Safeway Touts 'Stealth Pricing' Advantage

ELLIOT ZWIEBACH

PLEASANTON, Calif. — Safeway here said last week its “Just for U” digital marketing platform gives it the ability to offer “stealth pricing” that falls below competitors' radar.

“We believe we can nullify the effect of competition because what we do will be mostly invisible to other retailers, giving us more flexibility on price than anyone we compete with and doing so on a more personalized basis,” Steve Burd, chairman, president and chief executive officer, told analysts during a conference call to discuss third-quarter financial results.

He said consumers who use the online program would be able to save an additional 15% to 20% over the promotional prices other retailers offer, “and we think that will help us drive sales.”

Safeway has been testing “Just for U” in Chicago, Northern California and Hawaii without much advertising or promotion, he said, “and we're seeing double-digit increases among the most loyal group of shoppers.”

The chain plans to add one more market to the marketing platform this year and roll it out chainwide by the second quarter of 2012.

Net income for the third quarter rose 6% to $130.2 million, while sales increased 7.1% to $10.1 billion and identical-store sales, excluding fuel, were up 1.5% — the seventh consecutive quarter of improved IDs, Burd noted.

He said ID sales strengthened throughout the quarter, with IDs for the last six weeks of the third quarter and the first four-and-a-half weeks of the fourth quarter running “a tad below 2% positive.”

For the year to date, net income fell 16.4% to $301.3 million — primarily due to the negative impact from the Canadian dividend Safeway paid in the first half of the year, the company explained — while sales rose 6.3% to $30 billion and ID sales, excluding fuel, rose by 0.8%.

With inflation running at just under 4% for the quarter and IDs up 1.5%, volume was down approximately 2.5%, Burd noted, “as it is throughout the channel, due in large part to the dampening effect of higher fuel prices on overall consumer behavior.

“But with the plans we have going forward, we expect to see our volume turn positive, even in the soft economy.”

In response to a question, Burd declined to explain what those plans are, beyond expansion of the “Just for U” program.

He said Safeway has focused on market share rather than volume growth as fuel prices have approached $4 a gallon and commodity inflation has risen, and with those factors remaining, “we will have a hard time generating positive volume

“But we believe the unique capabilities we are building with ‘Just for U’ will enable us to achieve positive volume in 2012,” he said.

Gross margin fell 114 basis points to 27% of sales in the quarter, though it was flat excluding the impact of fuel prices and Blackhawk sales, Burd said.

Safeway passes through all price increases, just as its competitors do, he added, “but our flat gross margin reflects the positive impact of our ongoing shrink-reduction efforts.”

Q3
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