SAFEWAY LOOKS TO GROW TOP LINE

NEW YORK -- Safeway is looking to grow sales before profits to let investors know it will remain a viable long-term player, Steve Burd, chairman, president and chief executive officer of the Pleasanton, Calif.-based chain, told an investors conference here last week.Given the choice between pursuing a capital project with a higher return and lower sales or one with higher sales and a lower return,

NEW YORK -- Safeway is looking to grow sales before profits to let investors know it will remain a viable long-term player, Steve Burd, chairman, president and chief executive officer of the Pleasanton, Calif.-based chain, told an investors conference here last week.

Given the choice between pursuing a capital project with a higher return and lower sales or one with higher sales and a lower return, Burd said he would go with the latter project "because we need to grow topline sales to convince the marketplace that we have a differentiated strategy that will allow us to grow while others in the channel may be losing ground.

"We believe we're on the verge of more accelerated sales growth," he said, "and we're focused on spending capital to grow topline sales."

Burd made his remarks here at the annual retail conference for investors sponsored by Credit Suisse First Boston.

"There's been an impression since 1998 that the discount guys would take out most of the major food retailers, and while I believe the market share of conventional supermarkets will continue to shrink, our strategy will allow Safeway to grow," Burd declared.

That strategy, as articulated by Burd in previous talks and again last week, involves differentiating Safeway from other conventional chains by upgrading its perishables merchandising, service and selection while narrowing the price gap with discounters.

He said Safeway had completed about 10% of its efforts to upgrade and differentiate its stores by the end of 2003 and expects to reach 35% completion by year's end, with the entire effort completed within three years. "Within that time, we expect to be able to reduce the way consumers think of Safeway to one word -- quality," Burd declared.

He said he expects to complete the process of narrowing the price gap within five years.

In other highlights from his talk, Burd said the following:

Employee morale at Safeway's Vons stores in Southern California is virtually back to where it was before the 139-day strike that ended last March. "Our mystery shopper scores show service levels of 99% of what they were prior to the strike, when Southern California led the company in overall service scores. As of last week, the division was in the top third of all stores."

He said he assumes the reason is that, "after 139 days without work, people found they had a good job and were eager to come back and do it."

Loyalty card data in Southern California indicates shoppers are returning to Vons, though he declined to be more specific "because I'm not eager to tell Albertsons and Kroger. But we're recovering on a fairly steady basis."

He said customers were slow to return right after the strike was settled, "then there was a huge response, and we've seen a steady progression since then."

The new labor contract being hammered out in Chicago for Safeway-owned Dominick's stores "probably won't be a quick negotiation."