Mike Minasi and James White, Safeway

When consumers like Deb Poe speak, marketers listen. Last month, the well-heeled mother of three was shopping at a Dominick’s supermarket in the Chicago suburb of Oak Park, Ill. when she reached for a bag of O Organics whole wheat pasta. The Safeway-owned store brand, with its colorful packaging and slanted “O” logo, stood out on shelves next to boxes of Barilla spaghetti and other familiar products.

“I tried Barilla’s whole wheat pasta but I wasn’t too happy with the flavor,” said Poe, who also regularly buys Safeway’s Eating Right frozen chicken and rice enchiladas. “They are low fat and taste good. I first noticed their [bright green] labels. I like that they come in a five-pack.”

By her own estimation, Poe is not a typical value shopper. She doesn’t hunt for bargains and chooses food items primarily based on their quality and taste. Although she may be something of an anomaly in these penny-pinching times, Poe is precisely the kind of consumer that Safeway is counting on to take its ballooning private-label business—whose self-proclaimed “consumer brands” are built on a promise of delivering holistic dietary solutions, not super-low prices—to even greater heights.
Introduced in 2006, the O Organics food line generated sales of $300 million last year and is expected to bring in $400 million in 2008, per Safeway. Eating Right, which bowed last spring, is on track to hit $200 million in sales this year. With expanded distribution that includes the company’s plan to begin selling the products in rival U.S. supermarkets this fall (they are already in retailers overseas), these healthy numbers could be just the beginning.
“We think we’ve hit on something magical with consumers,” said James White, svp-consumer brands.
Just how magical? Safeway says that both lines have the potential to exceed the $1 billion sales mark in the next two to four years. That would be a considerable feat for the Pleasanton, Calif., company, currently the nation’s No. 5 grocery retailer with more than 1,700 stores and $42 billion in annual sales.
While it is far from alone in its efforts, Safeway’s successful repositioning of its vast array of private label products under a unified brand message—one compelling enough for discriminating shoppers like Poe, not to mention retail competitors—is setting an example for the entire industry.
Redefining Private Label
Safeway’s not the only retailer to realize that private label can benefit from better quality, packaging and advertising, but it’s the most state of the art. “It’s a good idea that many of Safeway’s competitors are copying,” said David Livingston, an analyst with DJL Research, Milwaukee. “Nowadays, your private label must be national brand quality.”
Wal-Mart, Kroger and other leading grocery retailers have all expanded their private label offerings and many are jockeying for a bigger share of the $23 million organic foods category. Meanwhile, Whole Foods, specialty retailers like Trader Joe’s and regional grocers such as the upscale HEB chain, noted Livingston, continue to raise the bar on product innovation.
Still, Safeway thinks it has the edge. “We’re not assuming we’re the only ones who could do this,” said Safeway president Mike Minasi, 49, who’s been with the company since 1996. “But we believe our partners will look at our track record of success, consider the speed to market that we can deliver and recognize that we’ve got a compelling consumer proposition.”
White argues that Safeway is “addressing unique consumer needs and filling gaps in the stores’ overall assortment.” The more than 300 items in the O Organics line, for example, include Italian sodas and a bevy of baby snacks and beverages, products that Minasi says “brought us to the center of the store where there were no brands or just a single choice.” Added White: “What we’ve learned is that people are taking more visits to different types of outlets to fill their shopping needs. Our strategy is to build brand solutions so they no longer have to do that.”