Safeway Remains Focused on Lifestyle
There’s no doubt that the success achieved by Safeway in the past four years is connected to the development of the chain’s Lifestyle format. This year the company anticipates opening 20 new stores and remodeling 240 others to turn them into Lifestyle units.
“By the end of the year, we will have 1,286 stores in that format,” Steve Burd, chairman, president and CEO of Safeway, told GlobeSt.com. “Seventy-six percent of our stores will have gone through a major transformation in just four years.”
Safeway plans to eventually convert all of its larger stores to the Lifestyle format. Over 80 percent of Safeway’s stores are 35,000-square-feet or larger.
The chain has also begun testing a 15,000-square-foot small store concept known as The Market By Vons, et al. The Market’s focus is on fresh and prepared foods.
Mr. Burd said the chain’s experience with the Lifestyle format has taught it to understand “what might be possible in a conventional store.”
Discussion Questions: What role has the change to the Lifestyle format played in Safeway’s performance over the past four years? Is it the right format for all of Safeway’s larger locations? What will Safeway’s two major formats, Lifestyle and Market By…, be able to teach one another?
The most important phrase in innovation is “what might be possible” and based on that mantra driving the company, Safeway ranks really high our our meter of those retailers who will continue to become more relevant to the shoppers and thus, more powerful in the industry.
Reinventing a major grocery retailer is a massive undertaking, and agree that much has been accomplished. The fresh perimeter is well done, becoming a destination for quick trip shoppers. Lifestyles is a way to differentiate out of the middle range that is sinking other retailers. A clear focus on health with well designed private label products that reinforces the new Safeway brand was the right move. Finding the right mix in the grocery section requires fine tuning, but the direction is positive at many levels.
In converting stores to the Lifestyle format, Safeway is illustrating its ability to connect with customers through an enjoyable, experiential in-store experience. The department layouts and creative merchandising approach deliver a very real, authentic retail experience and this has directly impacted Safeway’s improved sales performance.
I would challenge anyone to look at the facts and say that the Lifestyle stores have been a success. Their same store sales are not keeping up with inflation and their share of all non-perimeter categories continues to decline. They have lost the stock-up trip and have become the destination for quick trip and fill-in trips.
Costco has made major inroads into their business and Lifestyles is not strong enough to change people’s habits once they begin to shop at Costco. Safeway has a major value perception issue in their markets and they have not proven that they know how to address this issue.
Despite all of the excuses Mr. Burd continually makes about poor performance, the bottom line is that Safeway needs a major infusion of new thinking to reverse its declining trends.
Safeway’s healthy living merchandise mix has allowed them to capture a good chunk of this category. Expanding to a healthy living format is an excellent direction for them. Safeway’s ability to execute in this area will ensure success.
I am very curious to see the complete layout of the larger and smaller format locations. My only advice on this move is to make sure the staff is well trained in product knowledge. This category requires a lot of customer service to be profitable. My own experiences with Safeway on the West Coast indicate that the sales staff knows their stuff. Customers have tons of questions and concerns when it comes to healthy living purchases. You could probably have a small sales force just for vitamins alone!
Safeway faces some major challenges in markets outside of the West Coast. In Canada, Walmart is really putting the hammer to them with their rapid expansion. In Chicago, the Dominick’s stores have been losing sales since being taken over by Safeway as well as the Tom Thumb stores in Dallas and Randall’s in Houston. Randall’s is a sad story going from being #1 to a distant also ran ever since Walmart and HEB made sport of them. Sales per square foot have plunged since being taken over by Safeway in Philly, as well.
I’m not so sure the Lifestyle format is the answer. I’m not seeing big sales increases after the remodels and the competitors don’t seem to be too concerned. Safeway has been more about the press release hiding behind green initiatives, health care reform, and community service. The Lifestyles format might be the right format in their back yard but I’m seeing no meaningful improvement in other markets.
I believe that the Lifestyle conversion has helped Safeway over the past four years. Although some people have expressed their disagreement over this success, based on my personal experience of shopping at a Tom Thumb store for over fifteen years, I can speak from experience. Initially then the conversion to the new format was finished, many stores had difficulties managing the influx of business they gained. Out-of-stocks and stressed employees caused a temporary setback for the newly remodeled stores.
However, since that time, the attitude of the employees has changed to match the “Lifestyle” image Safeway is trying to project throughout their stores. It can be argued as to how successful they’ve been in very competitive markets, however, I believe Safeway wouldn’t have anywhere the respect and market share it has today if it hadn’t embarked on the Lifestyle conversion.
After years of presenting a lackluster, middle-of-the-road store to customers, Safeway developed something that was the right thing at the right time. The Lifestyle strategy plays to underlying consumer trends in health, wellness and today’s time-challenged, fast-moving lifestyle, and that alone gives the store a reason for being. But it turned out that the Lifestyles approach was a great platform for doing a whole bunch of different things that help generate sales, profits, traffic and growth, things that had eluded Safeway supermarkets previously.
The sophisticated private label program with about 10 or so different labels culminating in the O Organics and Eating Right is an important, and quite frankly, powerful part of the new look at this chain. In many ways, it personifies the achievements of Lifestyle store execution. Combined with Safeway’s long-standing expertise in operations, it has helped the chain report higher sales and a 7% earnings increase in the most recent financial report.
Will Lifestyles work for a smaller format? Probably even better than in existing large stores.
Safeway is working to develop its new image. There are some contradictory issues: many prices are higher than competitors but each week there are 10 items on special for $1 each. Each week the items are different which is, I assume, a tactic to keep consumers coming back. In general, though, the higher prices overall encourage cherry picking–the items on special and the brands and/or items not carried in other stores. With all the changes taking place in the marketplace, consumers who visit their favorite store on a regular basis may not recognize the changes taking place in other stores.
Safeway’s move from trying to be a supermarket for everyone to a target market is the right direction. The question remains–is Lifestyle the right direction…even if it appears to be working? Safeway stores were in poor condition due to lack of remodeling over many years. How much of their recent success is due simply to remodeling?