Steve Burd isn’t afraid to make big decisions.
So there was no apparent hesitation when the chairman, president and chief executive officer of Pleasanton, Calif.-based Safeway decided to shift away from the chain’s traditional high-low pricing program in favor of an everyday pricing policy that seeks to put the chain at parity with other conventional operators.
According to Burd, Safeway moved prices from 2% higher than conventional competitors to “slightly lower than the chief conventional competitor in each market” and from 2% lower than the largest secondary competitor in each market to 4% lower, “which provides an opportunity for us to take share from them.”
Price parity was not Safeway’s original intention at the start of last year, Burd told investors earlier this year, “but we got it done [beginning last summer] because we felt that’s exactly what we needed to do from a strategic standpoint so we could start 2010 in a very strong price position — and then, as the economy recovers, the points of difference that Safeway goes to market with, including the overall shopping experience and product quality, would become quite meaningful.
“Last year wasn’t the best time to invest in everyday price because people tend to buy more on promotions during recessions. But the average length of a recession is around 16 months, so we felt really compelled to be in a hurry and get to a price-parity position [with] conventional retailers.
“Price position is going to be really critical, and we think the Ingredients for Life initiative makes so much more sense if you don’t have to compromise on price, because now all the other dimensions we’ve created in the lifestyle stores really get to play out.
“And if we are correct in predicting the economy will begin the slow movement back to health, I think those points of difference will really be important. The price advantage is an opportunity to build share.”
Gary Giblen, managing director of Quint-Miller & Co., New York, said the payoff on Burd’s pricing decision might never be clear.
“It might not be clear if that was the reason if sales and earnings improve, but it’s impossible to know whether sales and earnings would have improved if Safeway had done nothing,” he explained.
“Burd had to recognize that the consumer has made fundamental changes in what she looks for,” Giblen added. “And even if the economy picks up, frugality would still be there.”
— Elliot Zwiebach
