For many Americans, "going to Safeway" is synonymous with "going to the grocery store." Safeway is one of the nation's largest food retailers, with some 1,326 stores located mostly in the western, midwestern, and mid-Atlantic regions of the US. It also operates regional supermarket companies, including The Vons Companies (primarily in Southern California), Carrs Safeway (Alaska's largest retailer), and Randall's Food Markets (Texas). Safeway owns grocery e-retailer GroceryWorks.com. Outside the US, Safeway owns 49% of Casa Ley, which operates 206 food and variety stores in western Mexico. (The company exited the Canadian market in 2013). Safeway's parent, AB Acquisition, merged it with Albertson's in 2015.
Change in Company Type
Safeway was acquired by Albertson's parent company, AB Acquisition, which is controlled by investment firm Cerberus Capital Management. It paid $9 billion for Safeway in 2014. The merger of the two grocery giants creates a company with more than 2,200 supermarkets under 16 banners, 27 distribution centers, and 19 manufacturing plants. As part of the merger, Safeway sold its Property Development Centers subsidiary (launched 2008), which held some $830 million in real estate assets, in late 2014. Also as part of the deal, the two companies sold a combined total of 168 stores in eight states.
Safeway operated 1,326 stores at year-end 2014 and 13 distribution/warehousing centers. About a third of its supermarkets are in California. Other key markets include Alaska, Arizona, Colorado, Hawaii, Oregon, Texas, Washington, and the mid-Atlantic region. It also owns a 49% stake in Mexico's Casa Ley. (The company is exploring the idea of selling that stake.)
Safeway divides its US grocery business into seven geographically-based divisions. With pharmacies inside more than three-quarters of its stores, Safeway is a leader in pharmacy sales among US grocery retailers. The company also sells gas at more than 350 fuel stations adjacent to Safeway stores. Fuel and pharmacy sales together contributed 19% of the company's fiscal 2015 sales. Its bakery, dairy, and food processing operations span the US and Canada with 32 manufacturing plants, which supply Safeway stores with many of its private-label products.
The company has been streamlining operations as of late. In late 2013 Safeway exited the Chicago market when it shuttered underperforming chain Dominick's. It also sold its Canadian operations (which had been pulling in about 15% of total revenues) to Sobeys. The grocery operator took its lucrative third-party gift card subsidiary, Blackhawk Network (established 2001), public in 2013 in an offering worth $230 million. Post-IPO, Safeway remained the majority owner of Blackhawk. Safeway also sold its real estate development arm, which held a portfolio worth some $830 million, in late 2014.
Sales and Marketing
Safeway's advertising and promotional expenses totaled $325.5 million in fiscal 2014, down from $373 million in 2014, and $416.7 million in 2013. To lure shoppers back from discounters, Safeway has a $100 million marketing campaign that positions the grocery chain as a more stylish alternative to discount chains. The Ingredients for Life campaign focuses on about 1,500 Safeway, Vons, and Pavilions stores in the western US, as well as Maryland and Washington, DC.
In fiscal 2015 Safeway' s revenues increased by 4% due to higher perishable sales and the addition of an extra week. Identical-store sales increased by 2.8% due to inflation and better merchandising. In addition, the average transaction size and transaction counts increased.
The company's net income decreased by $3.3 billion (97%) in fiscal 2015 due to the decreased income from discontinued operations (72 Dominick's stores in Chicago) and higher operating and administrative expenses.
In fiscal 2015, net cash used from operating activities was $621 million compared to $1.3 billion net cash provided by the operating activities a year earlier, primarily due to net cash flow used by operating activities and discontinued operations.
As part of its branding strategy, Safeway operates primarily one store format across all seven retail operating segments. Each store offers the same general mix of products with similar pricing to similar categories of customers. Safeway does not operate supercenters, warehouse formats, combination clothing/grocery stores or discount stores. In addition, each operating segment has similar products, similar production processes, similar types of customers, similar methods of distribution and a similar regulatory environment.
Safeway's operating strategy is to provide value to its customers by maintaining high store standards and a wide selection of high-quality. It is focused on differentiating its offering with high-quality perishables and has continued to develop its portfolio of Consumer Brands private-label products in three areas: Health & Wellness, Premium, and Core.
Prior to its deal with Albertson's, Safeway made major changes to its business. In late 2013 it sold its stores in Canada, operated by Canada Safeway, to eager rival Sobeys, owned by Empire Company, in a $5.8 billion deal. The deal involved 213 stores, as well as 199 in-store pharmacies, 62 gas stations, 10 liquor stores, four distribution centers, and a dozen manufacturing facilities. Safeway also exited the Chicago market with the closure of its 72-store Dominick's chain there. The company took its Blackhawk giftcare subsidiary public in 2013 (but it still holds a majority stake in the firm). To gain approval for the pending merger, Safeway has been shedding assets including certain supermarkets and its property development division. (In 2014 Safeway sold the shopping center and real estate development assets owned by its wholly-owned subsidiary, Property Development Centers to Terramar Retail Centers for $830 million).
To boost its bottom line, Safeway is looking beyond its low-growth core supermarket business. New non-core opportunities include a wellness program. Safeway is also cutting its losses at its most troubled chains, including Genuardi's on the East Coast and Dominick's in Chicago. To compete with discounters, Safeway has aggressively cut prices and improved and promoted its private-label products, which cost less than national brands.
In 2013, Safeway announced a comprehensive initiative to make its online grocery shopping website more accessible and usable for Safeway shoppers with visual impairments.