Safeway 2013 Annual Report Download - page 11

Table of Contents
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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 strong 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 almost 400 collective bargaining agreements, of which
94 are scheduled to expire in 2014. These expiring agreements cover approximately 53% of our union-affiliated employees, primarily the
United Food and Commercial Workers union contracts in two of our largest divisions, Northern California and Vons. In future negotiations
with labor unions, we expect that 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 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 could 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.
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