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Safeway Supermarket Chain Moves Aggressively into Organics
Safeway gets aggressive with organic line
By David Goll
East Bay Business Times, March 19, 2006

Safeway didn't become a virtual synonym for supermarket in the American vernacular by ignoring consumer trends.

And organic food has become a bona fide 21st-century retail hit. In 1976, consuming food produced by organic farmers was cutting edge, a counter-cultural reaction to the pervasive use of pesticides and herbicides by family farmers and agribusiness alike.

In 2006, having been embraced by mainstream consumers, organics have become a big business, with annual sales in the United States zooming from $1 billion in 1990 to $20 billion in 2005.

The Organic Trade Association of Greenfield, Mass., says sales of organic products will increase 18 percent annually through 2008, although they still constitute only 2 percent of grocery sales nationwide.

The knock on organic products? Most consumers complain they are usually more expensive than conventionally produced food.

Pleasanton-based Safeway Inc. set out to change perceptions and capture market share in December, when it quietly rolled out "O Organics." Now, Safeway is planning a more aggressive campaign to promote the private-label line. The 150 organic products include beverages, bakery goods, cereals, canned and frozen foods, dairy products and snack items.

The difference from national organic product lines? Prices are comparable or even below those for conventional products in some cases.

Beginning this month, the organic line became widely available throughout Safeway's chain of 1,775 stores in the United States and Canada.

James D. White, Safeway's senior vice president of corporate brands since October, is quick to point out the advantages of the organic line.

"These are of similar to better quality than national brands or other store brands," he said. "They have developed a very loyal and vocal following. People really appreciate the combination of quality and value."

He said the line also offers the broadest range of organic products offered by a major retailer, with the exception of a company that has built its business on natural and organic products: Whole Foods Market.

White said that although Safeway gets products from outside suppliers, some are manufactured by Safeway. He added that its existing plants are expected to handle the ramp-up in production.

White said Safeway hopes to appeal to a broader range of shoppers by making it possible for them to "avoid additional shopping trips" by buying conventional and organic products in one place.

As such, O Organics represents an acceleration of Safeway's competitive efforts to counter the dramatic growth of Whole Foods, which attracts a demographic group of shoppers similar to its own. While the supermarket's rivalry with industry behemoth Wal-Mart Stores Inc. has attracted most of the attention in recent years, Whole Foods Market Inc., based in Austin, Texas, has been expanding in major metropolitan areas important to Safeway's business: The Bay Area, Los Angeles, San Diego, Portland, Ore., Seattle, Chicago and Washington, D.C., among others.

Surveys conducted by the Organic Trade Association reveal about two-thirds of American consumers have bought organic products at least once. About 15 percent to 20 percent purchase them on a regular basis.

The association's surveys conclude that consumers between 45 and 54 are most likely to buy organic. Safeway's White said O Organics seem to be popular with shoppers of all ages, but especially those under 45.

He noted the move toward organic foods began and gained momentum among younger people in urban centers and university towns and that shoppers in their 20s and 30s, who tend to have less disposable income than middle-age consumers, are attracted to the new line's moderate prices.

White said shoppers of all ages have reacted positively to O Organics at stores throughout the chain, with sales brisk on the West Coast, Arizona, Colorado, Illinois and the Middle Atlantic states.

Although White said company officials have high hopes for the sales potential of Organics, he would not discuss specific revenue predictions.

© 2006 East Bay Business Times