PLEASANTON, Calif. -- Safeway here is ready for its closeup.
After putting the pieces in place over the last few months to differentiate its offerings, the company is preparing to sell itself as a brand in 2005, chain executives said at the company's annual investors conference here last week.
"We believe we can brand the shopping experience like a consumer packaged goods company brands a product," Steve Burd, chairman, president and chief executive officer, explained. "We're going to connect the dots for consumers and create enough 'ahas' for them to ask themselves why they should shop anyplace else.
"We believe branding the consumer proposition will be a real benefit to our sales growth."
According to Brian Cornell, executive vice president and chief marketing officer, branding Safeway is a logical step for the company. "You can't brand the shopping experience unless the foundation is in place. With so many pieces in place already, we're ready to start talking about it in 2005 and bring consumers along on our journey.
"Up until now, the branding focus has been on individual products. Now we're ready to talk about branding the Safeway shopping experience in terms of why we're doing what we're doing, and why we're committed to quality."
According to Burd, Safeway has essentially re-invented itself over the past 18 months, and 2004 was "a good year for us because of all the building blocks we put in place."
Those "blocks," Burd said, included making major investments in perishables departments -- by developing proprietary brands like Ranchers Reserve beef and Signature soups and sandwiches, and adding strong points of differentiation in the produce, meat, bakery and floral departments; narrowing the price gap with discounters on key items; and upgrading overall store service.
Additional pieces scheduled to be implemented in 2005 to differentiate the chain include revitalizing center store sales. Cornell said Safeway hopes to accomplish that goal in several ways, including the following:
- By utilizing its extensive loyalty card database to tailor promotions to drive shopping trips and increase basket size.
- By rationalizing its corporate brands architecture to elevate the role of Safeway Select, nd continue to launch new and innovative products.
- By developing additional promotional activities.
- By focusing on "leadership pricing efforts" in 15 key categories that represent 50% of center store business.
- By working with CPG companies to design programs and promotions to draw customers back into the center of the store.
- By trying to draw more fuel customers into the stores.
- By creating multi-dimensional relationships with Safeway.com customers, whose sales more than doubled in 2005, Cornell pointed out.
Turning to Safeway's financial outlook for 2005, Burd said earnings for the year will be reduced by 20 cents per share to allow Safeway to invest in incremental marketing expenditures as it sells itself as a brand. In addition, the lingering impact of the 141-day strike against Vons in Southern California that ended last March will cost the company another 20 cents per share as Safeway continues to invest in price, Burd said.
He also said he expects Vons to return to pre-strike profit levels sometime in 2006.
Burd said he anticipates Safeway will reach agreement on three outstanding labor contracts -- presumably those in Denver, and in the Bay Area and Sacramento Valley regions of Northern California -- "between now and the end of the first quarter."
Looking ahead, he said Safeway expects to boost non-fuel identical-store sales in 2005 by 1.2% to 1.5%, excluding Vons' first-quarter results, and for earnings per share to fall between $1.41 and $1.51 after a nine-cent expense for stock options. Within three to five years, he said Safeway anticipates boosting ID sales into the 2% to 4% range and growing earnings per share by more than 10% a year.
