Safeway's Q2 Margin and Market Share Slide Overshadow Store Brands Gains

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July 26, 2011

Safeway’s near flat same-store-sales and decline in gross profit in the second quarter disappointed Wall Street, and overshadowed some of the grocer’s store brands accomplishment in the period.

Despite the importance of its Open Nature store brands launch, the topic – or store brands in general -- were not even mentioned by Safeway executives during a recent conference call with analysts until the question and answer period. The focus remained entirely on what the company is doing to turn around results, including a new targeted Just for U marketing campaign, which the company hopes will boost market share, which has eroded over the past several quarters.

Same-store-sales, excluding fuel sales, increase just 0.5 percent and gross profit declined 155 basis points to 27 percent of sales compared to 28.55 percent of sales in the second quarter of 2010. Net income for the quarter, however, was $145.8 million for the second quarter, up from $141.3 million for the second quarter of 2010. Operating and administrative expense decreased 127 basis points to 24.28 percent of sales in the second quarter from 25.55 percent of sales in the second quarter of 2010.

Although President and CEO Steve Burd said second quarter earnings exceeded expectations, he noted, "We just need to get our marketing program into more markets, and we'll be fine."

Asked by Robert Ohmes of Merrill Lynch for an update on its store brands during the question and answer period, Burd said: “Private label is running higher growth than national brand by a couple of hundred basis points. And one of the things that I think is helping us there is that we introduced a new brand. I think it was actually at the early part of the year, maybe even last September, Open Nature. And we're still filling up that SKU pallet, but it's a very unique brand, all-natural ingredients, and it's beating our expectations by some distance.”

SBD Views: Store brands and the incredibly successful launch of Open Nature continue to be a bright spot at Safeway. -- John Failla for Store Brands Decisions

Read These Related Articles:

• Rite Aid's Private Label Share Rises
• Kroger Credits Store Brands for Q2 Growth
• Costco Private Label Market Share Under Expectation
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