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Speaking at its annual investors conference last week, Safeway executives laid out their plans for 2013 that focus heavily on lifestyle changes to store and an emphasis on health and wellness. With private label programs at the heart of the changes.
“Today we’re a supermarket company,” Safeway CEO told investors, according to transcripts from Seeking Alpha. “I think in 10 years’ time, we’ll be part of more of a wellness company selling food.”
The plan includes store renovations that create three destination areas within the store, with meals and ingredients together, a healthy living area that features the pharmacy, and an everyday essentials area.
Chief Marketing Officer Diane Dietz told investors that Safeway would go about achieving these goals by finding unique connections to customers through private label.
“At the end of the day, it's about building loyalty,” Dietz said, according to the Seeking Alpha transcripts. “It’s about creating unique brands that have our shoppers want to come to our store because they can't get the brand anywhere else. And so we are very focused on innovation.”
Dietz recalled her background working at Proctor and Gamble to explain the different approach Safeway is able to take to private label today.
“Many times, you think about private label and I remember thinking of this when I worked at P&G, is that retailers are just going to knock off the brand that we launched. That's not what Safeway is about,” she said. “We are about true innovation versus replication. We actually look at trends. We try to meet our consumers' needs in a unique way, and we are not about replicating the national brand.”
That means creating “lifestyle brands,” which Dietz described as brands that follow an idea across categories. To achieve the ultimate goal of adoption of these lifestyle brands, Dietz said the retailer needed to focus even more sharply on product quality.”
“It may look great on the shelf, it may have beautiful packaging, but at the end of the day, it's when that consumer experiences your product,” she said. “When the mom uses the diaper that you made, when the consumer tasted the new cereal that you launched doesn't live up to the quality standards that they expect. If it doesn't, you won't get them back, they won't be loyal. And it's our brand with our name, so that quality has to rise to the level that delights our shoppers.”
The lifestyle-based focus has led Safeway to reposition its brand into four areas, Dietz said, care, kitchen, farm and home. The retailer took a look at “must-win categories” she said, realizing areas where private brands didn’t lend themselves as well, or would be competing against a national brand so strong “that really it doesn’t make sense for us to be in that category,” she said, according to the Seeking Alpha transcripts.
Among the areas she pointed out were efforts to reach out to Hispanic customers through private label and a rebranding of the Lucerne dairy brand.
“We have efforts underway on Hispanic,” she said. “And we're also rebranding Lucerne. It's a brand that's been out there for a long time. It's a big brand, and we thought it had the opportunity to be updated a bit.”
Dietz talked about the balance Safeway brings to the table in private label, able to appeal to families on the lower and higher ends of the income, she said, with brands such as Open Nature not recognized as private label but as a national brand because of the “innovation we brought. We focused on kind of core consumer needs: convenience, nutrition, value and experiential.”
Another key factor, she said, was Safeway’s manufacturing capabilities. She said the retailer’s commitment to making many of its own products paid off in many ways down the line.
“That gives us the ability to focus on volume and driving cost out,” she said. “It gives us the opportunity to make sure that we're delivering the best quality and that the ingredients don't vary going through a different third party. We are focused on our own ingredients and our own ways of making the product. We have lifestyle brands that range from value brands and really target towards the value shopper. We've got premium brands. We have brands that go against specific target shoppers like Mom to Mom.”
Burd brought up the manufacturing advantage when asked in the question-and-answer portion about pricing within private label.
“There are private brands that actually compete against the private brands of your competitors, and then there are private brands that sit next to an item and they actually compete with a national brand, not your competitors’ price point on private label,” Burd said, according to the Seeking Alpha transcripts. “So I think we’re still about 10 points higher in gross margin against the national brand. That’s a combination of low price and low cost. And by having a culinary kitchen and a pretty large brand organization, we bid out these products that are manufactured by others. It’s a spec that we designed, so we’re getting exactly the same price from the manufacturers.
“And we’ve always thought that it was in our best interest, we have 32 manufacturing plants, to be in the business of buying raw materials. … It gives us a leg up as we look for people to supply us with private label that we design.”
Dietz took the chance to call out three top wellness brands – Open Nature, O Organic and Eating Right – saying the three combined for more than $750 million in sales last year.
She began talking about Open Nature, saying sales rose 50 percent in its second year, and that it had the highest growth rate among the top 100 ads at Safeway. Dietz added that the brand would expand to 11 new categories this year.
As far as O Organics, Dietz said innovation was coming to the brand in the dairy, baby and produce categories in 2013. That includes shelf stable milk, pouches to handle baby food rather than glass jars, and premade salad kits for individuals or families in produce.
Finally, Dietz touched on the benefits that packaging had brought to Eating Right, and the popularity of gluten-free products within the brand.
“So we actually came up with the idea to go after these different groups and develop very intuitive packaging that's based on what you're looking for,” she said, according to the Seeking Alpha transcripts. “It makes it really easy. I'll take the gluten-free product that we have here. We have the gluten-free set in the store, but we also have gluten-free throughout the store. And this is the shopper that wants to be able find gluten-free within a specialized site and throughout the store. It makes it very easy to choose. If you're looking for high protein, again, the packaging is intuitive. It's simple. It's very easy to understand.”
The work extends beyond the wellness brands, though. She cited improved packaging for the Safeway brands to elevate Safeway on the packaging and improve the appeal of the food products, then talked about value-added milks that soon will be available, including one high-protein, low-sugar example featured at the conference.
Finally, the Primo Taglio deli brand has been repositioned as Primo.
“We learned that pronouncing the brand Primo Taglio was sort of hard, sort of difficult, doesn't roll off your tongue. So we focused on Primo,” she said. “We focused on the experience. Many of our shoppers come in. They want fresh sliced meat. They want to be able to sample it. So it wasn't just about changing the brand, it was about changing that experience, changing the service model.”