Safeway's Just for U loyalty card program will bolster sales through rest of year

PLEASANTON, Calif. — Safeway is looking to its recently launched Just for U loyalty program, which this month became available across all U.S. divisions, to help drive a positive sales story through the rest of the fiscal year. The key differentiator for that program is Safeway's ability to personalize the loyalty card experience to a factor of one.

"Registration is on track," Steve Burd, Safeway chairman and CEO, told analysts during a conference call late Thursday morning. Safeway is capturing approximately 70% of its customers into the loyalty program.

"The conversion to regular use is running 20% greater to what we initially anticipated," Burd said. "The incremental spend for that casual user is more than 50% more than anticipated." Burd projected that about 35% of Safeway's business will be comprised of Just for U participants by year end, and between 65% and 70% over the next three years.

The Just for U loyalty program includes a mobile app that significantly enhances participation, Burd said. "Mobile users use Just for U 50% [more often] than those who are confined to a desktop."

The true benefit with the loyalty program, Burd noted, is Safeway's ability to personalize offers to individual customers. "We stand here as the first retailer, clearly food retailer, to have this kind of personalization [associated with a loyalty program]," Burd said. "We have countless examples of people who used to spend $50 with us now [spending] $150 with us. We want more of that."

Burd expected competitors to ramp up their loyalty card programs to match the Just for U personalization, but that it will take some time. "I believe that others will follow [but] to get to our current level of play, [it will be a] minimum of 18 months, maybe longer."

In the meantime, when competitors position a new store alongside one of Safeway's banners, there is an opportunity to stem and even reverse any share loss. And it's because Safeway can identify consumers who may find that new store appealing and target them with deals that will keep them in Safeway.

Another benefit is that the loyalty program enables Safeway to target price-sensitive consumers with different promotions versus consumers who are not as price sensitive. "Over time, the shelf price becomes less and less relevant," Burd said. "There is an infinite opportunity to give the individual what they want and what they need. That's why we're successful right now."

The ability to target the individual consumer, that's the future of brick-and-mortar retailing, Burd said. "Those who survive in the conventional space will be about personalization," he said. "It [will be] the only way for them to compete with the Internet."

Sales and other revenue increased 1.9% to $10.4 billion in second quarter 2012, primarily due to higher fuel sales and an identical-store sales increase of 0.8%, excluding fuel and partly offset by a lower Canadian exchange rate. "We are encouraged to see that our volume trends are improving as inflation has eased, and we are pleased to see market share gains in the grocery channel and a slight gain in market share in all food-related channels," Burd stated.

Safeway reported income from continuing operations of $121.7 million (50 cents per diluted share), down 16.6%, for the second quarter ended June 16.

Safeway invested $219.2 million in capital expenditures in the second quarter, while opening one new Lifestyle store and completing one Lifestyle remodel. Safeway also closed 10 stores, including three Genuardi's stores sold during the quarter. For the year, Safeway expected to invest approximately $900 million in capital expenditures to open approximately 10 new Lifestyle stores, complete approximately 10 Lifestyle remodels, refurbish in-store pharmacies and develop properties through the company's wholly owned subsidiary Property Development Centers.