Key developments: Reduced debt by more than $1 billion through stronger cash flow, cost reductions and restructured labor contracts; launched Lifestyle store format.
What's next: Rebranding chain; remodeling hundreds of older stores.
Steve Burd has certainly proved himself to be one of the industry's most tenacious executives. Whether through bruising contract battles with union representatives or boardroom skirmishes with institutional shareholders, he has demonstrated a single-minded drive to cut costs, improve cash flow and now lead a charge that will reshape Safeway's 1,800 stores to his vision of modern competitiveness.
In his annual letter to shareholders, Burd claimed the company's new Lifestyle store format, which emphasizes enhanced fresh departments in warmer, more modern store interiors, was working, judging from early results at the 34 new stores and 108 remodels completed in 2004.
"Based on our recent, positive sales trends, we are encouraged that our strategy is working and are convinced that Safeway is headed in the right direction for future growth," wrote Burd. "We are determined to deliver shareholder value."
Several industry analysts have applauded the changes.
"[Supermarket retailers] have recognized that Wal-Mart and Costco are going to win the price battle, and that they're going to have to offer something else, or margins will be ground down in a never-ending spiral," Jonathan Ziegler, a Santa Barbara, Calif.-based analyst with J.M. Dutton & Associates, told SN.
The Lifestyle stores are a step in the right direction, he noted. Huge, publicly held companies like Safeway don't exactly have a reputation for being nimble competitors. Yet Burd recognizes the danger of being an operator caught in the middle, between Wal-Mart's unbeatable pricing and upscale competitors such as Whole Foods' top service. He is leading a colossal effort to charter a new course for Safeway, fast.
His goals are ambitious -- he is pushing the company to convert an anticipated 86% of Safeway's stores to the new format by 2008. There's no guarantee that customers will become more loyal to the company or warm to its new pitch -- that Safeway is now a source for solutions, not just ingredients.
In the best of all possible outcomes, one consultant compared the effort to a textbook case in a different channel.
"There are a bunch of companies out there in other industries that are doing a heck of a job with lifestyle merchandising and lifestyle advertising, and the one that comes to mind the quickest is Target," said Ed Engoron, a consultant with an executive background in advertising and food-service operations who operates Perspectives, Los Angeles.
With these campaigns, Target established a clear point of difference with Wal-Mart and other competitors in the discount channel. Safeway has a good chance of finding a similar competitive niche in the supermarket channel if the Lifestyles format and Ingredients for Life campaign resonate with consumers, Engoron said.
