Earlier this year, Safeway managed to crawl out of a drawn out five-month old grocery strike (ending in February), led by the United Food and Commercial Workers Union (UFCW). Disgruntled union leaders charged that the company’s employees, including clerks and cashiers, were being forced to accept large pay cuts or no pay increases while new workers were brought in.

What’s employee disgruntlement got to do with the brand? As a supermarket chain Safeway offers an upscale range of products and services, including the Safeway Select private label of gourmet style home cooked pre-packed goods, the Safeway bank pavilions—small bank branches within the Safeway stores, and the customer discount card and Air Miles program. All of these services combine to create a certain positive image that customers now expect at Safeway stores. Shoppers are most likely to have that image reinforced through Safeway’s number one customer interaction point: employees. When employees are actively and publicly striking against the brand, it’s hard to maintain that image. If the brand image is altered it’s possible they will choose another supermarket chain or drive the extra mile to Safeway’s number one retail foe: Wal-Mart.

The second consideration for possible damage is with Safeway’s private label, Safeway Select, which is experiencing some brand value issues with the consumer. According to news sources, Burd was openly vocal about not backing down from Safeway’s cost-cutting efforts even though pressure from Wal-Mart hit Safeway directly in the profit margins.

According to Trish Brynjolfsson, vice president of retailer marketing at Catalina Marketing Corp, Wal-Mart is responsible for 75 percent of private label growth in the United States. Wal-Mart’s promise is to offer the consumer top value its money. Even as Wal-Mart suffers internal strife regarding labor issues, the value behind the brand remains the same; some say this is not so for the Safeway brand and the Safeway Select private label. “Before it can maintain brand value, it has to build some. Does Safeway Select mean anything to customers yet?” Asks Carey Earle, co-partner of New York City brand identity firm Harvest Communication, LLC.

“The Safeway Select label is in a tough spot,” explains Earle. “It’s a premium brand idea competing with Wal-Mart supercenters. The question is: will a premium brand customer choose Safeway Select? And, will the Wal-Mart or Costco customer care about the more upscale brand? For Safeway Select to succeed there has to be a sweet spot there and a brand that has more than one dimension to connect to customers beyond price.”

Roger Hurni, co-partner and creative director of Arizona-based brand identity firm Off Madison Ave, says there was a definite need for Safeway’s high-end food product line in its time. “Safeway capitalized on a market opportunity and a demand from its customers. In the early 70s and 80s, generic brands were the rage inside of grocery stores. The problem with the generic brands was that of poor consumer perception as to their quality. Many families wanted an alternative to established brands because of their budget. Safeway simply was the first and perhaps smartest grocery store chain to recognize that problem and offer its customers a solution.”

The third consideration of damage to Safeway’s brand identity is rooted in the brand’s management. Having developed a reputation as “Mr. Fix-It” in the 80s, Burd helped other CEOs turnaround their company’s financial performance at Kohlberg Kravis Roberts & Co — the New York investment firm that once controlled Safeway from a leveraged buyout. After Burd was hired on as CEO at Safeway, he expanded Safeway through a series of ingenious and creative (but very costly) acquisitions. These expansions included the Safeway Select private label and the Safeway bank pavilions.

Although Burd bull-horned that he was essentially not the CEO to make friends but to “make sure that Safeway is profitable,” he did an about-face move and abandoned the sale of money-pit Dominick’s (a Chicago-based division with extremely low value and for sale at a fraction of the US$ 1.9 billion cost Safeway paid for it in 1998). The deal fell through late in 2003, when the winning bidder couldn’t agree on a sound labor contract that wouldn’t hurt current employees (sound familiar?). Even then, analysts said the move reeked of future labor troubles as Burd tried to squeeze out cost concessions from staff. Sure enough, the following year Safeway was hit with strikes at 86 stores in British Columbia and a strike and lockout in Denver closed stores for over 30 days. Consider that the total impact of the Southern California strike alone cost US$ 122 million and its not hard to imagine how all this is affecting Safeways bottom line.

It remains to be seen what the impact of all this will have on the company’s overall brand image with customers. The increasing competition with Wal-Mart seems like enough for any one company to absorb, but the breakdown in employee relations and loss of confidence in leadership deliver the follow up punches. The next year should see Safeway replenishing its shelves and keeping a close eye on the till.    

[7-Jun-2004]