As consumers struggle to make ends meet, even spending for necessities like food has come under scrutiny. And who’s typically the first to incur their wrath over high prices? The local grocer.
After all, the neighborhood supermarket is on the front lines of consumerism, and shoppers eager to stretch their grocery dollars are looking in greater numbers to the price-choppers, the club stores and other outlets they think can offer them a better deal.
But is this blame justified? Some grocers say no, charging that food manufacturers are charging their customers more despite falling commodity costs.
“It’s disingenuous to consumers that all commodity costs are coming down, interest rates are coming down, everything is coming down and [manufacturers] are taking their prices up,” Steven Burd, president and chief executive officer of Pleasanton, Calif.-based Safeway Inc., told investors earlier this year.
In their defense, manufacturers say they’ve held the line on price increases over several years as prices rose. But stretched to the limit, processors inevitably are forced to raise prices, shrink container sizes, reformulate products or employ a combination of these tactics in order to stay economically viable while still trying to deliver the best deal.
Of course, as a manufacturer itself, Safeway knows this all too well. And like all dairy processors, Safeway has worked hard to control costs at its dairy plants and all its manufacturing operations, in addition to its network of retail outlets.
“Despite a difficult economic environment, our efforts to control costs helped increase fourth-quarter  earnings per share by 16% over last year,” Burd said. “In addition, we increased annual free cash flow 62% to $681 million. We are stepping up our efforts to provide increased value to our customers by lowering prices on everyday items, while continuing to provide quality perishables and great service.”
With more than $44 billion in total sales for 2008 (up from $42.4 billion in ’07), Safeway operates 32 manufacturing facilities in the United States and Canada. Of those, 14 are dairy plants, including a cheese cut-and-wrap facility. Under its flagship Lucerne dairy brand and other unique marques, Safeway manufactures more than 3 billion pounds of dairy products annually, including fluid milk, cultured products and frozen desserts.
With that kind of dairy processing prowess, Safeway is inclined to push its own brands with gusto regardless of what its management thinks of its suppliers’ pricing practices. “Safeway is in a position to benefit from changes in the economy,” says Randall Dei, director of dairy supply operations. “Our strong private label programs offer high-quality, low-cost alternatives to the national brands. Safeway is able to leverage our manufacturing plants to meet these changing demands.”
One of the best examples of that is Safeway’s O Organics line, launched in 2005 as consumer demand for organic food was reaching record numbers, especially for fluid dairy products. Encompassing more than 150 SKUs ranging from packaged foods to produce, O Organics generates more than $160 million in annual sales. A significant part of that is an assortment of dairy products, including milk, cheese, butter and cultured products.
The O Organics line in no small part contributed to Safeway being named one of America’s healthiest grocery stores by Health magazine late last year. Ranked second among 10 honorees, Safeway was praised for O Organics as well as its Eating Right line of better-for-you packaged and frozen foods launched in 2007. While demand has slipped for organic products as cash-strapped consumers seek lower-priced alternatives, the recognition speaks to Safeway’s strides toward overall wellness.
“Eating Right is a perfect example of uniting flavor and nutrition,” Dei says. “Safeway introduced a line of ER ice cream items in a 4-ounce container at 100 calories with probiotics.”
The portion-controlled light ice cream cups from Eating Right contain a special blend of five probiotics to help regulate digestion and enhance immunity; the product also contains the omega-3 fatty acids DHA and EPA. Sold in packs of four cups, each with a spoon under the lid, Eating Right ice cream was praised as one of last year’s most innovative launches by Mintel International in last month’s issue of Dairy Foods.
“We maintain the competitive edge through innovation,” Dei says. “The Eating Right brand introduction is just one example of innovation that we have taken nationally.”
Beyond products, Safeway has a history of innovation in dairy manufacturing. Lucerne was one of the first brands to offer milk in paperboard cartons. The company pioneered automated cleaning-in-place systems and the proportional sampler for milk receiving, and helped develop early defoaming technology for milk bottling.
“Safeway has a strong capital spending program for its manufacturing plants,” Dei notes, turning specifically to its state-of-the-art ice cream plant in Phoenix. “Safeway invested extensively in this facility from day one. The technology used within the plant exceeds many of our competitors in the industry.”
High standardsSafeway also got a head start on what’s now known by the buzzword “sustainability.” Starting with cardboard recycling in 1960, the company today recycles more than 450,000 tons of material per year. Through a partnership with the Environmental Protection Agency, Safeway has become one of the nation’s largest commercial buyers of renewable energy.
In 2006, Safeway began a comprehensive greenhouse gas reduction and sustainability initiative that it reports is having a positive impact on business, the communities it serves and company employees. The resulting reduction in CO2 emissions in 2007 surpassed the company’s expectations, Safeway reports.
In recognition of its sustainability efforts and other initiatives, Safeway has been named one of the 2009 World’s Most Ethical Companies by the Ethisphere Institute.
This is the third year Ethisphere, a think tank dedicated to the creation, advancement and sharing of best practices in business ethics, corporate social responsibility, anti-corruption and sustainability, has published the rankings. Through a rigorous, multistep evaluation process, Ethisphere’s researchers and analysts reviewed more than 10,000 companies to determine the finalists.
Others on the final list of 99 companies include Unilever, Groupe Danone, Stonyfield Farm, General Mills, International Paper and Ecolab. “Safeway has proven to be one of the world leaders in upholding high ethical standards, making it a true standout in its industry, especially as unethical business actions and decisions grab headlines each day,” says Alex Brigham, executive director of the Ethisphere Institute.
Safeway is able to reach beyond its stores and further into the communities in which it operates by way of the Safeway Foundation, formed in 2001 to make the most of the charitable contributions from its employees, customers and suppliers.
Meanwhile, Safeway strives to employ a work force that reflects the diverse communities where it operates. “We have a team comprising people from all races, religions and ethnic backgrounds,” Burd says. “They bring to the workplace a variety of styles, abilities and skills.”
Safeway has organized corporate diversity advisory boards to leverage the benefits of the unique cultures in the workplace, and offers networking, leadership and mentoring opportunities that encourage personal, professional and organizational growth.
“We, as a company, recognize the uniqueness of our employees and customers,” Dei says. “This attitude helps us to create a positive work environment where all employees and their contributions and ideas are respected and valued. This approach to diversity and inclusion in turn translates to respect and value toward our customers, which helps us achieve success on every level.”
HistorySafeway’s Lucerne dairy brand dates back to 1904, when dairy farmers in Lucerne Township in Kings County, Calif., established a cooperative creamery named Lucerne Cream & Butter Co., based in Hanford, Calif.
Safeway acquired the creamery in 1929 and made Lucerne its dairy label. A year later in Seattle, Safeway became the first retailer to conduct its own milk processing operation. The company acquired fluid milk plants throughout the early 1930s, then started building its own plants in 1936.
In 1945, Safeway established the Lucerne Milk Co. for its dairy manufacturing operations to report directly to the corporate level rather than to local retail divisions. This move allowed for standardization and sharing of best practices across all plants. Bulk ice cream production began in 1951, in Seattle and Denver.
By 1955, Safeway operated 15 dairy plants (12 fluid, two ice cream, one cottage cheese and byproducts). Canadian production began in 1958; the company began making frozen novelties in 1966.
By 1982, Safeway operated 30 dairy plants in the United States and Canada, processing fluid milk, cultured products, frozen desserts, cheese and powder. Consolidation in the 1980s reduced the number of plants to today’s 14: Bellevue, Wash. (fluid/cultured, ice cream); Clackamas, Ore. (fluid/cultured); Denver (fluid/cultured); Los Angeles (fluid/cultured) and San Leandro (fluid), Calif.; Phoenix (fluid, ice cream); Burnaby, British Columbia (fluid); Edmonton, Alberta (fluid, ice cream); and Winnipeg, Manitoba (fluid, ice cream, cheese cut and wrap).
The Lucerne brand includes milk, cultured products, butter, cheese and ice cream. Other Safeway brands feature dairy products as well, such as Safeway Select (ice cream), Primo Taglio (specialty cheeses) and O Organic (milk, cheese, cultured, butter). Additional Safeway-owned regional dairy brands include Dairy Glen, Westwood and Jerseymaid.
Safeway, the storeIn 1915, M.B. Skaggs purchased a tiny grocery store from his father in American Falls, Idaho. Skaggs’ business strategy, to give his customers value and to expand by keeping a narrow profit margin, proved successful. By 1926, there were 428 Skaggs stores in 10 states, a number that almost doubled that year when he merged his company with 322 Safeway (formerly Selig) stores.
In the 1930s, Safeway introduced produce pricing by the pound, opening dating on perishables to assure freshness, nutritional labeling and some of the first customer parking lots.
Today, there are 1,739 Safeway stores across the United States and Canada. These include Vons stores in Southern California and Nevada, Randalls and Tom Thumb stores in Texas, Genuardi’s stores in the Philadelphia area, Dominick’s stores in the Chicago area and Carrs stores in Alaska.
The Safeway Family of Dairy ProductsLucerne is Safeway’s flagship dairy brand. It can be found on an extensive line of fluid milk, butter, cheese, cultured and frozen dessert products. Among the brand’s newest products is Creamery Fresh, a premium ice cream offering eight flavors in 56-ounce round containers. In all, the Lucerne brand encompasses about 900 SKUs.
The Safeway Select label features multiple ice cream, frozen dessert and novelty products, which are offered in an array of flavors and formats, including 4-ounce single-serve cups, full-size containers and novelties.
Launched in 2005, the successful O Organic line includes an assortment of dairy products – milk, natural cheeses, cottage cheese, butter, half & half and whipping cream. Two years later came the Eating Right line, which includes portion-controlled ice cream cups.
Finally, the Primo Taglio brand offers aged specialty cheeses among other Italian-style products.