Safeway Inc.'s top executive warned branded food makers that his grocery chain will push its own brands harder if the companies don't start lowering prices on their products.
Steve Burd told analysts in a conference call Thursday that the sales-growth gap between national brands and private-store brands has become "extraordinary" and accused food makers of being "disingenuous" with consumers by not dropping their prices to reflect declining input costs.
Faced with the economic recession, cash-strapped consumers have been trading down to cheaper products, both dining out and dining in, with more consumers gravitating toward private-label goods.
"I say wait and see, because we're going to chew [food manufacturers] up on corporate brands," Mr. Burd said.
His words underscored tensions over food prices between grocers and food makers. Some supermarket chains have complained about not seeing widespread price relief from big food manufacturers, even as fuel and ingredient costs have fallen in recent months. Food makers say they can't pass along cost savings because they locked into contracts last summer when commodity prices were high.
Safeway's line of private-label goods, which includes O Organics and Eating Right, tend to carry higher profit margins and gives the company added leverage when it bargains with food manufacturers over pricing, Mr. Burd said.
"If this were Wall Street, you'd say there was basically a bull market for corporate brands right now," he said. Safeway's private-label penetration rate is about 25%.
Mr. Burd said the Pleasanton, Calif.-based company has seen some prices falling in dairy and fresh produce, but hasn't seen the same from the big food makers.
Safeway said Thursday that net income for its fiscal fourth-quarter ended Jan. 3 rose to $338 million, or 79 cents a share, from $301.1 million, or 68 cents a share, in the year-earlier period. The 12% rise was aided by an extra week of sales. Revenue rose 3.4% to $13.8 billion.
The results came up short of Wall Street's expectations. Analysts polled by Thomson Reuters expected earnings of 81 cents a share on revenue of $14.3 billion.
Comparable-store sales—a key indicator of market share—climbed 0.5%, excluding fuel, which matches its third-quarter performance.
Safeway maintained its forecast for earnings of $2.34 to $2.44 a share in the current fiscal year, expecting more moderate food inflation. Foot traffic to stores, while down in the fourth quarter, were up in the first seven and a half weeks of this year, Mr. Burd said.
In the fourth quarter, Safeway's gross margins increased slightly to 28.78% from 28.69%. However, excluding fuel sales, gross profit dropped, reflecting the grocer's effort to hold down prices for staple items.
Safeway, the fourth-largest U.S. food retailer by sales, operates more than 1,700 grocery stores in the U.S. and Canada under banners such as Dominick's, Vons and Tom Thumb, in addition to its namesake outlets.
He managed a family of 4 for about $150 for everything ..with two very big boys.
We never had much use for coupons. We never much bought the items that they offered discounts on. We did buy premium brand cereal ..but now a box lasts too long. Without kids to feed 24/7, it just leaves a fairly big void there. It's kinda hard to adjust to when you're into feeding armies. We never have the stuff that we'd use marginally/occasionally out of the vast inventory that was there for the children. That is, if you have a craving for something, like icecream, it was there. Now it's freezer burned before the container is empty.
Our one stop shop isn't a national chain. It's regional and offers the best overall prices. We can't really shave too much off the bill and not waste more in time/fuel doing it.
