Thursday, May 22, 2003 | 11:17 a.m.
Safeway Inc. will reduce prices while cutting back on promotions to boost sales and profits, the company's top officer told the International Council of Shopping Centers convention in Las Vegas.
Pleasanton, Calif.-based Safeway, the parent company of Vons markets in Las Vegas, has been under pressure amid softening sales as more people turn toward large discounters such as Wal-Mart Stores Inc. and Costco Wholesale Corp.
Sales increased 2 percent to $7.54 billion from $7.37 billion during the first quarter ended March 22, thanks to new-store openings. Same-store sales, or sales at stores open at least a year and an important measure of a retailer's business, dropped 1.8 percent.
Identical-store sales, which excludes replacement stores, fell 2.3 percent, excluding the effect of fuel sales. Identical-store sales fell in 2002 after nine consecutive years of growth.
Safeway reported first-quarter net income of $162.6 million, or 36 cents a share, compared with a loss of $367.9 million, or 74 cents a share, in the first quarter of 2002. The year-ago results include discontinued operations and a $700 million charge stemming from an accounting change.
The discontinued operations, recorded in the first quarter of 2003 as a loss of $307.1 million, or 8 cents a share, stemmed from the sale of Dominick's markets in Chicago and the company's exit from that market.
In addition to Vons, Safeway Inc. owns Carrs, Genuardi's, Pavilions, Tom Thumb, Pack' n Save Foods, and Randalls. The decision to sell off the Dominick's stores was made during the fourth quarter of 2002.
The reason for the company's weaker-than-usual numbers is a reflection of the national economy and unemployment, not necessarily increased competition from discounters, Steven A. Burd, the chairman, president and chief executive officer of Safeway, said during the convention Tuesday.
"The sluggish economy has a material effect on things people buy," he told an audience of real estate investors and developers. "People turn to low-cost and low-price vehicles -- discounters. Declining sales correlate more with the recession than a step-up in competition."
He said during strong economic times, consumers' priorities center around convenience, and the quality of produce and meat. But during a soft economy, consumers' priorities change and price becomes the driving factor behind where people choose to shop.
Burd, who rarely speaks at events outside the grocery industry, acknowledged that supercenter sales are growing very fast, but said they are strongest in areas where there is high unemployment.
"The point being this is not supercenters driving this," he said.
To increase sales, and level the playing field with supercenters, Burd said Safeway must brand its shopping experience and pull shoppers away from other grocers while lowering operating costs, which have increased over the past two years.
He also said the company has relied too much on promotional prices to lure customers into its stores, and said that instead the company will decrease its regular shelf prices.
"We will still have promotions, but the difference between promotional prices and regular prices will narrow over time," he said. "That will let us compete better with the big discounters."
Burd also said Safeway has scaled back spending in markets where there is slow growth, but continues to be aggressive in strong growth markets. For the year, Safeway expects to spend between $1.1 billion to $1.3 billion in cash and plans to open 55 stores nationwide.
Safeway opened a Vons store Wednesday morning at 8540 W. Desert Inn Road, just west of South Durango Drive. There are more than 25 Vons stores in the Las Vegas area and more than 30 Vons stores statewide. Safeway operates more than 1,600 stores nationwide.
Daymond Rice, spokesman for Vons, said the company does not release information about future development plans. He did say that there are no new stores under construction in Las Vegas.
Despite the plans for expansion, the grocery industry in Las Vegas and nationwide continues to be fierce.
In Las Vegas, Raley's sold or closed 18 stores last year after three years in the market, and Wal-Mart continues to grab market share as it opens stores in Southern Nevada.
"The supermarket business continues to be very competitive and only the strongest will survive," said Drew Alexander, president and chief executive officer of Weingarten Realty Investors, a Houston-based development firm with shopping centers throughout the Las Vegas Valley. "The supercenter is a very powerful format."
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