Safeway’s Q1 profits are up 17%.

Profit margins as well as overall sales have increased for the US supermarket group, leading to healthy profits of $283.9 million. With a recently announced expansion plan on the cards, Safeway will be trying to make the most of its current success, spreading its operations across the country to secure its place in the emerging super league of US grocers.

Safeway is faring better than a great many of its rivals, outperforming Standard & Poor’s food retail index by around 6% over the last year. The results for Q1 show no sign of this trend changing. The third largest US grocery chain has announced profits of $283.9 million, an increase of 17% over last year’s $241.9 million.

Sales were up 8% to $7.7 billion compared to $7.1 billion last year. Stores that were at least a year old had sales increases of 4.2% on average, with the rest of the growth came from new store openings and February’s acquisition of Genuardi’s.

Despite rising energy costs, Safeway has managed to improve its profit margins. Gross profit rose to 30.6% of sales, from 29.8% in the same period last year. Operating and administrative expenses are costing a smaller percentage of total sales and cheaper buying practices have also helped margins.

Other improvements came from strong growth in Safeway’s private label products, which have higher margins for the retailer than branded products.

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Safeway’s recently announced expansion plans seem well timed. The company expects to spend $2.1 billion on opening up to 95 new stores and remodeling another 250. The developments will focus on high growth markets, giving the company greater geographical reach in the Western, Southwestern, Rocky Mountain and Mid-Atlantic regions of the US. Supermarkets are one of the few sectors that may actually benefit from the current economic slowdown as consumers tighten their belts and eat out less. This means extra sales for grocery outlets, both of high-end convenience foods and budget ranges.

Safeway’s strong financial performance suggests that it is well placed to close the gap on the US’s leading grocery chains, Albertson’s and Kroger.

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