Safeway Inc has announced major expansion plans for 2001. The US supermarket chain will open up to 95 new stores. It’s certainly a welcome departure from the gloom shrouding the retail industry. Safeway has wisely concentrated on areas with high population growth. It may even benefit from the economic slowdown as well: when people have less money, they tend eat to out less and buy more from supermarkets.
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In its 10-K filing with the Securities and Exchange Commission, Safeway, which operates 1,688 stores in the Western, Southwestern, Rocky Mountain and Mid-Atlantic regions of the United States, announced its expansion plans. It will open up to 95 new stores and remodel a further 250 in a $2.1 billion expansion plan focused on high growth markets and group consolidation.
The company hopes this strategy will enhance its prospects for long term growth and profitability. The plans will focus on developing its presence in high-growth locations where the company already commands a strong market position. This is in line with the company’s aggressive development program, which has already led to 85% of its stores being based in areas that have population growth rates in excess of the national average.
Financially, Safeway is in good shape. Excluding the effects of a strike in one of the company’s distribution centers, which cost it some $70 million in 2000, net income for the year was up 19.3% to $1.2 billion ($2.26 per share). That compares with $971 million ($1.88) in 1999.
Market trends have shown that supermarkets can actually benefit from economic downturns as people tend to eat out less, instead spending a greater proportion of their income on shop-bought foods, particularly higher-end convenience meals and snacks. If the US economy is heading for recession, Safeway’s expansion might be coming at just the right time.
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By GlobalDataThe only cloud on the horizon is that the rest of the supermarket sector, which is always prone to price wars, slim profit margins and high levels of industry concentration, will be watching Safeway carefully and considering any retaliatory action.
