Safeway Shifts Its Store Brands Business Model

SHARE:

Email

Print

LinkedIn

Facebook

Twitter

March 23, 2010

By Maureen Azzato

As part of a strategic shift, Safeway is pulling all of its store brand management in-house, terminating its relationship with Daymon Worldwide, launching a new program called Safeway Direct Connect and rolling out Agentrics' product lifecycle management (PLM) software.

The new direction is intended to accelerate Safeway’s store brand growth as well as improve core capabilities such as speed to shelf, innovation and improved quality, according to a confidential letter to suppliers from Joe Ennen, senior vice president of consumer brands for Safeway.

The relationship with store brands broker, Daymon, will end on May 28, according to the letter dated March 17. Daymon declined to comment. Safeway spokewoman Teena Masingill said Safeway partnered with Daymon for the past six years.

Joe Ennen

“This decision is directly linked to the strategic importance that our own brands play in our future as a retailer,” Ennen wrote. “For our brands to remain competitively advantaged, we need the capabilities related to building and managing our brands to be resident in Safeway, not external sources.”

In order to accelerate growth of its store brands, including Lucern, Eating Right and O Organics, Ennen said Safeway must improve in three areas –– product innovation, quality and execution. “We believe these objectives will be best accomplished by working directly with our manufacturing partners versus interfacing through a third party,” Ennen said.

The new program called Safeway Direct Connect, will also help suppliers grow their business more efficiently and effectively than in the past, he wrote. Supplier benefits include improved execution, access and better support. “Safeway Direct Connect Program suppliers will have improved access to key Safeway decision makers and will have unprecedented access to Safeway information,” Ennen said. Better support “will come in the form of a 100-percent internal Safeway team that will be better resourced than the current Safeway/Daymon organization combined.”

To further explain the new program and processes, the grocer is hosting a supplier summit meeting at its Pleasanton, Calif., headquarters April 29.

Does PLM Render Brokers Obsolete?
In a separate communication to suppliers dated March 10, Safeway announced SpecConnect, its new web-enabled PLM tool developed in partnership with Agentrics. Described as a secure, collaborative tool that provides suppliers and Safeway with real-time information, the letter said all participating suppliers are expected to complete system training provided by Agentrics.

Training costs range from $200 to $680 per user, depending on the level of training suppliers may already have on PLM systems.

“We’ve been working with Safeway since 2008 preparing for this roll out,” said Jeremy Whinnett, business solutions director for Agentrics, based in the U.K. “Safeway is using private label to enhance its brands and establish itself as a quality brand in the consumers’ eye, with a focus on quality, safety and traceability. Safeway is also unique in that is also has a large private label manufacturing arm.”

Whinnett said this is the ideal time to strategically push private label so retailers don’t lose the share and customer loyalty they’ve gained during the recession.

Safeway is the second major chain to adopt Agentrics systems in the U.S., following Walmart. According to Whinnett, it is not unusual for PLM tools to render a third-party broker relationship obsolete because it is imperative for all business processes to move in-house for maximum success. There is still room for a broker to be a sourcing agent, he added, “but they can’t do all the thinking for a retailer.”

Daymon’s relationship with retailers often includes services beyond sourcing such as merchandising, category management, purchasing and marketing functions, which are typically conducted by Daymon employees embedded at a retailer organization. Industry insiders estimate that as many as 75 to 80 Daymon employees are embedded at Safeway. It is unclear at this time if Safeway plans to hire additional staff to replace those resources.

“The broker role is much more prevalent in the U.S. than in Europe because national brands remain the key driver of the grocery business in the U.S., with private label being second,” Whinnett said. “In Europe, the relationship is reverse –– private-label strategy is number one and national brands are second. As a result, brokers are not so prevalent in Europe because private label is the driver.”

Smaller retailers who do not have the capacity or infrastructure to bring store brand functions in-house will continue to rely on brokers for support,” he said, adding that Safeway is shifting strategic focus “to make private label part of the core offer.”

Whinnet described the Safeway system roll out as “deliberate and measured,” meaning it will take six to nine months to complete and allows time for adjustments and proper training.

SBD Views: These extremely bold strategic moves by Safeway signal the emergence of store brands as central to Safeway’s strategic direction. In my view, it’s not a shocker that Safeway’s team of experienced consumer products executives decided they need full control of their business. Beyond the back story of the corporate drama behind the split between Safeway and Daymon, questions regarding the execution of Safeway’s new store brand business model abound. How many people will Safeway be hiring and what roles will they have? What are the key elements of Safeway’s Direct Connect program? How much of Daymon’s role will be absorbed by the implementation of a product lifecycle management system? Will Safeway’s new business model benefit their suppliers? Will other retailers follow? Stay tuned. -- John Failla for Store Brands Decisions

Read These Related Articles:

• Daymon Unveils Supervalu and Safeway Plans
• Supervalu Ends Relationship With Daymon
• Safeway and Supervalu Outline Store Brand Vision and Strategies
• A&P Chairman: Private Labels’ Advantage in a Recession
• PLMA Live: Aldi's Strategy for Growth

Most Read

Guest Columns

How to Develop a Private Label Expression Aligned with Retail Brand Strategy

By creating private label as a marketing tool rather than just a price alternative, retailers gain the opportunity to tell a complete brand story while simultaneously boosting customer loyalty.

Source: CBX

Using the Store Banner to Endorse Private Label Architecture

Although the economic downturn accelerated private label growth in Europe, there was another key driver -- retailers started to brand their stores.

Source: IPLC

Linking Your Empowered Customer into Your Store Brand Management Process

The formula for success is for retailers to take a holistic store brands management approach by collaborating with customers to maximize store brands potential.

Source: Austin Clark Group

See All Guest Columns »

Press Releases