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Can Safeway Become a Lab for Other Retailers?

Can Safeway Become a Lab for Other Retailers?

Despite its name, Safeway does not always choose the safe way. In fact, this retailer is a leader in thinking out of the box. It's not hard to rattle off a list of Safeway's innovative and successful initiatives, such as the Safeway Select private label, Blackhawk Network gift card program, Lifestyle stores, and O Organics and Eating Right private labels.

So it's tempting to think good things about the chain's new program to expand marketing and distribution of O Organics, an organic food line, and Eating Right, a health and wellness line, to other supermarkets. Safeway unveiled the plan last month and said it will roll out a wide-ranging advertising campaign, as reported in SN, Aug. 11. Could this be a home run for Safeway? First, let's look at the details of the program.

The company will make the brands available through Lucerne Foods, a wholly owned subsidiary, which is a member of a larger consortium of producers, marketers and distributors called the Better Living Brands Alliance. Safeway's partners in this alliance will produce a range of merchandise, from frozen foods to dairy products, under license from the chain. Already, the retailer's labels have found some success on the foodservice side with distribution in corporate and university cafeterias.

Safeway's core pitch revolves around the proven success of these brands at retail. Executives believe this track record will draw other retailers, even those it competes with. “What's unique here is that these are power brands that have been incubated in a large lab with real consumers — the various Safeway-brand stores,” James D. White, who heads the BLB alliance and Lucerne, told SN.

It's easy to understand why Safeway is optimistic. Organic, natural and health are important trends, even in this economy, and many retailers are still trying to translate that into powerful private-label programs, noted Andrew Wolf, an analyst with BB&T Capital Markets, Richmond, Va.

The key question is how high are Safeway's expectations? If the chain is seeking success on the order of Blackhawk, that's probably not in the cards. Gary Giblen, an analyst with Goldsmith & Harris, New York, made a number of good points to me about the potential of Safeway's campaign. “Blackhawk is a unique offering with first mover status in the gift cards business,” he said. “But there are lots of other sources for this [Safeway's type of health and organic products].”

Giblen expressed skepticism about the relevance of Safeway's claims about lab-tested. “What works in Safeway's California lifestyle stores is not applicable in Nebraska,” he said.

It's not hard to guess that retailers competing with Safeway would be reticent about joining this program. The upshot is that Safeway probably doesn't have a blockbuster here, although its initiative could have modest potential. Still, the retailer shouldn't stop trying to sell its expertise to others. Sooner or later, Safeway will hit another home run or collect a string of base hits through its creative playbook.

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