SAFEWAY, OTHERS SEE BENEFITS FROM STRATEGIC MANEUVERS

Mark Hamstra / Additional reporting: David Ghitelman

NEW YORK -- Food retailers predict that the changes they have recently made in their companies to adjust to the shifting competitive landscape will pay off next year, especially if the economy continues to improve.

So said some of the executives who presented at the Goldman Sachs 10th Annual Global Retailing Conference here, including representatives from Safeway, Pleasanton, Calif., and Delhaize, Brussels, Belgium. Supervalu, Minneapolis, also updated attendees on its progress in expanding its logistics outsourcing services for large chains.

Steve Burd, chairman, president and chief executive officer, Safeway, said 2003 was a "transition year" -- also his description of 2002 at a gathering last year -- but he said the company's investments in centralized procurement and in revamped perishables departments would begin bearing fruit in 2004.

He described the current process as "the largest reorganization of the company in its entire 77-year history," but said the previously reported difficulties in converting to centralized procurement will likely be resolved by next year.

"We're almost on the other side of it," he said. "We'll be completely on the other side of it after the fourth quarter."

He said the company expected these changes to begin driving consistently positive same-store sales by next year. Also, he said the chain has seen positive results from tests of remodeled perishables departments.

He also explained the company's strategy for lowering prices. Rather than lowering the promotional prices on products, the company is seeking to lower the everyday prices instead to create a better overall price image.

Rick Anicetti, president and CEO, Food Lion, Salisbury, N.C., the largest banner under Delhaize, also said his chain was expecting to see improvements from strategic initiatives similar to those of Safeway. Already known as an inexpensive grocery destination, Food Lion is reducing prices even further and improving its perishables departments, Anicetti said.

He said that as more upscale competitors have lowered their prices during the past year, Food Lion is fighting back by reducing its own prices even further.

"We started to see a shrinking variance between us and the more upscale stores, but now we are increasing that variance again," he said.

In an effort to improve its perishables merchandising, Food Lion is "looking at the entire chill chain" for ways to improve those departments in addition to remodeling the departments within its stores.

"For the first time, we will have four to five [quality assurance] personnel in every one of our distribution centers" to inspect perishables as they are delivered, he said. "We used to get product that other chains rejected."

At the store level, the company is set to unveil next month its first market-wide remodeling program in Raleigh, N.C., which involved an investment of $55 million in 68 stores. The effort is being promoted with the tag line "Take a Fresh Look at Food Lion" to call attention to the upgrades in the fresh-foods areas. The company plans to remodel the entire Charlotte, N.C., market next year and additional markets in 2005 and 2006.

Anicetti also noted that Food Lion would consider converting some of its Food Lion stores in Georgia to the Harveys banner, following Delhaize's recent agreement to acquire the 43-unit J.H. Harvey Co. for about $44.1 million.

Supervalu also has begun rolling out some new strategies. The retailer/wholesaler is in discussions with several national chains about handling aspects of its distribution business, Jeff Noddle, Supervalu's chairman, president and CEO, told conference attendees.

Responding to an audience question about the possibility of Supervalu handling some logistics for Albertsons, Boise, Idaho, or Safeway, Pleasanton, Calif., Noddle said, "We see it as likely.

"We have had a lot of dialogue with those companies. To them, distribution is an item on their profit and loss statements. To us, it is a science."

Noddle noted Advantage Logistics, a wholly owned Supervalu subsidiary, already operates two distribution facilities -- in Phoenix and Detroit -- for Kroger.

He added that Advance Logistics would probably not assume full distribution responsibilities for a national company, but would be more likely to take on "certain products or certain geographies."