Safeway Outlines 6-fold Strategy for Sustainable Double-Digit Growth

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Safeway Outlines 6-fold Strategy for Sustainable Double-Digit Growth

PLEASANTON, Calif. - Safeway said yesterday that it expects to achieve sustainable growth of 12 to 15 percent for 2007 and beyond.

In a conference call with investors, Safeway outlined six key strategies it will follow to get there: customer segmentation, a new approach to category management, enhanced supply chain efficiencies, private label products, health and wellness initiatives, and branding.

Safeway said its customer segmentation strategy involves finding out how and why consumers choose its stores, based on new proprietary analysis.

"There is some good data out there about who is your best customer," said Brian Cornell, Safeway's e.v.p. and c.m.o. "Unfortunately, there is very little insight into why, and how to engage that consumer going forward."

Using club card data gathered over several years, Safeway said it is examining three levels of consumer interaction with the stores: Observational insight, studying what these shoppers actually do inside the stores; behavioral insight, which examines their lifestyles and food preferences; and insight on their views about price and value. The insights allow Safeway to focus on its most loyal and profitable customers who drive sales and profits.

Safeway said its new spin on category management assigns new category roles based completely on the consumer. 'We've developed 11 proprietary variables and thousands of algorithms to study these consumers," said Cornell. "The results have driven a new approach to category management that we are weaving into how we run our Safeway business."

The approach includes a strong focus on categories that are important to its shoppers, improving its pricing and marketing strategies, enhancing the allocation of space, strengthening the effects of ads on the consumer, and improving its price perception in the market. Already the company is seeing strong results in pilot stores.

Safeway said it is using a virtual reality technology that allows it to examine the impact of many iterations of a potential store redesign, without lifting a box.

Among its strategies around consumer communications are a predictive shopping list, that shoppers can access online and are customized based on shopping history.

To help streamline its supply chain efficiencies, Safeway is working with its manufacturer partners to provide visibility through the supply chain system, assigning accountability to both parties to ensure they collaborate on ordering and supply accuracy. It is also sourcing globally to drive more value into its supply chain.

To keep up the momentum of its private label offerings, Safeway has shifted its approach with these products from reactionary to innovative, aligning its private label effort with its overall strategy of building its offerings around consumers. The company's O organic offering, already a $150 million brand, will play a major role in this strategy.

The O organic line falls under the company's strategy to be the health and wellness advocate for its shoppers. To do this it is leveraging existing assets, such as its pharmacy and family care centers and its relationship with Dr. Dean Ornish, to provide "good to know" brand communications throughout the store. It is also working with Tufts University and the USDA to develop a scorecard system that shoppers can use to measure the health value of the food they buy.

On the marketing front, Safeway plans to continually evolve its branding and communication to meet the changing consumer, "to stay relevant to the shopper, to become the complete food store," said Cornell.

During yesterday's conference call, Safeway noted that it anticipated continued strong contributions from Lifestyle stores and product innovation that will deliver identical store sales growth of approximately 3.3 percent in 2007, and initiated earnings per share guidance of $1.90 - $2.00.

The company said it anticipates further progress in shrink control and a more efficient supply chain, as well as benefits from past labor contract restructurings and labor efficiencies that will provide flexibility to invest in price, promotion, and brand building and to increase margins.

Safeway said it plans to spend approximately $1.7 billion in cash capital expenditures in 2007, to complete approximately 25 new stores and to remodel approximately 275 stores, and that it expects to generate free cash flow in 2007 in the range of $400 million to $600 million.

"We have made substantial improvements in our supermarket business since establishing our strategy to differentiate our offering in 2003," said Steve Burd, chairman, president, and c.e.o. "We have achieved significant improvements in our perishable offerings and executed our Lifestyle store program in over 40 percent of our stores, with great results. We have also been working to establish new growth vehicles to ensure healthy long-term growth for our business. Blackhawk Network is a great example of how we plan to drive additional growth in years to come."