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Safeway Inc. (SWY), The Kroger Co. (KR): Loyalty Programs Are Working for This Retailer

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Safeway Inc. (NYSE:SWY) has significantly outperformed the broader markets. Its shares are up 37.50%, as compared to 16% from the greater market. The company is making strides to increase sales through various loyalty program and fuel programs. It’s also remodeling its existing stores and pushing private label in an effort to increase profitability.  Based on the data, Safeway Inc. (NYSE:SWY) is a solid buy.
Safeway Inc. (NYSE:SWY)

New programs

Safeway Inc. (NYSE:SWY) focuses on its loyalty programs.  Just for U, fuel, and wellness have been big hits with customers. The “Just for U” program works because it uses relevant and personalized data for each and every shopper. It focuses on giving more offers to infrequent customers while also marketing to the loyal, more frequent, shopper.

It rewards customers with free samples and big discounts on items they buy everyday.  Safeway Inc. (NYSE:SWY) has successfully implemented this program with the help of large data collected about customers’ taste, preferences, likes, and dislikes.  Currently, about 5.4 million customers have benefited from this loyalty program.  These customers have increased their spending and are starting to visit the stores more often.  In fact, almost 50% of the company’s supermarket revenue is coming from these types of shoppers.

Safeway Inc. (NYSE:SWY) also launched a fuel program with Chevron and Exxon in 2012, and it has been quite popular.  There is a 2% to 3% difference in sales from stores that have the fuel program versus the stores that don’t. Safeway Inc. (NYSE:SWY) is planning to cover 94% of its stores with fuel partnership programs by the end of the second quarter.

Store redesigning and private label
Safeway had invested $928 million last year for nine new or replacement stores, four lifestyle remodels, and eight other projects. The company is trying to gain customers from all ends of the spectrum. It has strategically clustered its store base in what it calls,  premium, mainstream and value categories.

The premium segment targets higher income customers, where the value segment pushes more affordable products to lower income groups.  Safeway has also been successful with its private label line. It’s various private label brands contribute an extra 1200 basis points to its gross margin.  Obviously, private label stuff is much more profitable than the same item from a national brand.

Peer group

The Kroger Co. (NYSE:KR) and SUPERVALU INC. (NYSE:SVU) compete with Safeway. The Kroger Co. (NYSE:KR) has raised its market share in 9 out of 17 markets, even though its been facing tough competition from Wal-Mart. It believes customers who are digitally engaged with the company are more loyal, so it has been spending to try and connect digitally.
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