« October 2006 Table of Contents 
Case Study: Safeway’s Lifestyle format spotlights perishables
Strategy for seafood departments includes expanded product line and upgrade options
By Lisa Duchene
October 01, 2006
The 1,770-store Safeway supermarket chain may be starring in
its own Cinderella story. Squeezed by Whole Foods on the
high-end and Wal-Mart on the low-end, the once-struggling
grocer's answer to the competition was a bold, new "Lifestyle"
store format that has pulled customers b ack into its
stores.
Safeway opened its first Lifestyle store in late 2003. By
the beginning of 2006, it had converted 450 of its stores to
Lifestyle. The strategy has been so successful that Safeway
rolled out more than 280 remodels and 20 new stores this
summer. Another 300 Lifestyle stores are expected in 2007. By
2008, the Pleasanton, Calif., grocer will have converted 77
percent of its stores to the new format, which emphasizes
perishables and promises a turnaround for the chain.
For Safeway customers, Lifestyle stores offer high-quality
perishables, service and value. Décor in the 55,000-square-foot
stores features cherry hardwood floors, warm colors, and an
expanded perishables section.
Most Safeways are in the western United States and Canada.
The company operates in Texas under the Randalls and Tom Thumb
banners and in Chicago as Dominick's. In the Mid-Atlantic, it
operates as Genuardi's and Safeway.
The new format represents many positives for the seafood
category - volume, for one. Not all conventional Safeways
include a seafood department. But every Lifestyle store has a
service seafood department, says Tom DeMott, COO of Encore
Associates in San Ramon, Calif., and a former Safeway VP of
meat and seafoo d.
Newly opened Lifestyle stores typically ring up sales 24
percent higher than the Safeway stores they are replacing.
DeMott suspects the seafood sales volume increase is at least
that.
"The big difference with Lifestyle is that the seafood
department has gone from stepchild to one of the regular kids
at the table," says DeMott.
Safeway is putting more resources into its seafood
department, making a greater effort to service its customers
and make the department stand out, he says.
"They're more focused on [seafood] marketing and sales
activity than Safeway's ever been," says DeMott.
The company is also working on improving its product
offerings with a greater variety of sizes and species. Instead
of carrying only a 20- to 30-count sea scallop, for example,
Safeway added U-15s or U-10s and also offers dry scallops, says
DeMott. "Seafood is well on its way to becoming an integral
part of the success at Safeway," he says.
"The biggest thing they do there is sell service," says a
West Coast distributor who supplies Safeway. "The people behind
the counter do a very nice job of catering to the
customer."
The product mix in a Lifestyle store is slightly different
than a conventional Safeway store, he adds.
"They're not looking to the person who wants to buy a pound
of whiting fillets, but to the person who wants to buy 2 pounds
of king crab legs at $18 per pound," says the distributor.
Lifestyle stores give shoppers both value options and upgrade
opportunities, he says.
The conventional stores, for example, carry a 26-30 prawn,
but the Lifestyle stores carry 26-30s plus U-15s. A greater
variety of seasonal seafood, such as fresh Alaska king and
sockeye salmon and fresh king and Dungeness crab, has helped
the Lifestyle stores add about 20 to 25 percent more items
overall, says the distributor.
Safeway has upgraded its quality specifications on newly
added premium products like large king crab, U-10 dry scallops
and fresh swordfish for its Lifestyle format, says the
distributor. But those specification changes have not extended
across the board. The chain is buying the same mid-grade
oysters and rockfish as it has in the past, he says.
"They haven't become a boutique shop. They're still
servicing the everyday customer. They're giving the specialty
customer another purchase opportunity, so they don't have to go
to Whole Foods," says the distributor.
Other seafood-industry observers echo that observation. They
say the Lifestyle format represents an effort but falls short
of being a transformation. For one, the chain's purchasing is
still primarily price-focused, say insiders.
The chain's seafood philosophy has been to buy the most
cost-effective product in "fairly good shape," says another
West Coast distributor. "I have heard of no paramount shifts in
their philosophy," he says. "It takes significant resources to
upgrade seafood on that scale."
Whoever you choose to believe, seafood played a role in the
first Lifestyle format tailored to a market.
In early 2006, Safeway opened a 77,000-square foot Lifestyle
store - a footprint 40 percent larger than typical - in
Boulder, Colo., targeting the local, health-conscious market.
Within a few miles from both a Whole Foods Market and a Wild
Oats store (and in Wild Oats' home city), the store included a
28-foot seafood case, doubling the number of fish and shellfish
products of the store it replaced. The Boulder store also
includes a culinary center equipped with a full working
kitchen.
"The quality of our perishables, which is a key part of our
strategy, continues to improve," Safeway CFO Robert Edwards
told investors in early 2006.
Company officials have publicly touted Safeway's
private-label perishable offerings, such as the Rancher's
Reserve beef brand and O line of organic products, but have not
yet talked about changes to the chain's Captain's Choice store
brand for seafood.
Overall, consumers seem happy with Safeway's Lifestyle
changes. "The current results of Lifestyle stores clearly
demonstrate that Safeway has really hit a positive nerve with
their customer base," says DeMott. "Lifestyle is generating
great sales and profits for them as seen in the financial
results. They can't produce these fast enough."
In 2005, Safeway's "turnaround" year, total sales increased
7.2 percent to $38.4 billion. The company grew market share in
the U.S. supermarket channel 51 out of 52 weeks and grew sales
in nine of its 10 divisions, Edwards told investors. In the
first two quarters of 2006, Safeway also posted strong gains: a
3.2 percent sales increase to $8.9 billion in the first quarter
and 6.4 percent increase to $9.4 billion in the second quarter.
There is no sales
data available for Safeway's seafood
departments.
But sustaining those sales gains will take solid execution
in categories like seafood that are merchandising- and
quality-intensive, says Andrew Wolf, an analyst who covers
Safeway for BB&T Capital Markets, an investment firm in
Richmond, Va.
Wolf is not recommending Safeway because he is concerned
about the company's valuation and its marketing strategy of
emphasizing quality over price to consumers, a risky approach
in his view.
"It's things like seafood and the commitment to it that will
really determine the longevity to the sales lift [Safeway] is
now experiencing," says Wolf. "It's hard to near-impossible to
transform a huge company like Safeway. That's kept me on the
sidelines. But so far they're proving me wrong."
SFlb Contributing Editor Lisa Duchene lives in Bellefonte,
Pa.