Safeway warned branded food markers to lower price

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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.
 
Many items went way up in price because of higher fuel costs. Now that fuel has come down you would think these prices would come down a bit. This is not the case.
 
Originally Posted By: pbm
Many items went way up in price because of higher fuel costs. Now that fuel has come down you would think these prices would come down a bit. This is not the case.


Do you honestly think that the manfacturer was able to recoup all the costs of high input prices the second they happened? Of course not - the rise lagged the input costs and the fall (if and when it comes) will do the same. The impact of higher input pricing takes a while to filter through the entire cycle.
 
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True, Safeway is not a discount outlet by any mean, but at least it has loss leaders unlike Walmart.

I used to see cereals for $2 to $2.5 all the time, at Safeway and Albertson, but never Walmart (to heck with their low price). In the last couple of weeks I haven't seen any cereal at this price point other than the generic no name once in a while.

I might switch to private label food soon if they don't drop back down to $2 a box.
 
You guys know how this works......the stores intice you with their "specials" but know you'll buy other stuff, and that's where the profit is. If you'd strictly shop for the specials, you could save a lot of bucks but you'd have to go to 4-5 different stores. But, it can be done.
 
I'm continually astonished that Kellogg, for example, can ask (and apparently get from silly people) close to $5 for a middle-sized box of corn flakes, yet the Shur-Fine version in my local independent grocery is $2 to $2.50.

I've been buying those house brands, in food and other things, for years and years. I'll have to check out the news Sav-a-Lot that just opened in walking distance from my place.
 
Publix always has buy 1, get 1 free every week on certain items. When I shop there I usually stock up on those items plus if I have a coupons, its almost 75% off.
 
Originally Posted By: Benzadmiral
I'm continually astonished that Kellogg, for example, can ask (and apparently get from silly people) close to $5 for a middle-sized box of corn flakes, yet the Shur-Fine version in my local independent grocery is $2 to $2.50.

I've been buying those house brands, in food and other things, for years and years. I'll have to check out the news Sav-a-Lot that just opened in walking distance from my place.


Cereal is funny that way, for some they are getting $6/lb! With an input of 10 cents a pound!
The problem is that shelf space is bought by Kellogs for example, and the other big companies. Therefore its sort of like gas, no formal price fixing but they don't need to compete with each other or upstarts...
Probably with $50,000 of equipment you could make corn flakes at a fraction of the retail price, but you can't sell it in a chain grocery store unless you out bid them on shelf space... which they will never let happen.
I'm waiting for the price fixing to get bad on things like potatos. After all why would a store give you the option of buying food so cheaply? They make far more money on $4/lb frozen fries than $0.20/lb potatos...

In Canada we had a little sample of price fixing during the mad cow scare/scam. Canadian cattle were being bought by the big processors for a fraction of what they normally cost, but the price of beef in the stores here never dropped significantly.
Not in one grocery store chain...
The people in cities should've been angry but they don't have a clue when it comes to food it seems.

Ian
 
Originally Posted By: Schmoe
You guys know how this works......the stores intice you with their "specials" but know you'll buy other stuff, and that's where the profit is. If you'd strictly shop for the specials, you could save a lot of bucks but you'd have to go to 4-5 different stores. But, it can be done.


Yes. While I never had time for the singular target practice type shopping (needing ONE STOP) one of my old coworker/partners had (literally) 4 competing supermarkets in close proximity to each other right on his way home. He went through the newspaper nightly ..and bought ONLY the items on sale. He bought only the heavily discounted bakery goods ..and that's just what they ate
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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.
 
Originally Posted By: Gary Allan
So?
seems strange that Safeway is wanting their suppliers to lower prices. I would say Safeway should lower their prices. Cut the upper managements pay and get rid of the skybox Safeway pays for and the price of everything they sell could be dropped a penny.
 
Originally Posted By: Steve S
seems strange that Safeway is wanting their suppliers to lower prices. I would say Safeway should lower their prices. Cut the upper managements pay and get rid of the skybox Safeway pays for and the price of everything they sell could be dropped a penny.


Don't worry, they already have lower price than Lucky here and their only real competitor on food is the Asian/Mexican grocers, Trader Joe's in the premium food, Target and Walmart in the home supplies. There is no reason they would drop the price a penny.

My friend used to work there and she said that most of the big discounts (buy one get one free, 2 64oz OJ for $6, $2 cereal, etc) are sponsored by the vendor. If the vendor do not sponsor those events, no sales. This is not just Safeway but almost every retail chains out there.

Cereal should only cost about 10c in material, 30c in marketing, and 10c in logistic. Selling them for $2 seems fair and I've seen cereal similar to Kellog's Special K with Chocolate made in Germany, selling in Trader Joe's for only $2. If you can pay European labor to make them and send them here and make a profit selling for $2, then the US made cereal should only worth about $1.5, but every one sells them for $4-5.

When cereal cost more than milk, something is wrong.
 
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If you can pay European labor to make them and send them here and make a profit selling for $2, then the US made cereal should only worth about $1.5, but every one sells them for $4-5.


I think anything made in Europe that's imported here at a discount is to hide prohibited products inside them. They're importing butter and milk ..which our ag sector effectively blocks from entering. It's a way to vent a surplus. Our pharmaceutical manufacturers do the same ..except they don't have to hide the ingredients. They pay the bills at home ..and dump the surplus at a discount out of country.
 
I get phished when we have to throw out vegetables that my wife "forgot" about that were in the crisper in the refrigerator. I've since taken charge of that and now don't have as much waste.
 
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