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Steve Burd, chairman, president and chief executive officer of Pleasanton, Calif.-based Safeway, has spent the last few months strategizing about the health of his company, the nation and, in a broad sense, the world.
As the economy has weakened, Safeway has had to figure out how to accommodate its quality-oriented format to a customer more interested in value than imported cheeses. According to Burd, Safeway lowered pricing without impairing the customer experience by reducing capital spending and taking a more aggressive position on cost reductions — for example, finding ways to cut seconds off the checkout process.
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“Some people on Wall Street have questioned whether we have the right strategy for a recession,” Burd said late last year. “But recessions are temporary, and we believe you build a strategy to create long-term shareholder value, not to deal with a recession.”
He said the chain expects to double cash flow as its program of upgrading stores to the lifestyle format nears completion this year.
Simeon Gutman, a New York-based analyst with Canaccord Adams, Vancouver, British Columbia, said Safeway actually started working on its value proposition earlier than most observers give it credit for “because of having so many stores in California. It’s still operating in a high-low capacity, but the lower everyday pricing gives it greater leeway to be more competitive.”
Safeway is also investing in the health of the nation and the world through the distribution of two of its very successful proprietary product lines — O Organics, its organic food line, and Eating Right, a health and wellness line — to retailers around the U.S. and abroad.
Burd appears to be on a personal mission to alter the way people pay for health care, based on the approach Safeway has been using, which incentivizes individuals to take better care of themselves — for example, by quitting smoking or losing weight — so they can lower the insurance costs they pay.
Safeway has “a better cost curve than its peers,” which justifies the chain’s plans to develop a consulting business to help other companies lower their health care costs, Gutman said.
— Elliot Zwiebach
