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- RESEARCH & AWARDS
Safeway's picture perfect marketing strategy, promotional activities and merchandising for its private labels have led to its selection as PLBuyer's private label retailer of the year
The answer is Pleasanton, Calif.-based Safeway, North America’s third largest private label retailer on PLBuyer’s list of top 35 PL retailers.
That 305-foot-long picnic table was just one small but media-grabbing element of a fully integrated marketing campaign for Safeway’s Open Nature natural private label line that included television and radio ads, social media usage and a wide range of public relations stunts and outreach.
Innovative marketing, plus effective in-store merchandising and support of its private labels demonstrate that Safeway has made the leap from thinking about private label as merely a low-price alternative to have on its shelves to treating its private labels as CPG companies treat their brands. The result - private label sales growth at Safeway is outpacing branded sales growth by a three to one margin.
PLBuyer is naming Safeway its 2012 Private Label Retailer of the Year because of its innovative marketing, promotional activities and merchandising for its private labels. Safeway’s marketing of Open Nature points the way for other retailers who want to turn their private labels into distinctive assets they can use to attract shoppers and distinguish their stores in the increasingly competitive food retailing landscape. Safeway’s in-store merchandising and its use of all its assets from stores to its weekly ad circulars to its Web site for promoting private label sales, also holds lessons for other retailers, Safeway watchers agree.
“The Safeway organization has truly embraced the whole concept that they are building brands, they’re not just selling private label,” says consultant Terry Lee, president of Henderson, Nev.-based Private Brand Advisors and a former leader in Safeway’s private label area until 2001. “Safeway is doing now what many retailers have talked about - they are truly committed to building unique brands.”
In addition to the wide-ranging marketing effort behind Open Nature, Safeway’s other private label efforts include rolling out Safeway Farms in late 2011, an expansion of the Safeway line for meat and produce items, and using innovative packaging design for its Snack Artist line to capture industry kudos and consumer attention.
Looking at Safeway’s private label portfolio, supermarket guru Phil Lempert says, “Safeway has done it really well. It’s been smart, it’s won awards, it’s won taste awards, it hasn’t just slapped a label on the leading products that everyone else makes. [Safeway has] done a great job on recipes, packaging; you don’t think of it as a private label, you really think of it as a great alternative.”
Consumers seem to be responding. Safeway executives have told financial analysts that Safeway private label sales are growing at three times the rate of national brand sales at Safeway stores across the country.
Like other traditional supermarkets, Safeway needs private label hits to hold onto shoppers in the crowded food retailing landscape. Private label alone won’t solve all Safeway’s problems, of course.
Safeway has been redesigning stores with its so-called Lifestyle format, one which stresses fresh produce and other perishables. One analyst doesn’t think those Lifestyle stores are doing what they were designed to do, increase store sales.
“Safeway’s comps [comparable store sales] have not snapped back; its take is it’s not losing share, mine is it is,” says Michael Keara, a financial analyst who follows Safeway at Chicago-based Morningstar, Inc., an investment and mutual funds research firm. “From my point of view, [Lifestyle stores] haven’t really justified the investments” made in them, he says. Safeway reported same-store sales up 1.5 percent, excluding fuel sales, in its latest quarter ending in September, 2011. Zacks Investment Research disagreed with Keara’s assessment, reading sales numbers as positive for Safeway, so financial analysts are far from unanimous about Safeway.
A Change in Culture
Safeway has gone through a change in culture when it comes to its private labels. For the past 18 to 24 months, it has been bringing in new talent, many of whom have backgrounds in CPG companies. Indeed Joe Ennen, senior vice president of consumer brands, brought five years of experience at Frito Lay when he joined Safeway in 2009. Diane Dietz, Safeway’s chief marketing officer since 2008, brought nearly 20 years experience at consumer goods titan Procter & Gamble with her. Safeway executives won’t disclose exactly how many people on its private label team have CPG experience and how many come from food retailer backgrounds, but they acknowledge the changes going on.
“We have fundamentally built the organization and our capabilities around the best of what retail has traditionally delivered to the process and the best of what CPG brings to brand management,” says Mike Minasi, president of marketing with Safeway.
Safeway has garnered a lot of trade press attention by saying its blending the best of retailing and CPG practices, and it’s far from the only food retailer who has brought in CPG talent in recent years. But what does such blending really mean when it comes to getting successful private label products on shelf?
“It’s really about the infusion of new ideas,” Ennen tells PLBuyer. “It’s about [considering and implementing] best practices from other companies and other industries. We’ve hired a significant number of people from CPG as well as created opportunities for people within the organization to move onto the consumer brands team.”
One CPG practice Safeway has instituted is to have brand managers for each of its private labels. Another, one more of focus than structure, has been to increasingly focus on consumers and consumer analytics in developing new lines and new products.
Even the designation of its brands as core, expertise, aspirational and wellness are designed to reflect how shoppers see products as they shop rather than to reflect any industry operating jargon such as value, NBE, etc., Ennen says. Having access to Safeway checkout data on customers also makes former CPG guy Ennen drool, figuratively, as he tries to discern what new private label offerings will do this with his shoppers. “It’s incredibly liberating to be able to talk directly to your shoppers 18 hours a day and have data and insight from proprietary data systems to get granular information on what’s working,” he says. “We get better information faster.”
Safeway does most of its non-customer specific shopper data analysis internally rather than using outside firms as some other retailers have tried. “We believe we’re as good as anyone in the industry in using analytics,” says Minasi. Safeway has been using shopper data to make business decisions for more than 15 years, he notes. It’s “a natural extension to apply that to the brands business,” he says.
Doing It All
Another aspect of the culture change at Safeway was its parting of ways with Daymon Worldwide in 2010, bringing oversight and management of its private label efforts in-house.
“We are happy with the changes that we made,” says Ennen. “Daymon was a great partner and that model certainly works for some retailers [however] we fundamentally believe that our own brand program is one of the key elements to our continued success [and] we want to be in control of our own destinies. That fits better with the Safeway culture.”
Another aspect of that Safeway culture is to continue to maintain its private label product processing capabilities to make 14 percent of its own private label, according to its 2010 annual report, rather than outsourcing all production as some other retailers have opted to do.
“Being completely vertically integrated in some of the categories certainly allows us better control over costs, as well as in some instances allowing us to respond faster to trends in the marketplace,” Ennen says. He points to the relatively quick rollout of Lucerne Greek yogurt, made in a Safeway plant, as one example of how having company-owned processing capabilities helped Safeway be nimble in a new product rollout.
While it continues to make some of its own goods, Safeway also instituted a new supplier program after parting ways with Daymon. Its Safeway Direct Connect program gives suppliers what Ennen calls unprecedented access to Safeway’s non-customer specific shopper data, facilities and strategies “that wasn’t possible before when there was a middle man,” he says. Some retailers might balk at being so transparent with suppliers, fearful of their information falling into competitors’ hands, but Safeway believes that “fundamentally we have very mutually aligned goals. The more we sell, the more they sell,” Ennen says. “Ninety-five percent of our agendas are aligned, [so] it really was not an extraordinary leap of faith” to institute the data access aspects of Safeway Direct Connect. The program has been “incredibly helpful,” Ennen says.
The history of the supermarket business in the United States has been one of operating on low margins in-store while using a variety of means to generate additional income and so increase earnings.
“One of the things that retailers are quick to do is to sell the vehicles that they have control of to national brands - ads, end caps, Web space, everything that they can control to touch the consumer and then, what’s left over they’ll use for their private label,” explains Lee. “Safeway has clearly said ‘we’re going to use those vehicles to drive our brands.’”
Agrees Denis Ring, CEO of Lafayette, Calif.-based Bode International, a design firm which has done work for Safeway, “Safeway’s most impressive takeaway is how well it [does] merchandise support and draws attention to its new brands.”
Walk into a Safeway store and you’re likely to see case stacks of private label, merchandising support such as flyers and in-store ads, prime positioning of private label on-shelf and in multiple locations in-store as well, Ring recounts. And that in-store merchandising is supported with advertising ranging from weekly circulars to television and radio spots.
Indeed, exclusive analysis of how much retailers were promoting their private labels in circulars for the week ended Oct. 19, 2011, showed Safeway far out-promoting rival retailers. The percentage of Safeway’s ad circulars devoted to private label that week was 29.7 percent, Chicago research firm Market Track discovered in an exclusive report it supplied PLBuyer. That represented a 41.8 percent increase in private label ads compared to the same week in 2010. During the same week of 2011, private label ads as a percentage of its weekly circulars went down for others such as Food Lion, Albertson’s, Kroger and Winn-Dixie, among others.
“They are putting a lot of support behind the brands they are introducing as opposed to the typical just put it out there and lower the price and hope people get it,” observes Lee.
What’s in a Name?
Neither Open Nature nor O Organics nor the Snack Artist private label lines include the Safeway name in their brand names. Indeed, Safeway had been making O Organics available to other retailers, a program it’s deprioritizing now, Ennen notes. Some private label watchers question not using the Safeway name in new private label lines.
Naming decisions can be traced back to consumer perceptions and expectations, Ennen counters. “When we’re trying to create a link to a consumer benefit or a need that spans a category,” such as organics or natural products, Safeway has opted to “make it as easy as possible for shoppers to find what they are looking for” by not naming a line Safeway Organics or Safeway Natural, he says.
Agrees Minasi, “product lines that are either very specific around a particular shopper need or highly differentiated are more likely to be good candidates for branding beyond just being part of the Safeway brand portfolio.”
Safeway is in the midst of rebranding its Value Red of more than 100 items in the basics category to Pantry Essentials. Its changes there will go beyond a renaming and new packaging, however, Minasi says.
“The branding approach we’ve taken with Pantry Essentials is that these are core products found in every household. Nothing fancy, but good quality,” says Ennen.
Elaborates Minasi, “I honestly believe we went a little too far in terms of the value spectrum” the packaging and branding of Value Red didn't convey the image that we wanted. “People don’t want to feel that they’ve made too significant a tradeoff,” in buying a value product, he contends. Hence, Pantry Essentials offerings will boast higher quality than the Value Red items being replaced.
Safeway’s margin hunger has hurt its private label in the past, one private label expert agrees. If it can get past the inclination to trade quality for margin, it could see even more private label success moving forward.
And labels such as Open Nature and O Organics are helping it attract a more upscale clientele.
Safeway has “probably been as, and maybe even a little bit more aggressive, than Kroger has been in terms of the up market end of things” with its private label, says Jim Hertel, managing partner at Barrington, Ill-based consulting firm says Willard Bishop.
Moving into this year, expect more expansion for the Snack Artist line into frozen appetizers, cookies and nuts, Ennen says. Also to continue, efforts to “create a bit more of an identity around [Safeway Farms items] and a bit more of a brand story around them,” Ennen says.
PLBuyer’s Top 35 pegged Safeway private label sales penetration at 26 percent of dollar sales, or roughly $10.6 billion in 2010. Neither executive interviewed by PLBuyer would confirm or deny that estimate. But Minasi says, “we believe that one of the ways to be successful is to be as differentiated as we can be. We think the brand portfolio is part of that differentiation that Safeway brings to market.”
While it's unclear how much of Safeway’s roughly half billion dollars a year in advertising spending went toward private label, it is clear that there’s advertising, marketing and social media outreach and in-store support, increasingly being put into private labels at Safeway. And that’s a change that others must emulate, if they haven’t already, to move their portfolios to the next generation of private label.
Safeway at a glance
PL Grocery Sales: $10.7 billion*
Retail Banners: Safeway, Dominick’s, Tom Thumb, Randalls, Vons, Pavilions, Carrs/Safeway
No. of stores: 1,681
The Safeway private label portfolio
Pantry Essentials (replacing Value
The Snack Artist