Safeway 2007 Annual Report Download - page 32

SAFEWAY INC. AND SUBSIDIARIES
site, including the Company’s Corporate Governance Guidelines, our Director Independence Standards, the Code of
Business Conduct and Ethics for the Company’s corporate directors, officers and employees, and the charters for our
Audit, Nominating and Corporate Governance, and Executive Compensation committees. We will provide a copy of any
such documents to any stockholder who requests it. We do not intend for information found on the Company’s Web site
to be part of this document.
Item 1A. Risk Factors
We wish to caution you that there are risks and uncertainties that could affect our business. These risks and uncertainties
include, but are not limited to, the risks described below and elsewhere in this report, particularly in “Forward-Looking
Statements.” The following is not intended to be a complete discussion of all potential risks or uncertainties, as it is not
possible to predict or identify all risk factors.
Competitive Industry Conditions We face intense competition from traditional grocery retailers, non-traditional
competitors such as supercenters and membership warehouse clubs, as well as from specialty supermarkets, drug stores,
dollar stores, liquor stores, convenience stores and restaurants. Increased competition may have an adverse effect on
profitability as the result of lower sales, lower gross profits and/or greater operating costs.
Our ability to attract customers is dependent, in large part, upon a combination of price, quality, product mix, brand
recognition, store location, in-store marketing and design and promotional strategies. In each of these areas, traditional
and non-traditional competitors compete with us and may successfully attract our customers to their stores by
aggressively matching or exceeding what we offer. In recent years many of our competitors have increased their presence
in our markets. Our responses to competitive pressure, such as additional promotions and increased advertising, could
adversely affect our profitability. We cannot assure that our actions will succeed in gaining or maintaining market share.
Additionally, we cannot predict how our customers will react to the entrance of certain non-traditional competitors into
the grocery retailing business.
Because we face intense competition, we must anticipate and respond to changing consumer demands more effectively
than our competitors. We must achieve and maintain favorable recognition of our unique and exclusive private-label
brands, effectively market our products to consumers in several diverse market segments, competitively price our
products, and maintain and enhance a perception of value for consumers. Finally, we must source and market our
merchandise efficiently and creatively. Failure to accomplish these objectives could impair our ability to compete
successfully and adversely affect our growth and profitability.
Labor Relations A significant majority of our employees are unionized, and our relationship with unions, including
labor disputes or work stoppages, could have an adverse impact on our financial results.
We are a party to approximately 400 collective bargaining agreements, of which 102 are scheduled to expire in 2008.
These expiring agreements cover approximately 32% of our union-affiliated employees. In future negotiations with labor
unions, we expect that rising health care, pension and employee benefit costs, among other issues, will be important
topics for negotiation. If, upon the expiration of such collective bargaining agreements, we are unable to negotiate
acceptable contracts with labor unions, it could result in strikes by the affected workers and thereby significantly disrupt
our operations. Further, if we are unable to control health care and pension costs provided for in the collective bargaining
agreements, we may experience increased operating costs and an adverse impact on future results of operations.
Profit Margins Profit margins in the grocery retail industry are very narrow. In order to increase or maintain our profit
margins, we develop strategies to reduce costs, such as productivity improvements, shrink reduction, distribution center
efficiencies and other similar strategies. Our failure to achieve forecasted cost reductions might have a material adverse
effect on our business. Changes in our product mix also may negatively affect certain financial measures. For example, we
continue to add supermarket fuel centers, which generate low profit margins but significant sales. Although this
negatively affects our gross profit margin, fuel sales provide a positive effect on operating and administrative expense as a
percent of sales.
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