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 company has enjoyed a 120% increase in app users and a 45% increase in The Kroger Co. (NYSE:KR).com visitors. It’s also supporting fishery projects and seafood initiatives to gain consumer confidence and improve its fresh image. And while The Kroger Co. (NYSE:KR) is starting to see some positive return from these efforts, it may be some time before an investor sees any meaningful impact in its financial results. As of now, Safeway is better positioned for positive returns.
Another competitor, SUPERVALU INC. (NYSE:SVU), has recently signed an agreement to sell 877 stores across the banners of Albertsons, Acme, Shaw’s, and Star Market to AB Acquisition, an affiliate of a Cerberus Capital Management. The company has also sold its wholly-owned subsidiary New Albertsons Incorporated to AB. Cerberus believes its expertise in retail can turn around these struggling stores.
Further, an investor group has purchased up to 30% of SUPERVALU INC. (NYSE:SVU) stock for $4 per share. And while that offer sets the floor for the stock, SUPERVALU INC. (NYSE:SVU) is more a special situation case, than a long term holding.
Conclusion
Safeway is taking steps to implement specialized loyalty programs, invest in store remodeling, and push its private label brands. Thus far these programs are attracting traffic and increasing volumes. You should be optimistic about the company’s potential, and given its cheap price, perhaps you should check out the stock.
Gayatri Sharma has no position in any stocks mentioned. The Motley Fool owns shares of Supervalu. Gayatri is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Loyalty Programs Are Working for This Retailer originally appeared on Fool.com is written by Gayatri Sharma.
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