Safeway 2012 Annual Report Download - page 23

SAFEWAY INC. AND SUBSIDIARIES
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Profit Margins Profit margins in the grocery retail industry are 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 Failure 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 discourage consumers from buying our products or cause production and delivery
disruptions. The real or perceived sale of contaminated food products by us could result in product liability
claims, a loss of consumer confidence and product recalls, which could have a material adverse effect on
our sales and operations.
Current Economic Conditions Our operations and financial performance are affected by economic
conditions. The United States and, to a lesser extent, Canadian economies have experienced a prolonged
economic downturn. While economic conditions have recently improved slightly, there is continued
uncertainty about the timing or strength of any economic recovery. If the current economic situation does
not continue to improve or weakens, consumers may reduce spending, trade down to a less expensive mix
of products or trade down to discounters for grocery items, all of which impacts Safeway's sales growth.
Higher fuel prices could also dampen overall consumer demand. We are unable to predict with certainty if
the economies of the United States and Canada will continue to improve or the rate at which they will improve.
If these economies do not improve, Safeway’s business, results of operations and financial condition could
be adversely affected.
Future Growth of Blackhawk Blackhawk’s business, financial condition, results of operations and
prospects are subject to certain risks and uncertainties. Consequently, actual results could differ materially
from Blackhawk’s targeted earnings growth. There is no assurance that Blackhawk will continue to grow at
the same rate as it has in the past. Some of the specific risks and uncertainties include, but are not limited
to, the following:
• A significant portion of Blackhawk’s revenues and net earnings is realized during the last several
weeks of the calendar year and is related to consumer gift purchases. A reduction in consumer
spending for gifts, operational issues that result in limitations on gift cards available for sale in
Blackhawk’s distribution channels or other factors that contribute to a shortfall in sales during this
period could have an adverse effect on the Company’s consolidated results of operations and
financial condition;
• Blackhawk faces competition from other companies that offer similar products. This could limit
Blackhawk’s future growth;
• Blackhawk’s business depends on its ability to negotiate contract renewals with its key partners and
on the active and effective promotion of Blackhawk's products and services by its distribution partners;
• Blackhawk’s prospects could be adversely affected as a result of legal or regulatory changes affecting
the sales of prepaid products or other products that Blackhawk sells or plans to sell in the future or
as a result of Blackhawk's failure to comply with applicable laws and regulations;
• Blackhawk is substantially dependent on the continuous operation and security of its information
technology applications and infrastructure;