Safeway Seeks Sustainable Future for Environment and Its Stores

(MoneyWatch)  Safeway has a problem, but the supermarket chain is doing what it can to surmount it.

The latest part of the solution is construction of the company's first store designed to meet the Leadership in Energy and Environmental Design certification standards for sustainability developed by the U.S. Green Building Council. To get its LEED certification, the 60,000-square-foot store Safeway is building in Santa Cruz, Calif., will include photovoltaic solar panels and fuel cells to save store-related greenhouse gas emissions by providing 70 percent of its energy during peak use periods, the company stated. The store also features an irrigation system that waters outdoor landscaping using condensation from refrigeration systems. Safeway conducted a hardhat preview of its future LEED store for Earth Day, when it also offered reusable grocery bags throughout the chain. Additionally, the company used the day to tout its newly launched Clean Team campaign, which sends volunteers armed with its environmentally friendly Bright Green cleaning products to scrub park facilities, and its appointment as one of the World's Most Ethical Companies by Ethisphere Magazine.

Safeway certainly can feel good about environmental efforts that boost employee morale and address customer concerns. Still the supermarket operator has broader strategic considerations to weigh, hence the problem. The company has gotten a big boost from the conversion of its traditional supermarkets into what it calls Lifestyle stores, which include more gourmet and trend-oriented food and consumables. Safeway enjoyed sales and earnings advances as it has opened new and remodeled stores under the format, only now it is getting close to Lifestyle saturation. Sometime over the next few years, the chain will be fully converted, just in time for the initial Lifestyle stores to begin suffering a fall off as their refurbishment fades and jaded shoppers begin wondering if they should focus on getting better prices elsewhere.

The Lifestyle store conversion program has been successful, the company maintains, but it has been expensive, particularly in the recession, and it makes little sense for Safeway to immediately launch a new follow-up format that might have a lesser or negative return on investment if it flops with customers. In that case, Safeway might descend into price competition of the sort Kroger and Wal-Mart have been managing so well, which would result in a pummeling.

So, Safeway has been looking at ways to maintain customer enthusiasm in a successful but aging format, paying particularly attention to the term lifestyle. It has introduced the O Organic and Eating Right private labels for consumers who are concerned about health issues, labels that are sometimes pegged very close to or at the same price as national brand equivalents, further emphasizing that quality is the focus of Safeway's offers. It also has opened a convenience grocery format, The Market, to provide easy access shopping and to compete with Tesco's Fresh & Easy stores.

Although Safeway has had to do its share of promotional price cutting in the recession, long-term, effectively responding to consumer concerns about convenience, health and the environment rather than price is the strategic alternative it prefers.