Priceless: Safeway takes a risk with $100M brand-focused effort

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Embattled Safeway is bucking supermarket tradition with a $100 million advertising campaign that includes spot TV buys on prime-time shows such as "The Apprentice" and "CSI"-and utters nary a word on price.

"What we are doing is very different," said Brian Cornell, chief marketing officer at the Pleasanton, Calif.-based chain of 1,802 stores with $35.8 billion in sales. "We are moving from the traditional price/item advertising, which is the norm of the supermarket industry, to a more brand-focused identity."

More than just a tagline change, from "Giving Our Best" to "Ingredients for Life," the push launches April 18 with TV, radio, print and Web components. "We are trying to take a page out of the consumer package industry," said Mr. Cornell, who joined in April 2004 after serving as president, Pepsi-Cola North America's Food Services division.

The campaign, created by Interpublic Group of Cos.' Dailey & Associates, Los Angeles, represents a significant shift away from print advertising for the chain. "The shift is fairly dramatic; it's much more balanced and is not so heavily weighted toward print," said Michael Minasi, senior VP-marketing at Safeway.


Even so, print is still Safeway's biggest single line item and it still runs weekly newspaper circulars in all its markets. Safeway spent $126.5 million in measured media in 2004, up from $106.2 million in 2003, according to TNS Media Intelligence.

Will the branding bet pay off?

"Safeway is more of a channel than a brand," said Larry Kelley, exec VP at Fogarty Klein Monroe, Dallas, which served as Randall's agency prior to its acquisition by Safeway. "They don't have a distinct position other than they are just another grocery store chain. That's the fallacy behind what they are doing and most consumers are pretty savvy beyond that point and might see the spot, but then go to the store and see it's the same old crummy Safeway."

Safeway's growth has stalled within the last five years. Although it opened 183 new locations since 2000, it has closed 214. The chain posted sales of $35.8 billion in fiscal 2004, up from $32 billion in 2000. But profits have plunged, with net income dropping to almost half of that earned in 2000, $560 million compared with $1.1 billion.

The upcoming ad campaign highlights the tough choice traditional grocery retailers stuck in the industry's so-called middle face: Battle Wal-Mart on price or stake out a "lifestyle" or "quality" positioning, where niche operators like Whole Foods are still managing to find growth.


"Retailers like Safeway are stuck in a shrinking and unsustainable middle ground," said Jon Hauptman, VP of Willard Bishop Consulting, a Chicago-based firm focused on the grocery industry. "Safeway is outflanked on all sides."

Its closest peers and rivals-Kroger Co. and Albertson's-have opted instead to tackle price, yet still promote a differentiated shopping experience.

John Heinbockel, an analyst with Goldman Sachs, isn't certain Safeway's approach will work. "If you improve the look and feel of the store, how do you guard against customers feeling your prices have increased, even if they haven't?"

Avoiding price may be a necessity for Safeway in the long-term. Unlike Wal-Mart, 77% of the company's work force is unionized. A strike at 289 of the chain's Southern California stores cost Safeway $254 million between 2003 and 2004.

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