Safeway outlines three future growth platforms: Wellness, loyalty and fuel

NEW YORK — Safeway will package $150 million in real healthcare savings into an overall wellness strategy to be implemented over the course of 2013, the grocer's chairman and CEO Steve Burd told analysts Thursday morning at the Goldman Sachs 19th Annual Global Retailing Conference.



Those $150 million in healthcare savings was realized by Safeway over the course or the past seven years. "We've contained our healthcare costs across an organization of 175,000 people. We have a lower healthcare cost in this company today than we did in 2005," Burd said. "[In] 2005, we spent about $1 billion; last year we spent about $850 million in healthcare. So we have [come up with] a way of 'productizing' the things that we've learned and providing products and services to our consumers."



Safeway's wellness play has been in development for more than two years now, Burd said. "We are working with a partner who has innovative technology, so it's not just us," he said. Safeway will pilot its wellness platform in one market in the fourth quarter and expects full rollout by the end of 2013. "When completed, the initiative is expected to deliver not only some strong IDs, but also a good margin and good income. And it should attract more people to our stores."



Safeway's wellness strategy was one leg of three core sales-driving pillars outlined by Burd, the other two being Safeway's Just for U loyalty program and its fuel loyalty program.



Just for U is a digital marketing platform that delivers personalized offerings to the 4.1 million shoppers who have registered for the platform, or presently, 23% of Safeway's regular shoppers. "We have the best repurchase rate of any program in the retail business," Burd said, "because it's very targeted to the shopper's history." The program has expanded nationwide in the past few months, and Just for U shoppers are already accounting for 36% of Safeway sales. "We believe by the end of this year, 45% of our sales will be represented by registered Just for U applicants," Burd said.



Of the 4.1 million Just for U registrants, some 1.4 million are not active users, representing a "huge opportunity" for Safeway to connect with those shoppers and pull them into their stores, Burd said.



Safeway also has the potential to double its Just for U registrants today, Burd said, limited only by the penetration of smartphones and tablets into households. "In five years, that number will approach 90-plus percent. So in divisions where we've been able to launch the mobile application simultaneously with Just for U, about 31% of our Just for U registrants use the mobile application."



The third pillar, fuel loyalty, is delivering significantly higher identical sales, Burd said. Of the 343 fuel stations that Safeway operates in the U.S. market, comparable sales are higher by some 3.4% compared to stores without fuel. Couple Safeway's fuel loyalty platform with its Just for U initiative, and you have the capability to personalize fuel savings to the shopper, Burd said. "If the standard offer is 10 cents per gallon reduction in price for every $100 accumulative spend, I can make that for individual shoppers anything I want for any time horizon I want, and I only do it where I get an incremental lift in sales," he said.



Safeway is extending its fuel program in the fourth quarter with other gas companies so that consumers shopping a Safeway without a fuel station can still be incented by the program. "We recently finalized an agreement with a large branded partner, and we're in advanced discussions with a second partner," Burd said. "Agreements with these two partners will take our fuel rewards coverage program [from] about 23% of stores in the U.S. to about 93%." That fuel station network will grow from 343 to more than 2,200, Burd added.