PLEASANTON, CALIF. — Safeway, which last month agreed to sell Canada Safeway Ltd. to Sobeys, Inc., for approximately $5.7 billion, still believes scale is important but plans to focus more on localization in the future, said Robert Edwards, president and chief executive officer, in a July 18 conference call with financial analysts to discuss second-quarter earnings.
“Increasingly you are going to hear us talk about the concept of localization and how important that is to our future going forward,” Mr. Edwards said. “I mean, the work that we are doing on the center store projects, on the premium projects, on a number of other initiatives fit into this category of localization, and we need to be relevant to consumers in each market. And we have a broad geography to look at. Many ethnic groups that we cover, we are blessed to have such great demographics in the markets that we serve. And so, increasingly we are going to be focused on localization and increasing our relevance to a diverse group of consumers.”
He said 19 center store remodels already have been completed, with the year-end target set at close to 250. Additionally, 87 premium stores had been re-merchandised in perishables by the end of the second quarter, and enhancements to the nonperishable areas of the premium stores are expected to be completed in the third quarter. Safeway plans to remerchandise a total of 150 premium stores by the end of the year, Mr. Edwards said.
But Mr. Edwards did not downplay the importance of scale, either.
“Scale is also, if you look on a total basis, is important,” he said. “And the scale we have with continuing operations is just fine given the size of the business we have. We have all the scale we need on a macro basis, but it is also important what local market share is and increasingly we are going to be focusing on local market share as well.”
Mr. Edwards’ comments on capturing the local market come about a month after Duncan Mac Naughton, executive vice-president and chief merchandising and marketing officer of Wal-Mart, Stores, Inc., said the Bentonville, Ark.-based company sees “a real opportunity” in taking regional food brands and building modulars within Wal-Mart stores. Modulars are displays organized in a self-contained section. Mr. Mac Naughton called this the year of localization.
Elsewhere in its business, Mr. Edwards said Safeway continues to gain traction in its private brand portfolio. On a year-to-date basis Safeway’s penetration and dollar sales for private brands was up 37 basis points and in volume was up 53 basis points in the United States, he said.
“Safeway’s private label products are leading in health and wellness,” Mr. Edwards said. “We currently have over 2,000 s.k.u.s (stock-keeping units) in natural and organic, nearly four times more than our largest supermarket competitor and over eight times our largest mass competitor. Sales of Open Nature products increased 38% in the second quarter and 42% year to date. We currently expect to exceed $200 million in sales in these products in 2013. The 100% natural grass fed Angus beef is now available in 600 stores.”
Net income for the second quarter ended June 15 was $8.4 million, equal to 3c per share on the common stock, down from $122.7 million, or 51c per share, in the same period a year ago. After adjusting for continuing and discontinued operations, net income for the second quarter of fiscal 2013 was $125.1 million. Net sales in the second quarter of fiscal 2013 were $8,696.1 million, down from $8,833.9 million a year ago.
For the six months ended June 15, net income was $127.3 million, or 53c per share, down 35% from $195.6 million, or 76c per share, in the same period a year ago. Net sales for the six months totaled $17,202.8 million, down narrowly from $17,337.8 million.