Store Brand - Private Label Memo: 'Big Score' At 'Big Y' Chain For Safeway's 'Eating Right' Healthy Foods Brand

Retailer Store Brands: Special Report

The family-owned, Springfield, Massachusetts-based Big Y supermarket chain is the first major food and grocery retailer in the U.S. to introduce and carry at least one of the two Safeway Stores, Inc. organic and healthy foods store brands -- "O' Organics" and "Eating Right" -- that the Pleasanton, California-based supermarket chain began marketing to other U.S. grocery retailers and wholesalers through its Lucerne Foods Inc. brands division last year, in its stores.

In Big Y's case, the popular supermarket chain is introducing numerous "Eating Right" brand healthy food and grocery items across multiple categories in its stores in New England.

Privately-held Big Y, which was founded in 1936 by Paul and Gerald D'Amour and was named after an intersection in Chicopee, Massachusetts where two roads converge to form a Y, currently operates 57 high volume supermarkets located in Massachusetts and Connecticut.

Among the Safeway Stores, Inc. "Eating Right" healthy food products being introduced this week at Big Y include: frozen entrees; cereal; soups; pasta; salad dressings; snack bars; cookies; and items in numerous other dry grocery and perishable categories, according to Carrie Taylor, Big Y's corporate dietitian, who's in charge of the supermarket chain's "Living Well Eating Smart" chainwide healthy foods program.

"With healthier eating a priority for many of our customers, we are pleased to bring new options to our shelves with the introduction of the 'Eating Right' brand at Big Y stores," Ms. Taylor says. "Our shoppers have long relied on us to meet all of their supermarket needs and with 'Eating Right' we're able to offer a great selection of functional and tasty products designed to help our customers reach their specific health objectives."

Safeway Stores Inc.'s Lucerne Foods, Inc. brand marketing division is handling the marketing of the "O 'Organics" and "Eating Right" brands to supermarket chains and wholesale grocers in the U.S. and globally.

There are currently 225 SKUS in 20 categories under the "Eating Right" brand, according to Alex Petrov, president of Safeway Stores' Lucerne Foods Inc. division.

Neither Big Y supermarkets nor Safeway Stores, Inc. is touting the fact that the "Eating Right" brand being introduced in the 57 Big Y supermarkets in Massachusetts and Connecticut is produced, owned and marketed by Safeway Stores, including the fact that the brand is a Safeway healthy foods store brand. Both are handling the introduction and marketing of the brand just as they would any other brand, regardless of its origin or ownership.

That's also why the marketing of the "Eating Right" brand to grocers like Big Y is being conducted by Safeway's Lucerne Foods Inc. division as a separate function from the store brand merchandising and marketing of the brand (and of "O' Organics") in Safeway's about 1,750 supermarkets in the U.S. and Canada. Safeway Stores, Inc. strategically views the brands not just as store brands, but as what the company hopes will become standalone organic and healthy food brands both in the U.S. and globally in the future.

Safeway doesn't operate any supermarkets in the New England states of Massachusetts or Connecticut where Big Y has its 57 supermarkets.

The closest states where Safeway has stores are in Washington, D.C., Maryland and Virgina.

This is an important distinction because in Big Y's case its customer base won't in most cases even be aware that the "Eating Right" brand items are a Safeway store brand, since there are no Safeway-owned supermarkets in the two states.

Our analysis is that Safeway will need to use this type of strategy to launch the two brands in the U.S., focusing on regional chains like Big Y which operate in markets where Safeway does not have a retailing presence.

For example, we don't see many retailers in the Western U.S., where Safeway is a major player and in many markets is the market share leader, carrying the "O Organics" and "Eating Right" brands because with little exception every retailer in the Western U.S. is a competitor of Safeway's.

Major competitor's like Kroger Co, Supervalue, Inc., Wal-Mart and Costco have their own organic and healthy store brands and aren't going to offer the store brands of a major competitor in their respective stores.

Major regional chains throughout the west also in many cases either have their own organic and healthy foods store brands or carry such private label brands through arrangements with a wholesaler. Additionally, since these regional chains are direct competitors with Safeway in states like California, Oregon, Washington, Colorado, Arizona and the like, they won't in all probability offer Safeway's "Eating Right" or "O Organics" store brands on their respective shelves either. It makes little sense for these chains to compete with Safeway on the brands.

We believe this will hold true in other parts of the U.S. where Safeway has a retail presence like the Washington D.C./Maryland/Virgina tri-state market region, Texas, Florida, Illinois-Indiana and Alaska, in addition to the Western U.S.

As a result, that's why we believe Safeway will have to conduct a niche retailer strategy, placing its "O Organics" and "Eating Right" brands in non-competitive, select chains primarily in parts of the U.S. where it isn't a retail player.

Natural~Specialty Foods Memo (NSFM) was one of the first, if not the very first, publication to report that Safeway Stores, Inc. was marketing its "O Organics" brand to another retailer, France's Carrefour (the world's third-largest global retailer) internationally, in the three stories from December, 2007, and the January 8, 2008 piece, linked below:

~December 27, 2007: Marketing Memo: Safeway's O' Organics Brand in Asia
~December 23, 2007: Safeway's O' Organics Brand: Part Duex
~December 21, 2007: Friday Fishwrap: Safeway's O' Organics Brand
~January 8, 2008: Media Memo: Safeway's O' Organics Brand In Asia

In April of 2008, we first reported in this piece [April 28, 2008: Marketing Memo: Safeway Stores, Inc. to Market its 'O' Organics' and 'Eating Right' Organic and Healthy Brands to Other Retailers in U.S. and Globally] about Safeway's corporate plans to market its "O 'Organics" and "Eating Right" brands to other supermarket chains in the U.S.

Linked below are four related past pieces on the topic from Natural~Specialty Foods Memo (NSFM):

~August 6, 2008: Marketing Memo: Safeway's Challenge: Going From Store Brand Marketer to Consumer Brand Marketer With its O' Organics and Eating Right Brands
~April 28, 2008: Marketing Memo: Safeway Stores, Inc. to Market its 'O' Organics' and 'Eating Right' Organic and Healthy Brands to Other Retailers in U.S. and Globally
~April 28, 2008: Retail Memo: Safeway CEO Burd Says Shoppers Buying Store Brands Over National Brands By As Much As Six -to- One in it's North American Supermarkets

Safeway's Lucern Foods, Inc. division isn't confirming or not confirming, but based on our reporting, sources and research, Springfield, Massachusetts-based Big Y appears to be the first U.S. supermarket chain that's agreed to carry one of the two Safeway brands, "O Organics" and "Eating Right." In Big Y's case, it's carrying the "Eating Right brand" only at present.

Big Y is a popular, high volume retailer in New England. As a result, landing the chain is a major niche retailer score for Safeway and its "Eating Right" brand, in our analysis.

Big Y also is a well-known regional chain in the trade. Safeway's landing of the chain for its "Eating Right" brand should create greater interest in the brand from similar retail chains in other parts of the U.S., particularly in market regions where Safeway doesn't operate supermarkets in.

We expect to see at least two more regional chains in the U.S. announce their respective plans to carry either just the "Eating Right" healthy foods brand or both the "Eating Right" and "O' Organics" brands from Safeway in the next couple months.

[Readers: You can follow Natural~Specialty Foods Memo (NSFM) on Twitter.com at www.twitter.com/nsfoodsmemo.]

Marketing Memo: Store Brands 2.0: Better Store Brands and Brand and Shopper-Marketing Changing How Food Retailers Sell Their Own Brands

From the Natural~Specialty Foods Memo Editor's Desk: On August 6 we wrote about Safeway Stores, Inc.'s plans and initial strategy to market its O' Organics and Eating Right organic and healthy food and grocery (store) brands to competing retailers in the U.S. and to retailers throughout the world: Marketing Memo: Safeway's Challenge: Going From Store Brand Marketer to Consumer Brand Marketer With its O' Organics and Eating Right Brands.

Both brands have been so successful for Safeway that it is that success (above expectations) which provided the idea for the grocery chain to take the brands beyond the walls of the retailer's own stores and market them to its U.S. competitors and to food and grocery retailers throughout the globe.

Safeway is part of a growing trend among food retailers to go from being "private label" sellers to "store brand" marketers with their own-brand food and grocery products.

Traditionally, especially among American supermarket chains and mass merchandisers, private label was viewed primarily as a retailer's price and value store brand. The product quality was generally good but not outstanding, the packaging utilitarian, and the marketing focus strictly price and shelf placement. More sales promotion really rather than marketing.

This private label emphasis started to change slightly in the late 1980's when supermarkets like Loblaws introduced its more upscale Presidents Choice brand, which the Canadian food retailer eventually marketed to supermarket chains in the United states, as well as using it as its higher end store brand in its Canadian stores.

By the mid -to- late 1990's numerous other supermarket chains were starting to create better quality and looking store brands, along with using beginning to use some classical brand marketing strategies to create different levels (and brand names) of store branded products: super value, value, premium, natural, organic and the like.

About five years ago retailer branding started getting kicked up a notch with Safeway Stores, Inc. creating O' Organics, Kroger improving its store brands and developing its own natural and organic store brands, regional supermarket chains like Wegmans and Publix doing the same, as well as mass merchants target and Wal-Mart greatly upscaling their store brands.

Natural foods retailers Whole Foods Market and Wild Oats (now part of Whole Foods), along with specialty grocer Trader Joe's and the Costco and B.J's Wholesale club chains, were a major influence on these supermarket chains in terms of developing the higher quality and more niche oriented store brands like O' Organics. All of these retailers were leaders in the creation and marketing of these store brand 2.0 lines.

Along with this development, food and grocery retailers started putting much more emphasis on store or shopper-marketing of their store brands, developing and using numerous marketing-oriented ways to build the brands besides the past reliance and traditional emphasis on price and display building in-store only.

The marriage of higher quality store brands and shopper marketing is in full bloom today. Food and grocery and discount chains led by Safeway, Kroger, Wal-Mart (which right now is developing an upscale food and grocery store brand), Target, Trader Joe's, Whole Foods, Costco, BJ's (and others) and numerous regional players, are beginning to view their store branding operations in more classical brand marketing terms rather than as merely an extension of the procurement department, which is how private label was handled for decades.

Jim Lucas, who is the executive vice president of the shopper marketing division for DraftFCB, a marketing and advertising agency in Chicago, writes about what we call store brands 2.0 and shopper marketing in an article in tomorrow's (August 25, 2008) Advertising Age. Mr. Lucas' piece is informative theoretically but also extremely applicable and hands on. That's why we wanted to bring it to Natural~Specialty Foods Memo readers. Below is the piece and by Jim Lucas.

The Newest Brands? Open for Business
Retailers Have Switched Gears, Marketing Their Stores and Labels and Strengthening Bonds With Shoppers
By Jim Lucas: August 25, 2008

Many marketers are rapidly becoming more concerned with how retailers think. They want to know their concerns, objectives, equities and images and how they go about creating bonds with shoppers.

That's because today's retailers are evolving far beyond their historical role as simple points of distribution for selling national brands. They have changed their approach, marketing their stores as their own brands and systematically building better, stronger relationships with shoppers.

As a result, on behalf of our clients, we must now help the retailer build its business.

Think about it: With the average U.S. household making 150 to 200 store visits a year, it seems reasonable that while shoppers might make several trips to their local stores each week, they may not purchase the same branded products each time. Thus, shoppers generally have more contact and experience with their local retailers than with the majority of national brands.

Going their own way

Clearly, the nature of retailers' value creation has dramatically changed. And rather than just establishing loyalty to branded products, retailers want voices of their own. They are seeking to establish their own brands, and they are doing so by tailoring their customer experiences, differentiating them from their competitors' and creating better, ongoing relationships with shoppers.

Today's retailers have made huge inroads in fortifying their relationships with shoppers. Research by "Private Label Strategy" authors Nirmalya Kumar and Jan-Benedict E.M. Steenkamp clearly suggests that the nature of shopper loyalty is changing. While many shoppers are still loyal to brands, a significant portion increasingly are loyal to stores. This may be largely a function of convenience, but at the very least, retail brands are becoming more established in the minds of shoppers.

For example, Aldi, the European hard-discounter extraordinaire, has done a good job making its customers feel like smart shoppers. It has been aggressive in driving down prices on branded consumer package goods through strongly negotiated deals with manufacturers. It has created a wide range of store-brand products that also keep the price of the average shopping basket down. Its small, Spartan store formats help make the shopping experience more efficient. It has also developed a number of near-legendary promotions featuring "hot-priced" items ranging from well-known brands of wine to laptops specifically designed for and sold through Aldi stores, which are known as a place to "treasure hunt."

Believing that their long-term growth is tied to shopper loyalty, retailers increasingly want to develop their own shoppers. And because it is easier to get additional shopping trips, and increased purchases per trip, from shoppers who like your store, retailers are consistently using organized, data-driven, shopper-insight approaches. Retailers as diverse as Best Buy, H&M, Zara, Tesco, Tchibo, Kroger and Safeway are creating better touch points and shopping experiences to build stronger, more-loyal shoppers. This is largely the result of the creation of their own voices -- their retail brands.

U.S. supermarket chain Kroger is a prominent example of such a makeover. While working hard to become more efficient in its operations, Kroger also has negotiated sharper prices for its shoppers, has developed its store brands and is experimenting with new formats (for example, Kroger Right Now, a convenience, vending-machine format at gas stations). Kroger also is leading retailers in its investment in a shopper-loyalty program (with Dunhumby, the same firm that was instrumental in establishing Tesco's successful shopper program), the kind of strategic investment that provides an advantage in developing shopper insights and the ability to uniquely tailor the shopping experience to reach core shoppers.

Fresh focus

Safeway, another U.S. food retailer, recently has aligned itself with freshness and quality. Its lifestyle-store format has remade perishable areas such as produce, ready-to-eat meals, bakery and salad bar while creating new category/aisle descriptors (for example, Poetry in Bloom for floral). Its "Ingredients for Life" campaign extends the freshness/quality focus beyond the store. Moreover, its creation of store-brand product lines Eating Right and O Organics is designed to meet shoppers' needs. Such store-brand product lines are not simply about price points but are in sync with customers' lifestyles -- and unique to Safeway. It will be interesting to see how the marketplace reacts to Safeway's announced rollout of its house brands to competitive grocery chains. Will the availability of those brands at other stores cannibalize Safeway trips and sales?

It's an intriguing move because there does not seem to be a clear historical precedent. For example, Canadian-based Loblaw sold its President's Choice products to other retailers, typically in the U.S., so increased sales were generated from the additional distribution. But typically only one retailer or store banner carried the President's Choice items in a given market; thus there was really no competition for shopper loyalty or trips.

These supermarket examples, which similarly exist in other retail categories, indicate a fundamental change in how retailers are now approaching profitability. While efficiency is important, it's a "greens fee." Whether they be Whole Foods Market (natural/organic), H&M (celebrity design) or Zara (fresh fashion), retailers see long-term profitability as linked to their ability to provide unique shopping experiences that create loyal shoppers.

This shift in perspective suggests that the brand-marketing discipline many grew up with -- and the marketing-mix tools previously used -- have evolved. Retailer brands are now about connecting with shoppers' lives to build bonds and differentiate one retail experience from another.

Complex brands

Retailers are focused on positioning themselves through alignment with shoppers' lifestyles, and these positionings are less about marketing platforms than strategic cultural ideas.

It is also worth noting that retailer brands are generally complex, with many more dimensions than a traditional CPG brand, demanding that retailers turn to a new and growing set of marketing-mix tools to create the voices of their multidimensional brands.

The new marketing mix being used to create and maintain these retail brands is a far cry from the traditional one. Store ambience, layout, category organization, food theater, store-brand product lines, shopper programs, design, assortment and websites are just a few of the tools being used.

Today's retailers are first and foremost "meaning managers" or "choice editors" aligned with the needs and lifestyles of their shoppers. Retailers and manufacturers together must align with shopper needs to create unique shopping experiences and programs that help shoppers choose one store over another.

Working together

It is also important for retailers and manufacturers to align business goals, including driving traffic to the store or a specific destination in the store; creating larger sales receipts, better conversion rates, solution selling and cross-selling; and improving the total shopping experience -- for example, making it easier or more engaging, entertaining, educational or inspirational to shop.

Manufacturer brands must provide solutions that align with and help build and leverage retailers' equities, are tailored to retailers' needs and objectives, and are consistent with the positions the retailers are trying to establish and maintain.

Today's challenge for brand marketers is to help leverage retailers' marketing-mix tools (the shelf, category organization, in-store media or loyalty programs) or co-create new tools (new media, unique offerings, tailored products or packaging) to help retailers build stronger, better brands.

ABOUT THE AUTHOR
Jim Lucas is exec VP-director of the shopper-marketing division of DraftFCB in Chicago. He previously served as director of strategic planning and research at Draft, Chicago.

Marketing Memo: Safeway's Challenge: Going From Store Brand Marketer to Consumer Brand Marketer With its O' Organics and Eating Right Brands

Pleasanton, California USA-based Safeway Stores, Inc. is preparing to roll out its popular O' Organics organic foods and Eating Right healthy foods store brands to a wider audience-- competing food retailers in the U.S.--along with to grocers globally, as we reported and wrote about in this April 28 piece: Marketing Memo: Safeway Stores, Inc. to Market its 'O' Organics' and 'Eating Right' Organic and Healthy Brands to Other Retailers in U.S. and Globally.

The supermarket retailer's target date to begin selling the brands (they won't be store brands anymore) to other U.S. food retailers and wholesalers is sometime this fall, just a few short months away.

Natural~Specialty Foods Memo was the first publication of any kind to report in this piece in December, 2007 and in others that Safeway Stores, Inc. was already selling some items in its O' Organics organic food and grocery product brand in Asia and South America through a distribution deal with the giant French supermarket chain Carrefour, which is the second largest retailer in the world after Wal-Mart, Inc.

Safeway plans to extend international sales of both its O' Organics and Eating Right brands to other international retailers and to other parts of the world. Plans call for the increased international marketing also to begin this fall in conjunction with the launch to various U.S. supermarket chains and wholesalers at home.

Today's Advertising Age, the trade publication for the marketing and advertising industry in the U.S., has a story about Safeway's plans to launch the two brands into the stores of many of its competitors this fall, as we've previously detailed in Natural~Specialty Foods Memo.

Safeway's O' Organics brand--which currently consists of an impressive 300 items in over 30 product categories, including dry grocery, perishables, fresh meats, dairy and fresh produce--did about $150 million in gross sales in its first year, 2005. Last year the brand did about $300 million in annual sales. Safeway is projecting sales of $400 million for the brand this year in its 1,750 stores in the U.S. and Canada. That's impressive by any score card.

Safeway CEO Steve Burd told Natural~Specialty Foods Memo earlier this year that the Eating Right healthy foods brand was on track to do even more the O' Organics' $150 million in its first year, which won't be until a bit later this year. Safeway is projecting annual sales of about $200 million for Eating Right this year. That would surpass first year sales of the O' Organics brand by about $50 million. Even more impressive.

In our earlier pieces we've projected that with the rollout to competing retailers in the U.S. beginning this fall, along with the expanded international marketing program, O' Organics and Eating Right have the potential to become the leading brands/product lines in their respective categories--organics and healthy foods--in the U.S. By this we mean not the leading store brands--but the leading brands period in those respective categories.

Safeway is banking on this as well, as it makes its unique for a U.S. supermarket chain transition from store brand marketer to consumer brand marketer.

In fact, in today's Ad Age article, James White, president of Safeway's Lucerne Foods division, which is handling the marketing for the two brands, and Safeway corporate vice president for consumer brands, says he believes the organic food and grocery market particularly is strong enough in the U.S. and internationally that Safeway will neither see a drop in sales in its own stores, or have a problem gaining distribution and sales to its competitors, with the O' Organics brand.

The O' Organics brand is "democratizing the organics market by making organics available for everyone." He (James White) said both lines represent a "great-tasting, highest-quality, more-affordable option [than established organic brands], which allows for the mainstreaming of market," White is quoted as saying in the Ad Age story.

Further, the Ad Age piece quotes Mr. White as saying: "The economy isn't affecting the organic segment's pricing power. "There is a significant consumer market for organics, and I don't think that will slow down."

We disagree with Mr. White on these two counts, despite being fans of both O' Organics and Eating Right, as well as being very impressed with the two brands' performance.

First, in terms of O' Organics' democratizing the organics category, we think that's yet to be seen. In fact, when it comes to price, O' Organics products are far from being all that reasonably priced. For example, in its current weekly advertising circular, Safeway is promoting O' Organics Boneless,-Skinless Chicken Breasts for $8.99 pound in its California, Nevada and Arizona stores. Natural~Specialty Foods Memo has seen independent natural foods stores selling organic boneless-skinless chicken breasts for $2 less per pound everyday.

This pricing scenario plays itself out on many of the O' Organics brand products vis-a-vis other supermarkets' and natural and specialty foods retailer's house brands. For example, overall Trader Joe's, Kroger divisions, Costco and Tesco's new Fresh & Easy Neighborhood Market stores in California and elsewhere in the Western USA have considerably lower everyday and promoted prices on organics than Safeway offers with its O' Organics brand.

Safeway does offer some good deals on a variety of O' Organics brand items--but its far from a pricing policy one could call a democratizing of the organics category in our analysis. The Safeway O' Organics' marketers' pricing pencils need to be sharpened a bit to achieve that.

It will be very interesting to see the retails on the O' Organics brand items in competing retailers' stores, since they should be higher priced than what they currently are selling for in Safeway stores since the company has to take a margin on the items as a brand marketer and distributor, along with building some margin into the cost of goods to retailers and wholesalers for marketing and promotional brand building expenses.

Further, if Safeway doesn't sell the O' Organics brand items for less than competitors' stores do, it could lose substantial sales in the brand. Conversely, if Safeway sells the brand's items for too much less than its competitor's are, it will create a disincentive for those retailers to carry the brand. A fine balancing act it will be indeed.

We happen to know Safeway makes a very healthy gross margin, based on its current retails, on the O' Organics brand items. Therefore, it has some room to get more value-centered with the brand in its stores if it wants to--and might have to because of the current poor U.S. economy--and lower the retail prices across the brand.

Safeway itself is seeing its customers move from higher priced national brands to value-based store brands like its Safeway, Lucerne and other economy branded food and grocery product lines, as company CEO Steve Burd himself said in this April 28 story in the blog. Within the store brand organics category this has helped O' Organics in part since Safeway makes sure the items in the brand are about 10 -to-15% cheaper overall than similar national and regional organic branded items in its stores, thus tapping into the consumer store brand trend within the organic category to take sales away from those national and regional brands and drive shoppers to buy O' Organics over the national and regional brands.

But in this poor U.S. economy, average consumers just can't afford $8.99 per-pound organic chicken breasts or $7 per gallon organic milk. Not when they can buy conventionally-raised boneless-skinless chicken breasts at the very same Safeway store on sale for $2.19 pound; or Lucerne non-organic milk for less than half the price of the O' Organics organic milk next to it in the dairy case. For most shoppers the discretionary money for organics just isn't there right now.

Whole Foods Market, Inc's poor quarterly sales performance this week demonstrates how even organic-loving shoppers are trading down in the poor U.S. economy out of need rather than choice.

Safeway shoppers are no different, nor are customers of those competitor stores Safeway plans to sell O' Organics to. We are going to see organics take a considerable sales hit until the U.S. economy turns around. Retailer scan data already is showing lower organic category sales across the U.S. Sales numbers for 2008 category sales don't come out until next year--and we bet they show a drop in overall category sales.

It's also important to note that once O' Organics is marketed by Safeway to competing retailers, it no longer becomes a store brand. This means no favored shelf placement, no special treatment by those retailers in terms of end-cap display space, no "free" weekly ad circular feature ad placement, and the like. The brand will have to be marketed as and compete equally without the advantages Safeway is able to give it as a store brand. Those home court advantages after all are part of the reasons we call them store brands.

As a result, Safeway will have to compete with its organics brand just like all of the national and regional organic products' brand marketers are in this down economy--along with suffering the lower sales fate most category marketers are currently suffering ,which has as a key feature soaring food price inflation--because the average (and many above average) U.S. consumers just can't afford to buy that $8.99 pound organic chicken, even if the breasts are boneless and skinless. Just ask the Whole Foods guys. They are seeing organic category sales dropping across the board--from fresh produce and meats to dry grocery.

However, while we disagree with Mr. White regarding his view that the poor U.S. economy won't hurt organic sales in general and O' Organics' sales specifically, we understand and appreciate his marketers' optimism. We also think the O' Organics and Eating Right brands have the potential to do very well at competing supermarkets, as well as continue to sell well and grow in Safeway's stores.

One important note is that sales of the O' Organics brand in Asia have been at best mediocre. A regular reader who lives on the island of Taiwan has reported to use that since our piece about the brand being sold in Carrefour stores there, she has seen many of the O' Organics brand items discontinued in the Carrefour hypermarts on the island. She has been told by store managers it is for lack of sales performance. (Well, that's what happens to non store brands.)

Of course that's Taiwan, not the U.S. or Western Europe. But it does illustrate that Safeway will need to market the brand in ways other than just using price promotions--which has been the case in the Carrefour stores--if it hopes to build the brand in stores other than those owned by Safeway.

Food and grocery retailers can use push marketing to build a store brand and grow sales in their own stores, using the techniques we mentioned above, but it's much more difficult to do so in competitor's stores when its just a brand and not that particular retailer's store brand.

Despite these concerns, we see a bright future inside of and outside Safeway stores for O' Organics and Eating Right. Of course, in the competitors' stores it will all come down to distribution, marketing, merchandising and promotion, along with allocating the budget to achieve all four.

And, of course, Safeway will get a taste of being on the other end of those slotting fee, ad space and display space fees in its role as a consumer brands marketer. Our advice: Better build in plenty of extra margin on the O' Organics items as brand marketers have learned to do with the brands they sell to Safeway Stores, Inc.

Retail Marketing Memo: Safeway Uses Mother's Day Holiday to Launch its New 'mom to mom' Store Brand Baby Products Line in its Stores

Safeway Stores, Inc. is adding a brand new store brand to its already impressive line-up of food, grocery and non-foods store branded product lines.

Joining such Safeway store brands as its upscale Safeway Select and O 'Organics food and grocery brands, it's value-priced Safeway brand, its Signature Cafe prepared foods' store brand and Eating Right health and wellness brand, is mom to mom, a branded baby products' line of over 80 items, including disposable diapers, infant formula, baby wipes, toiletries and more.

Safeway Stores developed the mom to mom baby line with the help of real moms, according to James White, the supermarket chain's senior vice president for consumer brands.

White tells Natural~Specialty Foods Memo Safeway developed the 80-plus item baby products' line based on extensive research and conversations with moms about their babies, their lives and motherhood.

In the research and conversations with the real world moms, White says the concepts of "gentleness" and "ease-of-use" were the two key variables or take-aways from that process.

"The mom to mom line reflects the truth of the adage 'Mother Knows Best," White says in explaining how Safeway created the products based on the input and feedback from the mothers who participated in the brand's development.

As an example of what Safeway learned about the importance of ease-of-use from the moms, White says the mom to mom brand baby wipes for example are hypoallergenic and come in a flip top package with an extra-wide dispenser, making them easy to access with one hand by mom when she's feeding or changing her child's diaper. This design attribute came directly from the research with the real word moms, White says.

Safeway has chosen Sunday, May 11, to introduce the mom to mom store brand in its 1,740 supermarkets in the United States and Canada. We like the timing.

The real world moms, who's input was used extensively in designing the over 80-item baby products' line, also will have their say in Safeway's in-store merchandising of the brand.

The retailer will use parenting tips from experienced mothers on its mom to mom brand in- store point-of-purchase displays. Shelf talkers featuring these parenting tips also will be used for each of the items shelved throughout the store.

Among the tips provided by real world mothers for the displays and shelf talkers include this one: "Read to your little one everyday. It's great bonding time, and it will help prepare her for school."

The baby products line will be sold exclusively in Safeway-owned stores. There are currently no plans to sell the items to other retailers like Safeway recently announced it will do with its O' Organics and Eating Right brands. [Read our recent piece on that development here.] Not yet at least.

We say not yet because we believe it's Safeway's strategy to eventually do the same with the mom to mom brand if it's successful in the grocer's 1,740 supermarkets.

The O' Organics brand proved successful in the stores over a one year period. The brand is less than two years old and Safeway is already planning to license it to other retailers and wholesalers internationally, as we reported here on April 28.

Further, the Eating Right health and wellness brand is barely a year old, if that, and it's been so successful according to CEO Steve Burd, Safeway decided to include it along with O' Organics in its new brand marketing venture.

We suspect the retailer to look at the mom to mom baby products' brand after about a year and evaluate whether or not it too should go into the brand marketing partnership its created to market, license and sell O' Organics and Eating Right in the U.S. and internationally.

As we've discussed on Natural~Specialty Foods Memo before, Safeway Stores, Inc. is evolving from being a retailer only to being a brand marketer in general, as well as a marketing-driven food and grocery retailer.

In addition to its new brand marketing venture described above, the company also has build its Blackhawk gift card business into a substantial entity.

Additionally, Safeway has created a small division in which it will assist other companies in saving money on their health care costs by using some of the innovative market-based measures its created to keep its own corporate health care costs from rising as high as most other U.S. supermarket chains and corporations in general have

Safeway had among the lowest increases in corporate health care costs among U.S. corporations in the last two years thanks to a number of innovations the company has made in how it offers and handles employee health care and insurance.

Safeway also continues to improve its online/home grocery delivery division. It's the leader in home grocery deliver via Internet ordering in most of the markets where it offers the service.

The San Francisco Bay Area-based brand marketing-driven grocery retailer also continues to brand all of its in-store prepared foods offerings.

For example, it's private label deli meats now carry the Primo Taglio brand, its in-store prepared foods offerings sport the Signature Cafe brand, it's fresh beef is branded as Ranchers Reserve brand, and its most upscale and premium fresh bakery items and other specialty products have been branded Safeway Select Artisan.

Safeway also has extended its O' Organics brand into fresh produce and fresh poultry, and its Eating Right brand into the fresh produce, refrigerated and prepared foods categories.

The grocery chain also is expanding the variety and quantity as well as upgrading the look of its value brands, such as its Safeway brand for grocery and non-foods products and its Lucerne brand for dairy goods.

Safeway also recently created a "branded generic" grocery and non-foods brand called Basic Red. The minimalist-looking yet attractive package, which appears on basic items like toilet paper, paper towels, napkins, facial tissues and other grocery and non-foods items, has a simple red, round circle on the package with the words "Basic Red" in white against the background.

The supermarket chain has been promoting Basic Red brand items like 4-roll white toilet paper and 50-ct packages of white napkins for 10 items for $10, or $1 a package. This is part of the value package offering Safeway said it would start doing this year in its Lifestyle stores as it begins to close in on its goal of converting 100% of its supermarket format stores in Lifestyle format markets. The company says it's about 70% finished with that massive project to date.

The increased emphasis on the store value brands, while at the same time creating and positioning more upscale brands, also has much to do with the state of the economy in the U.S. as well as the soaring food price inflation currently occuring in the nation, Safeway CEO Steve Burd told Natural~Specialty Foods Memo earlier this year.

Burd says consumers are trading down and buying far more store brands in Safeway's stores than they are national brands. He says Safeway is enhancing its value brand offering to stay competitive with the big box discounters like Costco and Wal-Mart, while at the same time offering shoppers its upscale and organic brands for lower prices than comparable national and regional brands.

With its growing brand marketing emphasis, coupled with its evolving Lifestyle retail format, Safeway's positioning could be summed up as the store is the brand, and the brands are the store, in our analysis and observation.

Resources:

>Safeway has created a seperate webpage on its corporate website for the mom to mom brand baby product's line. You can view that webpage here.

>You can learn more about Safeway's market-based healthcare reforms by viewing a video of a presentation CEO Steve Burd gave at the recent annual Food Marketing Insitute (FMI) convention held this year in Las Vegas, Nevada. There's a link to the video here.

>If you want to take a look at some of Safeway's store brands mentioned in our piece above, you can take a look at the grocery chain's weekly advertisement here.

>Safeway donates about $154 million a year to various charities throughout the U.S. and Canada through its Safeway Cares charitable organization. You can learn more about the organization and its charitable giving here. Many of the retailer's donations go to organizations helping mothers and their children.

Retail Memo: Safeway CEO Burd Says Shoppers Buying Store Brands Over National Brands By As Much As Six -to- One in it's North American Supermarkets

Safeway Stores Inc. CEO Steve Burd says he's seeing clear signs, based on the grocery chain's most recent sales numbers of its corporate grocery brands vs. national brands, that consumers are feeling the pinch in the worsening U.S. economy and trading down at the supermarket by switching from national brands to store brands, especially Safeway's value brands like Lucerne dairy products and the retailer's Safeway value brand grocery product line, among other store brands.

Burd says overall sales of Safeway's store brands--even its more upscale Safeway Select brand and its O' Organics organic and Eating Right healthy foods' brands--are outpacing national brand sales by an overall category ratio of 4 -to- 1, and by a whopping 6 -to- 1 in the core-of-the-store dry grocery category.

In fact, according to Burd this shift from national brands to store brands helped increase Safeway's net income for the first quarter, which ended March 22, 2008, to $193.4 million on same store sales of $10 billion for the quarter, which is a 7.3% increase over the same period last year. The sales numbers exclude fuel sales. The first quarter sales numbers also include Easter this year, while last year Easter sales were recorded in the second quarter.

We aren't surprised at the growth in Safeway's store brand food and grocery products, although the magnitude of the ratios, especially in the core-of-the-store grocery categories, are much higher than we anticipated.

However, Safeway has been aggressively promoting all of its store brands in its weekly advertising circulars and in-store, especially for the last six to eight months. This is particularly the case with its value line items like Safeway brand in the dry grocery category and Lucerne brand in the dairy products and perishables categories.

The retailer also has been heavily advertising its premium Safeway Select store brand at lower prices then it normally has in the past. It's also lowered many of the everyday retail prices on its O' Organics brand of organic food and grocery products, especially relative to what similar national brand organic brands are retailing for in the stores, and promoting the products weekly in its store advertising fliers.

Earlier this year, Burd told Natural~Specialty Foods Memo and other industry publications that Safeway planned on implementing its long-planned everyday low-price value program in all of its Lifestyle format stores earlier than originally planned in order to deal with the severe economic downturn in the U.S. and the need for consumers to cut back on their overall spending, which is a trend he said the grocery chain saw coming.

Safeway currently has about 70% of its 1,740 North America stores converted to the Lifestyle format. The grocery chain is in the process of converting the remaining 30% and hopes to be near-completed with the huge project by the end of this year it says.

Although Safeway is still in the midst of fully-implementing its everyday values program, we can see the results of it already, along with the consumer search for values, in the soaring increase in store brand sales relative to national brands just reported by Burd.

Ironically, Burd says sales of its O' Organics organic food and grocery brand and its Eating Right healthy foods brand also are increasing considerably even in the down economy. This tells us Safeway shoppers are likely buying the store brand--which will soon be national and global brand as we reported here--organic and healthy foods items rather than national and regional product brands in the respective categories in greater numbers.

Since Safeway is the fourth largest seller of food and groceries in the U.S.--after Wal-Mart, Kroger Co. and SuperValue, Inc.--the dramatic shift across the board in national brand vs. store brand sales should be a wake-up call for national and regional food and grocery brand marketers.

Both mainstream grocery product marketers and natural and specialty foods manufacturers and marketers need to step-up their marketing and sales promotional activity not only at Safeway but at other chains and independents as well. We doubt this is a Safeway-only trend. In fact, other grocery chains are reporting similar increases in store brand products compared to national brands.

What we know from history is that consumers who switch to store brands during an economic downturn or recession often stick with those brands when the economy--and the status of their pocketbooks--improves.

Further, since store brands are of such a higher quality and even better value today than they were a mere ten years ago, it's likely even more consumers who switch to the proprietary brands during an economic downturn will stick with them when the economy and their personal financial condition improves.

This situation could be extremely troubling for national and regional grocery brand marketers in both the mainstream grocery categories as well as in the natural, organic and specialty segments.

Meanwhile, as we reported earlier today, Safeway is taking its O' Organics and Eating Right brands national in the U.S. and globally. The retailer will sell the brands to other supermarket chains, mass merchandisers and independents, competing directly with national and regional natural, healthy and specialty foods companies and their brands.

This fact is an additional reason those companies in the natural, organic and specialty foods space better ramp-up their marketing and sales promotion efforts and closely examine their everyday pricing on the items they sell to supermarket chains and independents in the U.S. and Canada, in our analysis.

Both the Safeway O' Organics brand and the Eating Right brand are going to exert lots of competition in the natural, organic and healthy foods categories as the alliance Safeway has formed starts rolling out the brands across the U.S. and globally in just a few months.