EXTERNAL ANALYSIS FOR SAFEWAY INC.

Introduction Safeway Inc or Safeway is a private listed company whose stocks are listed in the New York Stock Exchange under the symbol SWY. It is an American based food and drug retailer. It is among the top five largest supermarket chain retailers in the North American territory, the ranking is based on its sales of around forty five billion US dollars for the year 2010 (Supermarket News, 2011). On the basis of the revenue generated in the year 2009, it was ranked at number eleven in the Largest American Retailers list (Stores, 2010). The company operates over seventeen hundred Safeway stores across the US and Canada (Safeway, 2011). The Company has a strong network of supply chain partners that facilitates it manufacturing, processing and distribution facilities. Today company is operating under 14 unique brands in the markets (Safeway, 2011). Safeway is currently listed at number 52 in the Fortune 1000 companies list (one source, 2011). SWOT Analysis SWOT is an acronym for the internal Strengths and Weaknesses of a firm and the environmental Opportunities and Threats facing that firm. SWOT analysis is a widely used technique which provides quick overview of a companys strategic situation. SWOT Matrix Strengths y y y Strong market performance Operational strengths Brand equity y y y Prices Product recalls Employee productivity Weaknesses

Opportunities y y y Expansion of product line Demand for private label products Online business y y y

Threats Competition High labor wage rates Recession

Strengths Safeway Inc. is listed at number 52 currently in the Fortune 1000 list (one source, 2011). The company enjoys strong market position in terms of its sales and revenues. It was listed at number eleven based on its revenue in previous year in the list of largest American Retailers (stores, 2010). There are a high percentage of stores recently remodeled as "Lifestyle" stores by the company which further enhanced its market position. Moreover, Safeway enjoys the market shares of over fifteen diverse ranges of brands (Safeway, 2011). The growth of the company is highly correlated with its subsidiaries, black hawk one of the highest paying and growth oriented subsidiary of the company (USSEC, 2011). Weaknesses One of the biggest weaknesses of Safeway Inc. with respect to its competitors like WalMart is the price range it offers to its customers. The customers have formed an image about the company regarding its high pricing strategies. The company has recently taken initiative to improve the pricing strategies by offering improved quality products with low everyday prices within its stores in order to maintain its customer base and profitability in the markets (Annual Report, 2010). The company has the history of product recalls. Recently news reported by Kam City explains that, Safeway is being sued by non-profit group Center for Science in the Public

Interest, which claims the supermarket chain has continually failed to notify customers about recalls, despite such customers being contactable as they were loyalty-card holders (Nam News, 2011). The company strives hard to alert the customers and/or provide information about the products it offers regarding the health, and safety issues (Safeway, 2011). The company started a program which gave empowerment to the employees in order to strengthen the relationship between the employees and the customers. But this empowerment also gave them negative power which the company was didnt intended. This badly affected the employee productivity levels at Safeway (Guy, 2003). Opportunities There are numbers of opportunities available to Safeway Inc. together which can help the company boost its sales and revenue in the long run. Among them is the expansion of business operations in the other regions of world as well. For this the developing markets of Asia, like China, India and Japan shows great potential of growth to the company. The expansion can be done in the form of expanding existing product line in order to attain unique market position with respect to its counterparts. There has been tremendous demand in the private label brands from last year or two. Many existing companies are offering their private label brands in the markets in order to attain consumer attention. Safeway can strategically position its private label brands in the markets to get ahead of its competition. With the advent of information technology people are getting more into internet these days. They feel it more comfortable to shop their required products online. Safeway can promote its online business in order to get that particular segment of customers who prefer shopping online.

Threats There are three main factors that propose considerable amount of threat on the business practices of Safeway Inc. these factors broadly include; recession in the US economy, increased labor wage rates set by the US government and the fierce competition in the market. The American economy is facing recession from a decade or so. The downfall of economy has badly affected the business practices of many organizations operating in the markets. The recession can also affect the profitability and sales of Safeway Inc. as the consumers will be less likely to buy the products and/or services to meet their daily requirements. Another threat faced by the company is the minimum wage rate for labor set by the government. The last minimum wage rate set by the federal government of United States of America was around 8 US dollars per hour on 2009 (Longley, 2011). Moreover, the competition among the existing market players proposes another threat for the company. Its main competitors are Kroger Co., SuperValu Inc. and Wal-Mart (Hoovers, 2011).

PESTEL Analysis The PESTEL analysis contains the analysis of Political, Economic, Social, Technological, Environmental and Legal environments of a country with reference to a particular object. The PESTEL analysis of Safeway Inc. is as follows: Political There are various restrictions imposed by the government of United States upon the corporate contributions in the political processes. It complies with all the rules that are imposed by the government when participating in the political activities. By participating in the political

activities, the company tries to take part in the public policies that have a potential to affect the business procedures and the interest of the shareholders and employees. Moreover, the company tries to be as much ethical as possible by keeping in accord with the standards and procedures of compliance with the rules and regulations. The political activities it is currently taking out includes engaging in public policy discussions, lobbying government agencies and officials, and participating in trade associations and other advocacy organizations. It has established its political action committee in order to carry out the above mentioned political functions. Safeways Political Action Committee (Safe PAC), aims to contribute individually or as a group efforts of its employees and executives to the political parties and the candidates of the state (Safe PAC, 2004). Economic The current economic conditions of United States are not very encouraging for conducting the business operations across the country. The economy continues to stagnate in 2010, with the release of the still weak unemployment rate of around 10% (HER, 2010). The United States and Canadian markets have declined and showed Volatility due to the uncertainties occurred by unemployment, energy prices, credit availability, difficult banking and financial services, declining housing market and failing consumer confidence. The weak economy led to reduced consumer spending, to consumers choosing to a less expensive mix of products and they are looking for the discounted products, these conditions have severely affected the company revenues. If such conditions continued to occur this could further impact the sales growth of the company (Annual Report, 2011). Social

Safeway has established its foundation called Safeway foundation. This foundation aims to raise and spend funds for the betterment of the people and the communities. The main receivers of these funds are hunger stricken people; to provide them with education, health and human services, and supports people with disabilities (Safeway, 2011). According to Reuters (2011), company and its foundation announced that together they rose over ten million US dollars early this year to support number of causes like Special Olympics to improve the living standards of the people with disabilities. The company reported funding raise of approximately seventeen million US dollars for breast cancer research, bringing the total to more than ninety five million US dollars over nine years (Safeway, 2011). Safeway is also into volunteerism by joining the hands of its people with the various non-profit organizations operating for the betterment of human beings. It has funded groundbreaking University of Colorado Cancer Center (UCCC) research with donations since 2008 and on April 22, with over three hundred and fifty thousand US dollars gift, that total reached more than $1 million (Pollitt, 2011).

Technological Technology plays vital role in the competitiveness of a company in todays competitive environment. In 2002, Safeway started a campaign that uses new in-store shopping cart technology that traces shoppers' steps through its stores and flashes personalized ads at them while they're shopping. The data obtained from the stores is a treasure of information related to the buying habits of consumers, their shopping needs, and their buying preferences at large, this data can help the retailers to increase and improve their profits by customizing their inventories according to the customer desires (CNET, 2002).

To maintain its advantage in a highly-competitive industry, Safeway Inc. relies heavily on its Philippines subsidiary for the technology. Today, it runs different software-based systems, with development and application support done in the US, Canada and the Philippines (SAFEWAY, 2007). The IT department of the company offers state-of-the art, enterprise-wide solutions to ensure that the right information is available to the right people at the right times. Environmental The company has started various initiatives to improve its processes that can have significant impact on the environmental safety. These programs include, according to Safeway (2011) are, Environmental Assessment of Property which assesses for every real estate purchase, sale or lease that may result in an adverse effect on the environment, Educating and providing training to the employees regarding the environmental safety, recycling, and waste reduction, Recycling Programs that aims to recycle paper, plastics, corrugated cardboard, compostable material, and more. These programs keep waste out of landfills and help cities and counties reach mandated reductions in solid waste disposal to landfills, Renewable & Sustainable energy programs use renewable energy, Ozone Depleting Refrigerators Program aims to replace the old refrigerators with the ozone depleting refrigerators in all the existing and new stores, while Energy Efficient Transportation program aims to reduce pollution and carbon dioxide emission with the help of EPAs SmartWay, and many others (Safeway, 2011). Legal Safeway is subject to the various federal, state, local and international laws, rules, regulations and administrative practices that can have profound effect on the business. They are required to comply with all the provisions and regulations (Annual Report, 2011). Any change to the governmental regulations that is against the business practices of the company can result in

form of redesigning the product itself, restating the strategies of the company or even the closure of the business units. Safeway is a party of legal proceedings from time to time. Some of the legal proceedings against the company are related to the employment issues, procedures, operations and other claims that can have profound impact on the companys image in the markets. There are large number of law suits filed on state and federal level against the company with respect to the wage rates and the working hours (Safeway, 2011).

Porters Five Forces Analysis

Rivalry among established competitions The extent of rivalry among the existing established competitors is very high in the grocery and food industry. The slow economic growth followed by low margin industry explains that companies are always fighting for market share. Companies are not only competing on price, but also differentiated products and services. The operational incomes in the industry have decrease two folds since 2004. Many companies are trying to downsize their employees and other workers to meet the business requirements and costs in order to gain some profit margins. But this has not yet shown promising results to many. Bargaining power of suppliers The bargaining power of suppliers is low in the industry. The large retailers have more power and influence over their supply chain partners. They are able to leverage their size in negotiations which leaves suppliers with little or no room for bargain. In case of small suppliers, the large contracts have the power to make or break their business therefore they try to remain as much accommodating as possible to retain business relationships.

The bargaining power of buyers The bargaining power of buyers is relatively low in the industry. It is not the case that you can bargain the price of eggs at the stores. There are various strategies adopted by the existing companies like coupons or special discounts on the items that allows the customers to pay reduced prices, there is little the customer can do to alter the selling patterns of the grocery store.

The threat of substitute products or services The threat of substitute products is high in the industry. The increased prices at one store can drive the customer to change its current store to the other discount stores or simply the location of one store over another can win the customers in terms of ease of shopping. Moreover there is an increasing trend of warehouses expansions that offers particularly fresh food category as compared to the supermarkets. Likewise, there are supercenters and specialty stores are also getting increased market share in the US markets over the last decade.

The threat of the entry of new competitors The industry imposes certain barriers to the entry of the new companies in the markets. This means that the level of threat of new entrants is relatively low in the industry. There are varying reasons to the low rate of entry. Among them is the entry barriers imposed by the industry. The new entrants will have to comply with the governmental regulations in order to make their entry in the markets. Then the existing players are protected by the number of barriers which makes it difficult for the new entrants to give hard time to them. Among them are: entry restrictions, tariff rates, high capital requirement, distribution channels etc. These barriers limit them to compete against the existing market players.

Recommendations This study provided brief overview on the external environment analysis of Safeway Inc. The findings of the study suggested that Safeway Inc. should focus on the following factors in order to excel its business and social image in the world:

1. Improve the company image by fostering positive publicity about the company. 2. Minimize the product recalls related issues. The recent law suit has badly affected the image of the company. It should take reasonable steps to improve the issues related to this matter 3. Expand its operations globally. The developing markets of Asia represent great opportunities of growth for the company. 4. Keep an eye on the product pricing strategies in order to stay focused on the customers 5. Offer distinct products like organic products, private label brands and expanded product lines to the existing and potential customers in order to beat the competition in the markets.

References Gillbert, A., (2002) "Smart" carts on a roll at Safeway, CNET NEWS, Retrieved on June 27, 2011 from http://news.cnet.com/2100-1017-963526.html Guy, Frederick. 2003. High-Involvement Work Practices and Employee Bargaining Power. Employee Relations 24 (5):453-469.

HER, (2010) Stagnant Economy in September, Heritage Employment Reports, Retrieved on June 27, 2011 from thf_media.s3.amazonaws.com/2010/pdf/wm3036.pdf Hoovers, (2011) Competitive Landscape, Retrieved on June 27, 2011 from http://www.hoovers.com/company/Safeway_Inc/rryfxi-1-1njea3.html Longley, R., (2011) Federal Minimum Wage Rate, Retrieved on June 27, 2011 from http://usgovinfo.about.com/od/moneymatters/a/Federal-Minimum-Wage.htm NamNews, (2011) US: Safeway Sued Over Product Recall Information, Retrieved on June 27, 2011 from http://www.kamcity.com/namnews/asp/newsarticle.asp?newsid=58110 One Source, (2011) Fortune 1000 companies list, Retrieved on June 27, 2011 from http://www.onesource.com/free/Company/FortuneList/Fortune/0 Pollitt, T., (2011) Update:CU Cancer Center received $350,000 donation from Safeway, Inc., April 22, Denver News, Retrieved on June 27, 2011 from http://www.examiner.com/sciencenews-in-denver/update-cu-cancer-center-received-350-000-donation-from-safeway-inc-april-22 SafePac, (2004) Safeway Inc. Political Contribution Policy, Retrieved on June 27, 2011 from http://www.campaignmoney.com/political/committees/safeway-inc-political-action-committeesafepac.asp?cycle=04 Safeway, (2007)US RETAIL GIANT SAFEWAY RELIES ON PHILIPPINE SUBSIDIARY FOR IT SUPPORT, Retrieved on June 27, 2011 from http://www.safewaymanila.com/press_room.html Safeway, (2011) About us: Our Story, Retrieved on June 27, 2011 from http://www.safeway.com/IFL/Grocery/Our-Story (2010). Annual Report, Retrieved on June 27, 2011 from http://www.nxtbook.com/nxtbooks/cc/safeway_2010annualreport/#/10 (2011) Cancer Research, Retrieved on June 27, 2011 from http://csrsite.safeway.com/community/cancer-research/ (2011) Corporate Social Responsibility, Retrieved on June 27, 2011 from http://csrsite.safeway.com/community/safeway-foundation/ (2010) Economic Conditions, Annual Report, Retrieved on June 27, 2011 from http://www.nxtbook.com/nxtbooks/cc/safeway_2010annualreport/#/25 (2011) Environmental Sustainability, Retrieved on June 27, 2011 from http://www.safeway.com/ifl/Grocery/Environment-Sustainability

(2011) Product Recalls, Retrieved on June 27, 2011 from http://www.safeway.com/ifl/grocery/Product-Recalls (2010) Unfavorable government Regulations, Annual Report, Retrieved on June 27, 2011 from http://www.nxtbook.com/nxtbooks/cc/safeway_2010annualreport/#/26 SN's Top 75 Retailers for 2011, (2011)Supermarket News, Retrieved on June 27, 2011 from http://supermarketnews.com/profiles/top75/2011/ Stores, (2010) 2010 Top 100 Retailers, Retrieved on June 27, 2011 from http://www.stores.org/2010/Top-100-Retailers USSEC, (2010) Safeway Inc: Form 10-k, Retrieved on June 27, 2011 form http://www.sec.gov/Archives/edgar/data/86144/000119312510045994/d10k.htm