Safeway Analysis

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Objective: An analysis of the factors driving performance of Safeway (top performing firm)

A. Factors that Drive Profitability (as defined in the Interim Report) and an analysis of how they apply to Safeway and their industry leadership:

1. Location, specifically proximity to strategic markets. Being located close to or within key markets lets firms capitalize on their exposure, allowing them to maximize their control of a region and to enhance their margins. Grocery competition exists locally, since there is only so far that consumers are willing to travel to fulfill their needs, so if a firm can dominate a market with minimal competing operators it will enhance its profitability.

• Safeway operates 1,743 stores (as of the end of 2007) across the Western, Midwestern and mid-Atlantic regions of the US and Western Canada. In addition to its self-titled supermarkets, it also operates a number of independent grocery stores acquired since the late 1990’s. Safeway has around 32 manufacturing plants across the US and Canada along with 15 distribution centers. (IbisWorld, 40) • Note: I need to do more research into this factor to see if Safeway is indeed solid.

2. Effective use of technology. While employing the latest technology is expensive in the short term, such technology can lead to efficiency gains in the long run and thus allow a firm to ensure that its operations are as productive and resourceful as possible. Maximizing efficiency through advances such as self-checkout systems, electronic labels, and RFID tracking technology helps lower expenses and improve profit margins, thus yielding competitive advantage within the industry.

• While not wholly relevant to this section, Safeway has employed many new cutting-edge technologies with a focus on energy efficiency. See the “Being green” section at the bottom of this document for more info.

3. Customer focus. Formal studies have shown that firms within this industry that have the highest percentage of customer advocates, or loyal customers, also perform the best in terms of sales growth and profit margin. It may sound obvious that customer perception is important, however it is an essential consideration given the fact that 73% of U.S. consumers “either feel antagonistic towards or no loyalty for their primary store” according to a study by the IBM Institute for Business Value. Therefore, considerations such as rewards programs, high-quality service, and offering a pleasant shopping experience in general can improve the bottom line.

• Safeway’s Lifestyle store models are “dramatically redesigned with earth-toned decor, subdued lighting and special features that significantly enhance the shopping experience. The stores are designed to provide customers with the finest, freshest products available in the produce, meat, seafood, bakery, deli, food service and floral departments.” (Marketwatch internet article) • “Customer Trust” is an important metric that is measured in the industry. Customer trust is a key “where-to-shop” driver, and is enhanced by offering a friendly, neighborhood atmosphere, easy-to-shop store size, and in-store health clinics. Grocery stores that get high marks in this metric include Wegmans, Publix, Bloom, and Safeway’s Lifestyle stores. (Future of Food Retailing 2008, 115) • Safeway has a customer loyalty program (loyalty card with benefits).

4. Private-label merchandising. Firms with effective strategies related to their private labels benefit by realizing lower costs, gaining better control of pricing, and building higher customer loyalty and overall profitability.

• Safeway offers extensive private-label natural/organic food lines. As mentioned above, O Organics is a premium quality, USDA-certified organic food line that is the best selling brand of organic food products in the country. Eating right is a healthier-alternative packaged foods and frozen entrees line that...
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