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: Safeway Stores, Inc. to Market its 'O' Organics' and 'Eating Right' Organic and Healthy Brands to Other Retailers in U.S. and Globally

Safeway Stores, Inc. has formed the "Better Living Brands Alliance," a marketing consortium that will market its O' Organics organic food and grocery brand and its Eating Right health and wellness category brand across all retail channels in the U.S. beginning this year.

Through the "Better Living Brands Alliance," Safeway will market the two natural and organic food and grocery brands to various U.S. retailers, including supermarket chains, mass merchandisers and independent grocers through grocery wholesale houses.

Safeway also will expand its international distribution of the O' Organics brand and include it's Eating Right brand in its expanded international marketing and distribution program.

As we reported in December, 2007, Safeway signed a deal with international retailer Carrefour to distribute the O' Organics brand in its stores in Asia and South America. Carrefour, which is based in France, is the world's second-largest retailer after number one Wal-Mart, Inc.

We've learned Carrefour will not only expand the number of its stores in Asia and Latin America which currently carry the O' Organics brand, but will probably add the Eating Right healthy food and grocery products brand in those stores as well.

Safeway also plans to go beyond its relationship with Carrefour in Asia and Latin America and market both natural and organic foods' brands in Europe and elsewhere around the globe.

Back in the U.S., Safeway has put together a strategic alliance of manufacturing, marketing and distribution firms as the brand licensees in its "Better Living Brands Alliance." Among those partners will be the food and grocery brokerage firm Crossmark, which will handle new item introductions, headquarters' sales calls and retail merchandising for the brand nationally and internationally for Safeway.

EMAK Worldwide will handle U.S. and global consumer marketing and communications for the O' Organics and Eating Right brands for Safeway.

Safeway Stores, Inc.'s Lucerne Foods Inc. subsidiary, which already markets Safeway products to external customers, will manage the overall licensing of the O' Organics and Eating Right brands and is a key member of the "Better Living Brands Alliance."

As we reported before in Natural~Specialty Foods Memo, Safeway's O' Organics brand is a major success story for the retailer. Although the brand has only been in Safeway's 1,740 stores in U.S. and Canada for less than two years, it's already the number one organic food and grocery products brand by total sales volume in the U.S. Sales of the O' Organics brand in the U.S. last year was over $300 million dollars, and that's with distribution in just the 1,740 Safeway-owned supermarkets.

The health and wellness category Eating Right brand has only been in Safeway stores for about a year. However, last December Safeway CEO Steve Burd told analysts that the brand's first year sales were poised to be even higher than the first year sales for the popular O' Organics brand were.

Safeway has been extending both brands throughout all categories, from the dry grocery, perishable and frozen categories, to fresh meat and poultry, fresh produce, prepared foods and deli categories.

In addition to marketing the two brands to food, grocery and other retail formats in the U.S. and internationally, Safeway also will sell items under both brands in the foodservice class of trade domestically and globally through it's "Better Living Brands Alliance," Safeway spokesman Brian Dowling told Natural~Specialty Foods Memo.

We've learned that a number of major U.S. supermarket chains are interested in selling the O' O' Organics and Eating Right brands in their stores. This is particularly the case in those regions in the U.S. where Safeway doesn't operate its supermarkets.

We've also been told numerous large wholesale grocers who distribute to regional chains and independents will take on both the O' Organics and Eating Right brands for distribution to their retailer customers.

Internationally, look for both brands to appear in European supermarkets for the first time before the year is over.

Safeway operates stores in California, Oregon, Washington State, Nevada, Arizona and Colorado in the Western USA. The retailer also operates stores in parts of the Midwestern USA, in Alaska, Texas, the East Coast, and in the Washington D.C/Baltimore/Virginia tri-state area, as well as in Canada.

We expect this U.S. and international mass-marketing of the O' Organics and Eating Right organic and healthy category brands to easily double sales of both brands in the next year.

In terms of the O' Organics brand, the increased number of new skus Safeway has been creating, combined with growing sales and aggressive promotion in its stores, plus the initial international marketing agreement with Carrefour, has led some analysts to predict sales growth in the 30-40% range by the end of this fiscal year compared to last for the organic products' brand.

We knew this move--the mass marketing in the U.S. and globally-- was coming based on the fact we were the first industry publication in the U.S. to report on the Carrefour international licensing deal last year.

Our analysis is that with increased new product development, more aggressive in-store promotions at Safeway stores--both which are coming for both brands--combined with the new U.S. and international mass-market program through the "Better Living Brands Alliance," it's likely that by the end of this year combined sales for the O' Organics and Eating Right brands could easily reach $1 billion in gross sales.

By taking the two proprietary brands national and international and marketing them to competitors--something that's almost unheard of in the U.S. supermarket industry--Safeway is proving its a creative and nimble marketer, which is something we've been arguing is the case for the past nine months or so.

For example, Safeway has built its own in-house natural and specialty foods department over the last few years, the result of which is bringing the retailer gross margins of 50% and higher on category items sold in its stores.

Additionally, Safeway has grown its Blackhawk gift card business into the largest marketer of gift cards to other retailers in the U.S. The business started out a few years ago as an in-house venture designed to market third-party gift cards to Safeway's stores. It's now grown into a full-fledged business far beyond an in-house operation.

Now, Safeway is becoming a brand marketer with its creation of "The Better Living Brands Alliance," which will take its O' Organics and Eating Right brands nationally to various classes of trades and retail formats in the U.S. and internationally.

We also expect to see a couple other Safeway proprietary brands join the alliance down the road a bit. In particular, might be some of the new fresh, prepared foods' brands Safeway is currently working on and testing at a restaurant it owns called Citrine in Redwood City, California, in the San Francisco Bay Area's Silicon Valley region.

If you think about it, Safeway has the perfect national test market for a brand marketer--1,740 supermarkets located across the U.S. If a brand--like O' Organics has done--does well in its stores after a year or two, Safeway can then make it a candidate for the alliance and national and international distribution to other food and grocery retailers and wholesalers.

Some will suggest Safeway could lose its competitive advantage by selling the two brands to other retailers. After all, they might say, that's why they are called proprietary brands, to give a retailer that competitive advantage.

However, we disagree. Number one, Safeway will still maintain a competitive advantage in that it can choose which retailers to license and market the brands to. Number two, Safeway still will be able to sell the branded products for less than other retailers can in its own stores, while also making a higher gross margin while doing so because it's the producer and marketer of the products.

Lastly, we tend to belong to the rising tides lift all brands' boats' school. In other words, the stronger the O' Organics and Eating Right brands become in the marketplace, the more we think Safeway will actually sell in its own stores--not to mention the more of the branded products it will sell to other retailers.

It all about leverage at that point. For example, does Safeway sell less Clorox bleach or Best Foods mayonnaise just because every supermarket, drug store and mass merchandiser in America also sells it? We don't believe that's the case.

While the bulk of Safeway's retail sales will likely always come from it's supermarkets, the company's diversification into also becoming a major third-party gift card marketer and now and organic and health and wellness food and grocery products category brand marketer, is a smart and savvy move in our analysis.

Doing so helps the grocer diversify beyond the volatile food and grocery retailing space. It also gives Safeway synergies which complement its grocery retailing base.

Marketing Memo: Safeway's O' Organics Brand in Asia

Safeway's O' Organics On the Shelf at Carrefour Hypermarket, Taipei, Taiwan

On Friday, December 21, we reported that Safeway Stores, Inc.'s O' Organics brand organic grocery products were being sold at a Carrefour Hypermarket in Taipei, Taiwan. France's Carrefour is Europe's largest retailer, and the second largest retailer in the world after Wal-Mart.

Further, on Sunday, December 23, we followed up our original story with a piece providing new and additional information about the O' Organics brand in the Taipei Carrefour Hypermarket and in other Carrefour stores in Taiwan, along with some new reporting and analysis about the brand's marketing in Asia.

We also reported in that story that Market Place by Jason's, the 4-store, upscale format from Hong Kong-based Wellcome supermarkets, is also currently selling O' Organics brand groceries in Taiwan.

>Read our December 21 piece here.
>Read our December 23 piece here.

Now, one of our sources, Rachel Lanning who lives on Taipei, has taken a couple pictures of the O' Organics brand shelf sets for us in the Taipei, Carrefour.

The first picture (below) shows a variety of O' Organics shelf-stable grocery items in a 3 or 4-foot segregated shelf set in the store. The various O' Organics brand items are grouped together, creating an O' Organics organic set.

Photo: By Rachel Lanning

The set pictured above contains O' Organics fruit preserves, crunchy and creamy peanut butter, salad dressings, tomato ketchup and canned goods. [Note: Ms. Lanning tells us there is a "reduced price" sign on the O' Organics peanut butter. (you can see it on the shelf rail in the picture.) She thinks the peanut butter might be being discontinued, as she said the price reduction was considerable from what she paid for the item a couple weeks ago.]

The second picture (below) shows O' Organics brand boxed pasta dinners and packaged pasta in a set in the Taipei Carrefour. Box pasta dinner items include O' Organics regular organic macaroni and cheese and O' Organics organic alfredo macaroni and cheese. The store carries a number of different cuts of O' Organics dry pasta in the set as well. (You can see the linguine in the right of the picture.)

Photo: By Rachel Lanning

Carrefour currently has 48 Hypermarkets in Taiwan. The stores are merchandising a broad selection of O' Organics grocery items including: canned goods, ketchup and other condiments, salad dressings, teas, peanut butter, fruit preserves, soy milk, boxed dinners, pasta and a few other items.

Ms Lanning, who lives in Taiwan, told us Carrefour has reduced the retail prices on the O' Organics items a couple of times since they were introduced. She says this happens often in Taiwan because it's can be difficult to get local Taiwanese consumers to try American products.
"This happens a lot in Taiwan (lowering prices from the original retails)," Lanning told us. "Carrefour, especially, will try out new products, and if they don't sell, we'll never see them again."

As an example, Lanning said last year Carrefour introduced peanut M&M's in their Taiwan stores. "I think I ended up buying about 30 bags in a span of two months, since the price kept getting cheaper and cheaper," she said. "But no Taiwanese were gutsy enough to buy them." The peanut M&M's were discontinued by the Carrefour store.

Market Place by Jason's, an upscale retail food store format of Hong Kong's Wellcome supermarket chain, also is selling O' Organics organic grocery items in Taiwan, as we mentioned above, and reported in our previous stories.

The Market Place by Jason's format was just created this year (2007), and there are currently four stores open to date. The retailer created the upscale, natural-specialty foods format to target the growing consumer demand in the region for natural, organic, and international specialty foods and products. The Jason's stores in Taiwan are carrying about the same number of O' Organics items as Carrefour is in its Taiwan stores.

We thank Rachel Lanning for her field reporting for us, and for the photographs.

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.