SAFEWAY CEO EXPECTS STOCK PRICE UPTURN

PLEASANTON, Calif. -- Safeway here said it expects its financial achievements to be reflected in its stock price over the long term.Writing in the company's annual report, Steve Burd, chairman, president and chief executive officer, said, "The supermarket industry, typically a 'stable' sector, seemed to be out of favor in 1999 as investors found other sectors more attractive."Fortunately, history

PLEASANTON, Calif. -- Safeway here said it expects its financial achievements to be reflected in its stock price over the long term.

Writing in the company's annual report, Steve Burd, chairman, president and chief executive officer, said, "The supermarket industry, typically a 'stable' sector, seemed to be out of favor in 1999 as investors found other sectors more attractive.

"Fortunately, history has shown that, over time, the financial markets tend to reward companies with strong earnings, solid economic fundamentals and sound management. We believe Safeway is regarded as such a company."

Reflecting on fiscal 1999, Burd said Safeway was again among the industry's leading performers, with record earnings and a decline of 30 basis points on a pro forma basis in operating and administrative expenses -- "an unprecedented seventh straight year" of reductions in the expense-to-sales ratio, he pointed out.

Burd also noted that Safeway began developing and implementing several new sales-building initiatives during 1999. Although he did not elaborate on those initiatives in the annual report, he did offer comments about them in a conference call with securities analysts, when he said the initiatives -- which the chain has never defined for observers -- "are meeting all expectations."

He said Safeway is actively rolling out seven breakaway strategies, which are at various stages of implementation. All are subliminal to customers, he added. "Our objective is to get to the top of the supermarket pile and stay there. We will be able to roll out these strategies and add new dimensions every quarter, and there's no reason why the momentum shouldn't continue to build," Burd said.

During the analyst call, Burd also discussed the business-to-business exchange of which Safeway is a member, explaining, "It will facilitate our ability to take costs out of the procurement process with greater effectiveness. We expect it will be up and running at mid-year, and we believe it will run at increasing levels of sophistication over time."

He said he anticipates the exchange will result in cost savings, though it's not intended to be a consortium for buying. "It will facilitate efforts of individual companies to eliminate some of the slop in the supply chain, and it will be up to each company to work its own elements of the supply chain. But it's not an industry effort to reduce costs."

Asked to define the kinds of savings Safeway anticipates, Burd said the exchange will provide more opportunities for retailers to lower costs with vendors "and capture more of that ourselves. It will allow better coordination between those who buy and sell.

"For example, in a category like seafood -- where you're dealing with a very fragmented industry and you need a series of brokers to get product to market -- the broker network is a significant piece of the cost structure. But with a business-to-business exchange, we will be able to deal directly with individual providers such as fishermen.

"Produce is another area of potential savings. In perishables there are a great deal more opportunities to eliminate the broker element, which is a major cost area."

Burd said the number of global exchanges for food and drug channels will probably narrow "to no more than three as each one establishes [its own] buying standards. There probably won't be great differences in the standards, and vendors will try to create commonality among them.

"But the bigger the exchange, the greater the likelihood that it will be able to set the standards. The members of our exchange do $300 billion in sales, and it's the largest one constructed so far. We made an effort to get large players, few in number, and agreed to certain standards because if you had 100 partners, it would be hard to get agreement."

Asked during the conference call about integration of the companies Safeway has acquired in the past couple of years, Burd made these comments:

On Carr-Gottstein Foods Co., Anchorage, Alaska, which was acquired last November, he said integration has been slowed because of the need to divest seven stores there, six of which have already been sold. "That delayed our ability to begin employee training, but that's been completed and we're beginning to introduce Safeway standards and other best practices there.

"Because it was an in-market acquisition, we've already installed Safeway merchandising systems, and the complete rollout of Safeway Select is nearly complete."

At Dominick's Supermarkets, Northlake, Ill., which Safeway acquired a year ago, Burd said the final phase of Safeway's merchandising system will be installed in the next few weeks. "Re-engineering and best practices are in full swing [at Dominick's] and beating our expectations, and we're beginning to input our promotional programs," Burd added.

At Randall's Supermarkets, Houston, which was acquired last fall, Safeway has nearly completed the rollout of the Safeway Select private-label line and plans to launch best practices and re-engineering at Randall's in the next few weeks, Burd said.