Friday, December 21, 2007

Friday Fishwrap: Safeway's O' Organics Brand

Safeway Stores, Inc. is already selling its O' Organics store brand in Asia: At Carrefour in the Republic of Taiwan

The international business press and numerous grocery industry trade publications reported last week on a major announcement from Pleasanton, California-based Safeway Stores, Inc. CEO Steve Burd that the grocer would begin selling some items from its hugely popular O' Organics organic grocery products line to food retailers in Asia and South America next year.

This is an innovative move for a U.S. supermarket company, as historically it's difficult to find a retailer that has broken "out of the box" and offered a store brand to other retailers to sell, either overseas or domestically. It's brand marketing thinking by a retailer rather than the industry norm of merely merchandising and selling store brands in just a retailer's own stores. Food retailers all to often forget they're marketers as well as sellers--and Safeway is acting more and more like a brand marketer in all respects these days.

But, Memo to the Press: Safeway already is selling its O' Organics brand in Asia. In fact, a number of the organic brand's items are currently being sold by Carrefour supermarkets in Taiwan. Carrefour, the worlds second largest retailer after Wal-Mart, and Europe's largest, is selling O' Organics' brand peanut butter (creamy and crunchy styles), pastas and noodles, popcorn, salad dressings and a few other items in the 300-item organic grocery products line in at least one of its supermarkets, and maybe more, in Taiwan.

The jar of Safeway's O' Organics crunchy peanut better pictured above was bought by our primary source at a Carrefour supermarket in Taiwan. As you can see, it's sitting on the shelf in her home refrigerator.

The O' Organics items are doing rather well at the Taiwan Carrefour store, according to our sources. Shoppers especially seem to like the peanut butter, which contains only organic peanuts and salt, and has no hydrogenated oils.

One shopper at a Carrefour in Taiwan told us the O' Organics peanut butter is far cheaper--and tastes much better--than the organic brands she previously bought at two supermarkets there, Jason's and Wellman's, both which offer decent organic foods selections, she said.

The major Safeway brand initiative was announced by CEO Steve Burd on December 13 at the company's annual investors day conference for stock analysts and institutional investors at the company's corporate headquarters in Pleasanton. The conference also was broadcast live over the web.

At the conference, Burd announced the O' Organics marketing initiative to food retailers in Asia and South America, but didn't name retailer names--and made no mention of any current deal with Carrefour, nor that some of the brand's items were being sold in Taiwan. But the O' Organics items are in the Taiwan stores. Our sources have purchased them there.

Having an international food retailing heavyweight like Carrefour, which has about 12,179 supermarkets, hypermarkets, deep discount format food stores, cash & carry stores, and convenience stores in 40 countries, ranging from Europe to Asia and the Middle East to North Africa, offers a huge opportunity for Safeway to grow O' Organics into a global organic grocery products brand.

Carrefour, through its vast international multi-format retail food store network, could literally provide the brand international distribution in-house, so to speak.

Safeway's O' Organics brand was introduced in 2006. The grocer has said it's been the most successful one-year launch of any of its store brand launches to date historically. Currently, there are 300 items in the line, including packaged grocery goods, milk and other dairy items, beverages, juices and other perishable items, including organic chicken. The largest number of skus are in the dry grocery/packaged goods category. Safeway also has recently branded a few fresh produce items with the O' Organics brand, perhaps signaling a further branding effort in the perishables categories.

Burd said at the December 13 conference, the company expects the organic brand to do gross sales of about $300 million in 2007, up from about $164 million last year. That's huge growth, attributed significantly to a vast expansion of the brand and line in late 2006 and this year, however. These sales numbers still are most impressive because to date Safeway, like other chain grocers, has only sold the O' Organics line in it own stores. Safeway currently has 1,738 stores in the U.S. and Canada.

In another "outside the box" development regarding the organic brand, Safeway has inked a deal with mega-food service distributor Sysco Corp. to distribute selected items from the brand to its vast customer base of food service operators. Sysco has already began distributing some of the items in the line, and plans to expand both the number of O' Organics products it distributes, and the number of operators it's distributing them to, as well as the geographic reach of its distribution of the brand items.

We haven't been able to find out if Carrefour is selling O' Organics brand products in its stores in other parts of the world besides Taiwan. However, we're working on that. Meanwhile, it looks like we broke a story.

Since Asia is one of the two countries CEO Burd mentioned in describing the initiative at last weeks conference, we expect an announcement regarding Carrefour shortly.

The international marketing effort by Safeway for its O' Organics brand will be interesting to watch and analyze. With 300 items under the brand, it's already one of the largest organic foods brands in the U.S.; not just store brands, but overall brands. Safeway also has major plans to continue adding items and categories to the brand, so its sku count growth will be considerable in just the next 12 months.

With double-digit organic products category growth throughout the western world (especially in the U.S., Europe, Canada and Australia), and fast growing organic foods' sales in Asia, South America, Africa and other developed and developing nations, the brand has the potential to be a real, global, billion dollar brand in just a couple years.
Combine these new international developments with Safeway's plans to create numerous more O' Organics branded products, and increased placement in it's existing stores, plus in the 23-25 new Lifestyle stores it will build just next year alone, and pretty soon you've got one hell of a brand.

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