Safeway, Inc. is a leading operator of grocery chains
in North America with three prominent competitive Advantages. The company’s
broad product portfolio helps it to cater to a diverse range of customers.
Safeway is one of the largest food and drug retailers in North America with an
extensive network of distribution, manufacturing and food processing facilities
across 1,678 stores in the US and Canada. At Safeway, innovation is considered
as the top priority and continues to be the cornerstone of the company’s
corporate strategy. Two years ago, the company implemented the Autonomy's
Intelligent Data Operating Layer software to increase operational efficiency.
This continued focus on innovation and regular launch of products helps the
company to align itself to the change in customers’ tastes and preferences.
However, on the other hand, Safeway is also plagued by
certain weaknesses. Firstly, its failure to source and market the company’s
merchandise efficiently and creatively could impair its ability to compete
successfully and could adversely affect its growth opportunities. Next up is
the critical issue pertaining to declined Liquidity. The company reported a
decline in all the liquidity ratios. Its liquidity ratios decreased due to the
increase in current liabilities. Its total current liabilities increased to
$5,038.3m in the fiscal year ended 2011 from $4,314.2m in 2010. This led to a
marginal decline in its liquidity indicators such as current ratio, quick ratio
and cash ratio. The declining current ratio indicates that the company is in a
weak position to meet its short-term obligations. The company also reported a
decrease in cash and short term investments in fiscal year 2011 to the extent
of 6.3% which was responsible for a recorded
negative net change in cash of $49.4m. The
decreasing cash reserves indicate the company’s inability to obtain additional
debt to finance acquisitions, capture business opportunities and meet capital
expenditure or other capital requirements in the future. In addition to this, Safeway
has also recorded an increasing number of product recalls. Such recalls can hamper
Safeway’s brand image and have a significant impact on its product sales. In
addition, they not only affect the company's current revenues, but could also
affect its long-term performance by reducing customer confidence. Another vital
concern focusses on revenue concentration: Safeway’s financial performance is
highly dependent on the US and Canadian operations, which comprised about 84.6%
and 15.4%, respectively, of its total revenue for fiscal year 2011. The US
economy is recovering very slowly and any such macro-economic factors slowing
its revenue generation or decline in its business and financial performance
from the US segment could have an adverse effect over its operating cash flows.
That being said, Safeway has a number of opportunities
that they can capitalize upon characterized by a wide range of Private label brands,
growing demand for organic products, an increase in Online Sales and an array
of strategic agreements and partnerships with the USDA and the CNPP.
On the flip side however, Safeway is also faced by
several key risks such as fierce competitive pressures from traditional grocery
retailers, non-traditional competitors such as super-centers and club stores,
as well as from specialty supermarkets, drug stores, dollar stores, convenience
stores and restaurants. Unfavorable alterations in Government Regulations as
well as changes in Labor Laws make for an even more challenging environment.
Discount Rate Analysis: During the fiscal year ended
December 2011, Safeway recorded an increase in revenues of 6.29% over
2010. The operating profit of the
company was USD 1,134.60 million during the fiscal year 2011 - A decrease of
2.14% from 2010 while the net profit of the company was USD 516.70 million
during the fiscal year 2011, a decrease of 12.39% from 2010. Based on these
financial indicators, I would recommend a conservative discount rate of 15%
taking into consideration the volatility of Safeway’s business environment,
their low liquidity and the growing prospects of potential threats from giant
retailers like Walmart. All these
factors create a predicament of ambiguity for Safeway’s future.
4 comments:
Why isn’t Safeway going for other strategies like Market Development? The US has been facing difficulties in Economic recovery as unemployment rate is still around 7% and GDP growth is still modest. The Number of jobs added in the month of February was 175000 which is less than expected.http://bit.ly/QNSdp6
Catherine, I think that Safeway's model relies heavily on their location strategy. If you notice, Safeways are generally strategically situated in residential neighborhoods as opposed to prime shopping areas where you have the likes of Walmart to directly compete against. Consumers who shop at Safeway (like myself) usually do so because of the convenience factor - Safeway is a short 5 minute walk away while a visit to my local Walmart would need me to drive about 15-20 minutes. They have friendlier staff, slightly cleaner and prettier stores but charge evidently higher prices. While this is not a perfect generalization, it is the case with Safeways across the country more often than not.
A market development strategy targets non-buying customers in currently targeted segments and potential customers in new segments. I feel that Safeway shoppers shop at the store for the aforementioned reasons only and they almost always have a choice of going elsewhere - If they are not satisfied with Safeway's offerings (usually owing to product price & variety), they will not refrain from doing so. To reel them or any new consumer demographic/segment in on a consistent basis, Safeway would have to offer better prices/deals. However, this contradicts their business model because they aren't set up to sustain on lower margins nor are their stores large enough to handle higher unit/volume sales given their rental costs and overheads. The only way to do so would be for them to redefine the brand to offer significantly diminished in-store consumer experience and lower prices by employing lesser staff at the expense of assuming great risk/uncertainty while losing their very identity which distinguishes them competitively. Although clichéd, the harsh reality is that its quite often a vicious price-centric cycle in grocery retail today (especially after the economic slowdown) and to find avenues to compete other than value & quality is quite difficult.
Sorry, that was really long but thanks for the question - Hope it helps!
I want to know why they hire more checkers than they need, why shift hours are always changing from week to week, why wages are low, why you have to wait a yr for benefits and why their technology sucks.
I'd like to know the answers too. I find them to be a very inefficient business.
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