Safeway feels impact of generics

PLEASANTON, Calif. Safeway reported another strong quarter but lower-than-expected same-store sales attributed in part to its pharmacies. The chain also confirmed it would start testing a new smaller-store format during the first half of the year.

The 1,743-store supermarket chain reported $301.1 million in earnings for its fourth quarter ended Dec. 29 with same-store sales increasing 4.4 percent but only 2.8 percent when gas sales were excluded. For the full year, Safeway generated a 15.7 percent increase in profits of $888 million and a 5.2 percent jump in total sales of $42.3 billion.

In a Feb. 21 earnings call with analysts, Safeway chief executive officer Steve Burd said pharmacy sales had an impact on sales that were positive but on the low end of expectations.

“Same-store sales were negatively impacted by an unprecedented switch over from branded to generic drugs,” said Burd. “And if you look at the other drug store chains, you’ve seen the same thing happening.”

Burd also confirmed that Safeway is preparing to test a smaller store format to combat the arrival of Tesco in its home state of California. “It’s going to be an experiment and, traditionally, we like to keep experiments close to the vest,” said Burd. “So we’re not releasing any information about the concept except to say we should have something out of the ground in the first half of the year.” Safeway is expected to open the first stores somewhere in Northern California near its corporate home.

Safeway also continued to expand in 2007, opening 20 new stores and remodeling 253 to its Lifestyle format.