Safeway 1997 Annual Report Download - page 16

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The Safeway SELECT line is designed to offer premium quali-
ty products that are equal or superior in quality to comparable
best-selling nationally advertised brands, are offered at more
competitive prices, or are not available from national brand
manufacturers. Safeway also offers a wide selection of private
label products under well-known and respected brand names
such as Safeway, Vons, Lucerne, Jerseymaid and Mrs. Wright’s,
which the Company believes are equivalent in quality to compa-
rable nationally advertised brands.
The Company continually refines its merchandising strategies,
which are designed to identify and accommodate changing
demographics, lifestyles and product preferences of its cus-
tomers. Safeway has intensified its efforts to improve in-stock
conditions and enhance merchandise presentation and selection.
Manufacturing and Wholesale Operations
The principal function of manufacturing operations is to pur-
chase, manufacture and process private label merchandise sold
in stores operated by the Company. As measured by sales dol-
lars, over one-half of Safeway’s private label merchandise is
manufactured in company-owned plants, and the remainder is
purchased from third parties.
During 1993, Safeway began a review to identify manufac-
turing operations that were not providing acceptable returns.
This review resulted in the sale or closure of 19 plants from
1993 through 1997 and a reorganization of the manufacturing
division administrative office during 1994. In 1998, Safeway
expects to have fully operational a new food processing plant
in California which will replace one that was closed in 1997
and another that is expected to close in 1998. The ongoing
review of remaining manufacturing operations may result in
additional plant closures.
Safeway’s Canadian subsidiary has a wholesale operation
that distributes both national brands and private label products
to independent grocery stores and institutional customers.
Safeway operated the following manufacturing and process-
ing facilities at year-end 1997:
U.S. Canada
Milk plants 7 3
Bread baking plants 6 2
Ice cream plants 5 2
Cheese and meat packaging plants 2 2
Soft drink bottling plants 4 –
Fruit and vegetable processing plants 1 3
Other food processing plants 3 1
Pet food plant 1 –
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Total 29 13
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In addition, the Company operates laboratory facilities for
quality assurance and research and development in certain
of its plants and at its U.S. manufacturing headquarters in
Walnut Creek, California.
Distribution
Each of Safeway’s 10 retail operating areas is served by a
regional distribution center consisting of one or more facilities.
Safeway has 13 distribution/warehousing centers (10 in the
United States and three in Canada), which collectively provide
the majority of all products to stores operated by the Company.
Safeway’s distribution centers in northern California and British
Columbia are operated by third parties. Management regularly
reviews distribution operations focusing on whether these oper-
ations support their operating areas in a cost-effective manner.
As a result of such reviews, Safeway is constructing a replace-
ment distribution center in Maryland.
Capital Expenditure Program
A component of the Company’s long-term strategy is its capital
expenditure program. The capital expenditure program funds new
stores, remodels, advances in information technology, and other
facilities including plant and distribution facilities and corporate
headquarters. In the last several years, Safeway management has
significantly strengthened its program to select and approve new
capital investments resulting in improved returns on investment.