Safeway 1Q profits up 11 percent

April 24, 2008 7:17:32 PM PDT
Bay Area-based Safeway surprised Wall Street on Thursday with higher-than-expected earnings.

It comes at a time when rising food prices are putting a strain on family budgets.

The strain of higher food and energy prices has been painful.

Compared to a year ago, food in the Bay Area is up 5.5 percent; energy is up almost 12 percent. The region's biggest grocery chain is doing a delicate balancing act to be profitable and to attract price conscious consumers.

Safeway credits its 11 percent rise in quarterly profits to a strategy launched five years ago.

Upgraded outlets it calls lifestyle stores have broadened its appeal to upscale shoppers -- with features like a nut shop, and a wide selection of organic produce and organic food products.

It has also improved its line of private label products, which helps to boost both profits and sales.

"Private brands definitely work in favor of Safeway because it's a higher margin good. It gives them a higher profit margin on the bottom line. And it also can work in the favor of the consumer if Safeway's private brands are perceived to be a higher quality, but yet not as high a price as other brands," said San Jose State Associate Dean of Business Michael Solt.

Safeway has also benefited by selling gasoline at some locations, enticing customers with a three-cent per gallon saving for card club members.

However, Safeway is revising downward its sales forecast for the rest of the year -- by a full percentage point down to two to 2.3 percent, instead of an earlier projection of three to 3.2 percent.

By comparison, Albertson's, which is owned by Supervalu, is projecting one to two percent sales growth.

Safeway, based in Pleasanton, has 1747 stores in the U.S. and Canada. It knows that consumers are facing sharply higher food prices in tough economic times.

Causing shoppers like Joanna Macol to switch stores to save money.

"I actually go to Costco now and buy it in bulk. I have to be smarter now," said Dublin resident Joanna Macol.

"That saves you money now?" asked ABC7's David Louie.

"Yes," said Macol.

"We do think peoples' budgets are stretched," said Safeway Senior Vice President of Finance Melissa Plaisance.

Melissa Plaisance is Safeway's senior vice president of finance. She says Safeway will maintain its dominance in Northern California.

"There have been others that have disappeared from the landscape over time, and we think part of it is we've done a really good job with the consumer here, and this is a very strong market for us," said Plaisance.

Safeway has already trimmed its work force by about 400 employees this year. It still has 201,000 on its payroll.

Grocers and consumers continue to face higher prices, and the Agriculture Department is projecting food inflation this year at four percent.


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