhancing many of the features available at Safeway stores and attempting to
improve shopper experience while maintaining Safeway’s rudimentary policy; providing value.
In addition, we hope, through trial and error, to remove any discrattionary tactics
Safeway currently employs that may be detrimental to its image as a high-end grocer, including,
but not limited to, gas stations at stores. In fact, according to Bloomberg News, “As of August
2013, Safeway Inc. plunged the most in 10 years after the second largest supermarket chain
reported first quarter same store sales that were lower than it previously estimated.” (Reference
16) One of the advantage our strategy will bring to the company is that our plan will aid Safeway
in recapturing market share and increasing sales and revenue. Our plan will also place Safeway
into a niche (but expanding) market in which shoppers are more willing to pay higher prices for
better products and an improved experience. Our plan will allow Safeway to be be able to
capture a new market share by no longer having to compete with Wal-Mart, Target, and Kroger,
competitors that have gained an increasing market share over the last five years, while Safeway’s
has eroded. Our plan to increase product and service quality will enhance popular opinion of
Safeway while improving brand image, equity, and loyalty, along with an increase in production
of higher quality foods that will hold all departments and aspects of our stores to higher
standards. This will irrefutably improve our reputation for providing high quality goods and
services while maintaining value. By making the move into the higher quality grocery segment,
we will have the opportunity to change our stores, remove some stores, and expand where we
feel there is a large growth potential for our new store image. This will give us the ability to
evaluate all of the stores we currently own and make decisions that will help us to move
forward.
However, some of the disadvantage and threat to our strategies are to be taken into
consideration: For example, one of the biggest disadvantages to this move is that we will be
competing with Whole Foods, Trader Joe’s and many local organic markets that are already
established in the high quality grocery market. This will pose a threat to us because they already
have established customer bases and it will be hard for us to compete initially. We may face
backlash and criticism from these stores, because they already have many techniques to ensure
the highest quality and we will still be learning as we go. So this could cause a lot of push back
from consumers and these stores, while we are entering the market. A further disadvantage is
that we will be losing a large number of our current customers due to the fact that our prices will
be slightly increasing, and because our image will no longer be just providing value. Our current
customers often want convenience and value and we will no longer be able to cater to both of
those needs. There is a large risk for customer dissatisfaction until they either adapt or switch
markets to other retailers. We will also be at a disadvantage because it will take us about 5-7
years (in our opinion) to make all the changes, if they are shown to be profitable after the test
period. Within those 5-7 years we are going to face a lot of hardship and will not see immediate
growth nor change (increase) in market share. This is a disadvantage because as we are
changing, other stores will have the opportunity to continue to enlarge their market share, so we
will need to move quickly as to get into the quality market while it is still prominent and
growing.
Safeway will face many challenges when entering this new market and a lot of heavy
competition and opposition to this change, but it will benefit them in the end. They either
continue to compete with the number 1, 2 and 4 top grocery stores in the nation, or they enter a
new market where they will be competing with numbers 19 and 21. If Safeway makes a
successful transition they will have more stores than their competitors in the quality market and
will be able to generate large amounts of consumer loyalty (Reference 17) Some ways to push
our plan to embrace more of the advantages above mentioned rather than the disadvantages is to
establish a fully organized and functioning award program that excels the one already in
existence. Our plan is to implement a rewards program that offers benefits such as coupons and
discounts to our frequent customers. The goal with this response is to gain loyal customers and to
increase our consumer base. Next are looking to add wine kiosks, which will help building a
better atmosphere for our shoppers while they are looking around the store. Lastly, we are
working towards building better customer service for our consumers. This is also going to vastly
improve the experience that our customers have when shopping at Safeway. Our response to the
problem will benefit the company in many ways, among which is that Safeway will experience
an increase in customer loyalty due to the occasional customers satisfaction the rewards will
implant in our customer’s mind, who will want to become frequent in order to exploit our offers.
Also, the Wine kiosks will allow our customers to relax, unwind, and take their time when
shopping, which will improve their experience and will give us a unique edge compared to our
various competitors, and also generate additional revenue. Having greater customer service is
also on our list, which will allow customers to feel comfortable and at ease when coming to
Safeway, which is a huge part of going to a supermarket. This will give Safeway an advantage
over other supermarkets. All of these plans are dedicated to improving the experience for the
customer, which is half the battle that any customer deals with when food shopping. If customers
have a good experience at Safeway, they will be more likely to keep coming back and they will
hopefully become loyal customers.
To every change in strategy there is most likely some disadvantages lurking. Among the ones
threading our plan is the market cap of $8.86 billion our strategy encompasses. This is pretty low
compared to Costco’s and Wal-Mart's, and other competitors that invest at least $20 billion.
Safeway also spends more capital on employees than Costco (138,000 vs. 103,000) however still
being ranked worst consumer service in the U.S. Safeway should train their employees better or
cut the number of the employees. Also, Safeway lacks in projecting itself in a specific market
segment. If Wal-Mart is the best in low prices, and Whole Foods in quality, Safeway should
specialize itself to be the best in something. We believe this could be in providing unrivaled
services in stores.
The reason why we chose this response is because we felt that we could gain a higher
competitive advantage due to our current volume in the grocery market, we felt that this would
transition well into becoming a specialized high quality grocer. We felt that Safeway
needs to find its niche and specialize in something and in today’s market; they have a
better chance at competing in the high quality sector instead of the low price sector. Our strategy
will positively respond to our selective challenge as we target defined our challenge as growing
our market share, and gaining more customers. It will put us in a more manageable position to
compete, in this more desirable market. We will have stronger competitive advantage in this
market segment. Consumers will find our products and services more desirable in the market
segment. We believe that they will be receptive to our new image as well. We believe we will be
able to fight our competitors and their strategies because we have a very focused and narrow goal
we will strive to reach despite our effort to tackle many areas of the company’s existing plan.
This response provides us with a better overall position. We will, again, have a higher volume
than other high-end groceries in the segment. In addition, we will have a better grocery store
image than Amazon, Wal-Mart, Costco, etc.
Implementation
We feel confident in the carefully considered benefits of our three responses: entering a
high-end market segment, improving customer service programs, and improving our delivery
system. Yet these actions cost money to implement. Through dissecting and analyzing
Safeway’s 10-k, Annual Report, and other descriptive financial reports, we were able to
understand the potential costs that will go into each new venture, and ultimately, how fiscally
achievable these investments are for Safeway.
The most expensive of our solutions is penetrating the high-end supermarket segment.
This entails new stores, in new locations, with a new internal environment. The first costs to be
considered are the costs of building and remodeling five Safeway stores to fit this image. We
project each venture costing no more than $20 million in total, so we have $200,000,000 taken
out of the revenue we made from the sale of our Canadian stores, while around $500 million
went to our debt, there is still around half a billion at least that has not been specified for use, and
so we will use it for investment. We foresee all leftover money being invested into new, future
stores under the same program. Each store will be about 40,000 square feet, 4,000 less than the
average Safeway. This will allow our high-end stores to be more intimate, making it a more
family friendly, simple choice to shop at. It also saves money in building these new stores. This
will create a similar in-store setting as Whole Foods, whose average store ranges between 35,000
and 45,000 square feet. We will be much larger than Trader Joe’s (between 8,000 and 12,000
square feet) and slightly smaller than Harris Teeter (49,100 square feet).
With new stores comes new logistics. Where will these stores be located, and how much
money will it cost for the new services offered within them? We plan on opening 3 in the North,
and 2 in the South of California. Both of these are areas where Safeway currently exists but yet
offers a unique opportunity to capitalize on high-potential customer bases that we plan to be
targeting in the future (wealthy parents). As far as services go, they will be costly, yet effective.
Opening up a daycare will initially cost $700,000, and within the next few years decrease to
$520,000 a year. This will all come out of our budget for the initial building process. We also
plan to improve customer service through offering a stronger loyalty program. This includes
advertising through foursquare and creating a stronger, more effective rewards program that has
a hybrid-tiered points system. This meaning that, customers are not considered ‘gold’ or
‘platinum’ members based on how much they purchase, by the amount of points they accumulate
over a year dictate the quality of the offer they receive in return. For example, someone that
spends $10,000 dollars in one year high-end Safeway stores, may receive a $100 dollar gift card
at that point, while someone that spends $50,000 may receive a $500 card. We feel that this
system will pay for itself in the incentive it offers customers to continuously shop there, yet in
case it does not, we have the extra money set aside from our building budget to temporarily fund
it. If it turns out to lose us money we will change the program, if it proves successful we will
progress to a ‘lifetime point accumulation’ program in addition.
The last venture we intend on taking up is an improvement to Safeway’s ‘in-store pickup’
and ‘delivery’ programs. As it currently stands, these are weak programs used for a small niche
of customers. They do not bring in a strong profit nor are they popularly used. Our first plan of
action is to make in-store pick up more visible on our company’s website. As it stands,
Safeway’s food-delivery services are easily accessible, through a header tab on Safeway.com.
Yet there is not any place to find an explanation of the in-store pickup service, in which a
customer sends in their shopping via smartphone app and employees collect these groceries and
have them ready for pick-up. We feel that having an efficient, well-known pick-up system can
differentiate our grocery store from the competition. We want people to be able to purchase
from our stores in any situation they find themselves in. As for food delivery, Safeway currently
has no ‘frequent-delivery programs’ that offer discounts to customers that often use their
delivery service. For customers that use food delivery 3 or more time a month, we would like to
offer them a $20 dollar gift card for each delivery order placed that month. SO for someone
purchasing 3 times a month, they receive $60 gift card, while someone that orders just twice gets
nothing. This will give incentive to customers that have a difficult time getting to Safeway.
Again, we do not foresee this losing us money, but if it does we have the budget of $50 million
to temporarily cover losses.
We have many ambitions for Safeway, in order to put them in the best possible position
as a supermarket. We understand the assets and resources they currently possess, and we believe
that our plan utilizes them in the best, most efficient way. Thanks to the extra cash we have from
the sale of the Canadian stores, Safeway has a lot of money to work with. We will make sure it
is being put to profitable uses.
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