Safeway Stores' profits declined in 1979, in part because of increased competition among food chains fighting for the dollars of cost-conscious shoppers, the chairman of the nation's largest food retailer said yesterday.
Safeway Chairman and Chief Executive Officer Peter A. Magowan also told stockholders at their annual meeting yesterday that 1980 is "off to a poor start," although he said he expects the company to begin recovering toward the end of the year.
Competitive pressures, strikes and "trading down" by customers all took their toll in sales, Magowan said. Safeway's response -- the introduction of the price-cutter program in many divisions in the summer of 1979 -- was the primary reason for the decline in profits, he said.
While announcing the bad news and tempering it with optimism about the future, Magowan and Safeway President Dale L. Lynch also announced what amounts to a major restructuring of Safeway stores.
In the future, new and remodeled Safeway stores generally will be larger, more diversified "super stores" with special features such as bakeries, delicatessens, health food centers, cheese shops and pharmacies, said Lynch. In many cases, the stores will be consolidations of older, smaller stores.
"Going into the pharmacy business, that's the key," said Lynch, adding that he expects Safeway to be a strong contender in the retail pharmacy business within three years.
Of 140 new stores Safeway has planned, only about half a dozen won't be super stores, Lynch said.
Among the new super stores are four opening in Washington this year: the recently opened Georgetown Safeway, a replacement store at 42nd and Ellicott Streets NW, a Safeway to be built at the site of the Hechinger mall in northeast Washington and a new store at Waterside Mall in Southwest (which won't include a pharmacy).
Lynch said that Safeway also will continue to experiment with "no frills" food stores, including a 28,450-square foot "Foot Barn" in Pikesville, Md., scheduled to open next month and a smaller, limited-assortment "Food Barn" store in San Francisco.
Magowan said customers are turning increasingly to cheaper items, including house brands. "Every year we've seen an increase in the total percentage of the purchases of these products," he said, although he would not say what percentage of all purchases they account for.
"The customers is getting out of beef and into chicken and pork, out of nationally advestised brands and into private labels, out of meat and into pasta, rice and macaroni," he said. "The customer is just hard-pressed."
Magowan told the stockholders that 1979 sales reached a record high of $13.7 billion -- an increase of 9.3 percent over 1978 sales. Most of that growth in sales was in the second half of the year after the corporation announced its "price-cutter" program, he said.
Profits were $143.3 million ($5.49 per share) in 1979 compared with $146.1 million ($5.60) in 1978. Dividends were increased to $2.60 per share in 1979 from $2.56 a share in 1978.
In supplementary figures adjusted for inflation, prepared under new standards from the Financial Accounting Standards Board, Safeway's profits were transformed into a loss of $2.1 million, and per share earnings became a loss per share of common stock of 8 cents.
Magowan noted that Safeway had cooperated with a government request to freeze some food prices by announcing a 30-day freeze on its "Scotch buy" items.
"While we can cooperate with the President on a short-term freeze of prices on a limited number of items, it must be recognized that our overall ability to control increases in food prices is extremely limited," he said.
Magowan said he expects Safeway earnings to run behind until the fourth quarter of the year but for the gap to narrow every quarter. Most of the erosion of profits from the "price-cutter" program is behind the corporation, he said. Initial erosion resulted from high start-up and advertising costs and the application of price-cuts to an inventory acquired at relatively high prices, he said.