In an unusually frank appraisal of his company's recent history and outlook, Safeway Stores Inc. Chairman Peter Magowan said today that the nation's largest food retailer has lacked innovation and has been reluctant to be a leader in its industry, leading to lackluster sales growth and mediocre profitability.
Magowan vowed that, with "flexibility in merchandising" a key requirement for success in the 1980s, Safeway management has embarked on a new course for what he described as a "changing company" -- with decisions in the past 12 months that will make Safeway a more effective organization in the future.
Magowan also said that electronic scanning of supermarket products at the checkout counters and the absence of individual prices on each item are inevitable at large-volume food stores. Safeway's major competitor in the Washington area market, Giant Food Inc., recently eliminated pricing on individual items at all of its shores, a move opposed by some consumers and consumer groups.
Although Safeway matched Giant price-cutting that accompanied the new item-marking policy within 24 hours, Safeway continues to mark prices on its merchandise at virtually all area stores.Magowan said today this policy probably will be changed over a period of time.
"We can convince the public that their concerns are groundless, that they won't suffer from it," he said. "Giant has done a good job" of making price information available in large signs on its shelves, he added.
Magowan's remarks were made in an interview and earlier at the California company's annual meeting here, during which the Safeway chief executive said he is encouraged by a momentum of sales growth that began in the second quarter last year. "Sales are the lifeblood of our business, and our mediocre profit performance over the past five years is due more to our relatively weak sales performance than to any other factor," he said.
In 1980, Safeway earned $119 million on sales of $15 billion; sales in the first half were up 7.3 percent, but second-half growth was 81/2 percent. In the first quarter of 1981, Safeway's sales expanded by 10.2 percent as earning rose sharply to $20.6 million (79 cents a share) from $12.4 million (48 cents) in a strike-affected first quarter last year.
Magowan said 1981 will be a "good year" for Safeway, although he declined to make any specific forecasts. The 38-year-old graduate of Stanford and Oxford took over as Safeway's top executive at the beginning of 1980 and started immediately to alter the course of what has been regarded as an efficient by very conservative retailer.
His initial year was marked by the first instance in 13 years in which Safeway did not increase its dividend rate, and Magowan said today the payout cannot be boosted "until we have better performance." Outlining Safeway's response to what he called an "entirely new ball game" in the supermarket industry, as food stores now compete directly with virtually every other retailer, Magowan said:
Safeway is committed to large "superstores" as the basic merchandising concept of the 1980s, an example of which is the 62,000-square-foot store recently opened in Northeast Washington in the Hechinger Mall. "Safeway was late to get into the superstore business," but will have opened 400 in the 1979-1981 period, he said. A typical store emphasizes one-stop shopping with separate natural-food, cheese, flower, deli and bankery departments because shoppers have less time and less money to spend on gasoline.
The company has junked a previous store strategy focused on maintaining existing store structures, under which two-thirds of all new stores were replacements at the same site. Safeway now emphasizes additional stores in the growth markets where the company is established (85 percent of its stores are west of the Mississippi River).
Other uses will be found for stores that otherwise might be closed because they are unprofitable. By the end of 1981, Safeway will have converted 50 stores to discount "no-frills" food stores, several of which already have been opened in the D.C. and Baltimore markets. Safeway also is experimenting with separate liquor stores, home improvement centers and gourmet food stores. "Operating different types of stores should enable us to attract a wider customer base while retaining vauable retail sites with favorable lease terms," he added.
Magowan also emphasized a new effort to be competitive in various retail markets. "Safeway in the past has . . . been somewhat reluctant to be as aggressive price-wise as it needed to be to protect its market share. . . . Our image of being price-competitive needs to be improved," he said.
Magowan conceded that Safeway in recent years has lost some of its Washington market share.