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Safeway Supermarket Chain Moves Aggressively into Organics

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Safeway gets aggressive with organic line
By David Goll
East Bay Business Times
Updated: 7:00 p.m. ET 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 O Organics, he would not discuss specific revenue predictions.
© 2006 East Bay Business Times

© 2006