APR I L 2006

Courtesy avizia
Is that bamboo flooring at the deli counter? Safeway’s freshly conceived Lifestyle stores suggest a sudden appreciation for the lucrative possibilities in the natural foods niche.

Safeway takes a stand

BY C ELESTE LE C OMPTE at the close of the 90s. “Ingredients for Life” marketing campaign. The
But three years later, Safeway’s profits hadn’t new stores offer more fresh foods, expanded natu-

I
n 2003, Safeway (NYSE: SWY) was sulking at budged, and stock prices continued to drop. There ral food sections, private label offerings, scratch
the bottom of a two-year decline in retail were labor disputes and strikes in key markets. bakeries, floral departments, and an expanded
profits. Share prices, which had steadily Wal-Mart (NYSE: WMT) and other discounters line of Safeway “O” certified organic products.
climbed throughout the 1990s to a high near were drawing away business at one end, while But the real change is more than just in what
$60, had slowly unraveled from 1998 onward, Whole Foods and its ilk were gnawing away at the the stores offer, says Muller. It’s a shift in how the
trailing at $16 by April 2003. other. stores do business.
The Pleasanton, Calif.-based company On May 16, 2003, Steve Burd and an in-house
struggled to find reasons why it hadn’t been able
to muster more interest. In his company’s 1999
design team invited retail consultants to come to
the table and help get Safeway back in the game. One-stop corner shop
annual report, Safeway Chairman, President and “Steve’s brief was short,” says Liz Muller, princi- Safeway’s struggles aren’t isolated in the $78
CEO Steve Burd suggested the distracting allure pal and chief creative officer at retail design and billion grocery market. Traditional grocers are
of tech-sector markets had dampened the entire strategy firm, avizia. “He said, ‘I don’t know what beginning to flounder in what has been described
industry. we need to do, but we need to do something.’” as the “disappearing middle.” Discount retailers
It may have been true, to a point. Even Whole That something has turned into a multibillion- — which includes the likes of Wal-Mart, Costco
Foods Market (Nasdaq: WFMI), which had gone dollar campaign led by avizia to revitalize the (Nasdaq: COST) and a multitude of dollar store
public in 1992 and began its dramatic upward Safeway brand, with more than 450 new or chains — and high-end specialty markets, such as
ascent soon thereafter, saw a dip in its stock prices remodeled Lifestyle stores and an aggressive Whole Foods and Wild Oats (Nasdaq: OATS), are

Sustainable Industries Journal 15

 FOOD APR I L 2006

Price check on aisle four

As Safeway (NYSE: SWY) invests billions of dollars to reinvent its image in consumers’ minds, the company’s stock price has mustered more positive
consistency, climbing from a setback in late 2004 to its recent range of about $25 per share. But whether the trend can hold or not remains to be seen.
30

May 03: Jan 05: Safeway commences

25
Safeway hires $100 million marketing campaign
retail consultants to reposition Safeway brand
S T O C K PR I C E (US$)

20 Dec 05:
Introduced
Feb 04: Safeway Organics
Safeway announces
15 leadership changes

10

Courtesy avizia
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Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
03 03 03 03 03 03 03 03 03 03 03 04 04 04 04 04 04 04 04 04 04 04 04 05 05 05 05 05 05 05 05 05 05 05 05 06 06 06

cornering a greater percentage of the market. or Costco for others,” says Pollinchock. consistently high-quality food that fits consumers’
Some economists have raised concerns about Safeway’s latest maneuvers, from its multi- changing lifestyles,” trumpeted the company’s
the trend, saying it’s a sign that America’s middle billion dollar investment in “Lifestyle” stores to its 2004 annual report.
class is on the decline. The middle class has been $100 million brand repositioning campaign But understanding how to serve consumers
the long-time base for most traditional grocery launched in 2005, are an attempt to tap into the “changing lifestyles” hasn’t been easy for Safeway,
stores. Its members are most likely to prepare new way consumers are thinking and shopping. says avizia’s Muller. “If you are too close to the
meals at home and most likely to shop at a full- “The thought process behind the campaign brand it’s hard to articulate what needs to be
service grocery store. But not everyone is so sure was to create a shopping experience that keeps done,” she explains. “With Safeway, we had to
the middle class is on the outs; some say it’s customers in our stores,” says Teena Massingill, play devil’s advocate and tell them, ‘That’s what
simply changing the way it shops. Safeway’s corporate public affairs manager. “They you’re saying, but that’s not true.’”
“The base isn’t disappearing,” says David can find the products that they need, not feel the Muller laughs remembering one conversation.
Pollinchock, chief experience officer for the New need to go to the competitors that are low-price “We stand for organics,” she recalls being told.
York-based Brand Experience Lab. “They’re and high-end, specialty, niche … There are “But you know what? Even if I have the best
determining a different value structure.” consumers who would shop the vast array. Our eyesight, I can’t find it. You have to make a
The new value structure involves making more goal is to provide the prices, the quality that statement. Be dominant. Say it. Express it.”
choices not just on price, but on value. This shift they’re looking for, the organic and specialty Muller advised Safeway to focus on selling
could be behind the success of both Whole Foods foods, and have it all in one location.” solutions that provide customers with more than
and Wal-Mart, says Pollinchock. products and prices. Thinking broadly about not
“It used to be in the old days there were stores
who could count on customers by demographics Having it all what the customer wants, but why they want it,
has helped avizia renovate Safeway’s retail design.
— if you were at this income, you didn’t shop at So what does Safeway have to offer in its new “With no disrespect to grocers, they’re totally
these kind of stores,” he explains. “But today stores, exactly? The answer, says Safeway, depends out of step with how the customer lives today,”
you’ll see high-income consumers shopping at on where you live. says Muller. “If I want to buy a suit, I might leave
dollar stores. People are making very conscious With 1,800 stores on the ground and 20 to 25 with the tie and the shirt and the socks and the
decisions that there are some things it doesn’t more planned for 2006, Safeway’s stores are in a shoes,” she says. “The retail grocer hasn’t tapped
seem to make sense to pay more for. It’s the same wide variety of markets, and what consumers into that as well. They have their store and put
product no matter where you buy it.” want to buy in the different markets varies, says commodity-based products in it and hope the
That means consumers are more likely to Massingill. What doesn’t change is Safeway’s consumer buys what they need.”
make multiple stops to check items off their approach. That wisdom has informed Safeway’s
grocery list. “A trend that we see is that I will shop “We are fundamentally reinventing our busi- approach to its expanded natural and organic food
at Whole Foods for some things and a Wal-Mart ness, establishing a solid framework to provide offerings, as well. “It’s a part of our ingredients

16 Sustainable Industries Journal

APR I L 2006

for life ideology,” says Massingill. “Everything that Lifestyle format by the end of 2005, Safeway’s “Whole Foods has a very strong brand identity,”
our customer needs is going to be at our stores — fourth-quarter earning statements showed a says Pollinchock. “They have a very strong sense
all of their grocery requirements. And customers promising 5.8 percent upswing in sales. The com- of themselves, and they’re telling a very clear
were asking for a larger selection of natural food pany cited better marketing and success of the story. If you’re already telling a clear story, it’s
items.” lifestyle-format stores as two key reasons for the easier to move into other environments.”
At the end of 2005, the company began offer- improvements. But Massingill and Muller are both firm in
ing 150 new certified organic products under a Over the next year, the company expects to saying that Safeway’s on the right path.
private label. “It’s a way of ensuring quality and it spend about $1.6 billion to open 20 to 25 new “As a big conventional grocery, for them to
was an opportunity of product growth for our lifestyle stores and complete 280 lifestyle remod- turn the ship doesn’t happen over night,” says
company,” Massingill says. els. Muller compares Safeway’s aggressive roll out Muller. “It takes time for them to do what they
By the same token, it’s an opportunity for schedule to building a Boeing — on the runway. do.”
Safeway to communicate its newfound “If you’re not on it, you’re going to be under And there are signs that Safeway’s aggressive
commitment to organics. Rather than segregating it,” she quips. pace won’t slacken anytime soon. In February,
the new products into a separate natural foods There are those who believe Safeway has Safeway opened a 76,000-square-foot Lifestyle
section, Safeway has integrated “O” organics already missed its opportunity, and some say the store in Boulder, Colo., with all the trimmings —
throughout the store. Cross-positioning products changes are too little, too late. and then some. Going beyond the scope of other
provides meal suggestions and encourages “While the new stores look a little better lifestyle stores, the Boulder store features several
customers to purchase everything they need at inside, and while the staff are sometimes nicer amenities (a demonstration kitchen, an expanded
their nearby Safeway, rather than seeking and friendlier … beneath the surface the place is produce section boasting over 100 organic items,
additional ingredients at another store. Massingill still a garden-variety Safeway,” was the lukewarm a bulk foods aisle) that go head-to-head with the
says 80 percent of shoppers still visit a traditional verdict from the Hartman Group, a market upscale natural food stores that call Boulder
grocery store for at least a portion of their food research firm specializing in the health and home.
purchases. The lifestyle stores seek to attract a wellness marketplace, in its annual trend survey. Although not all stores are likely to go as far
higher portion of those purchases. Likewise, some industry naysayers believe into the upscale marketplace, the company says
Safeway’s size could be a problem. The idea of Boulder is a testing ground for the potentials of

‘Turning the ship’ customizing the Lifestyle format to each market

could prevent Safeway from developing the clear
the Lifestyle format. “It gives us what you’d call a
research facility,” Massingill says. ●
The results so far have been mixed. With 26 identity necessary to compete with the likes of
percent of Safeway stores operating
(/0%3ADVERTISEMENTPDF under Whole Foods.
the0-
 Contact Celeste LeCompte at [email protected].

Business
for the Long Run
3RD Annual Conference on
Teaching Sustainable Business

Saturday, May 20, 2006

• One-day conference
integration of sustainable business practices
into business curricula
• Collaborative format
networking, best practices, challenges and
achievements
• Results
resources to enrich research and teaching

Who should attend: Faculty and business leaders

interested in preparing students for the demands and
challenges of the changing business world.
Host Institution: Seattle University, Albers School of
Business and Economics
Planning Committee: University of Washington,
Bainbridge Graduate Institute, Seattle University, Antioch
University Seattle, Royal Roads University, Network for
Business Innovation and Sustainability (NBIS)
Information: www.nbis.org; [email protected]

Sustainable Industries Journal 17