Safeway 2011 Annual Report Download - page 28

SAFEWAY INC. AND SUBSIDIARIES
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 club stores, as well as from specialty and niche supermarkets, drug stores, dollar
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 location, quality, price, service,
selection and condition of assets. 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 guarantee 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 need to anticipate and respond to changing consumer demands more
effectively than our competitors. We strive to achieve and maintain favorable recognition of our unique private-label
brands, effectively market our products to consumers, competitively price our products and maintain and enhance a
perception of value for consumers. Finally, we need to 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
430 collective bargaining agreements, of which 72 are scheduled to expire in 2012. These expiring agreements cover
approximately 28% of our union-affiliated employees. In future negotiations with labor unions, we expect that rising
health care, pension and wage 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 increase revenues, reduce costs and increase gross margins, such as new marketing
programs, new advertising campaigns, productivity improvements, shrink reduction, distribution center efficiencies,
energy efficiency programs and other similar strategies. Our failure to achieve forecasted cost reductions, revenue growth
or gross margin improvement across the Company might have a material adverse effect on our business. Changes in our
product mix also may negatively affect certain financial measures.
Opening and Remodeling Stores Our inability to open and remodel stores as planned could have a material adverse
effect on our results. If, as a result of labor relations issues, supply issues or environmental and real estate delays, or other
reasons, these capital projects do not stay within the time and financial budgets we have forecasted, our future financial
performance could be materially adversely affected. Furthermore, we cannot ensure that the new or remodeled stores will
achieve anticipated same-store sales or profit levels.
Food Safety, Quality and Health Concerns We could be adversely affected if consumers lose confidence in the safety
and quality of certain food products. Adverse publicity about these types of concerns, whether valid or not, may
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