Monday, February 2, 2009

Competitor News: Safeway Stores, Inc. Enters the Store Coupon Derby in Southern CA, Nevada, Arizona; Part of Extending its 'Value Proposition'

Food-Grocery Retailers and Discount Store Coupons

Pleasanton, California-based (San Francisco Bay Area) Safeway Stores, Inc. has entered the store coupon derby for what is the first time in recent history (if ever) Fresh & Easy Buzz and other Western U.S. food and grocery retailing observers can recall.

Safeway, which operates about 1,700 supermarkets in the U.S. and Canada, including about 450 stores in Southern California, southern Nevada (Vons and Vons Pavilions banners) and Arizona (Safeway banner), where Tesco's Fresh & Easy Neighborhood Market operates its 110 combination grocery and fresh foods markets, included a $10 off total purchases of $50 or more store coupon in a supplemental advertising circular it distributed to shoppers throughout the U.S. yesterday, via and insert in Sunday newspaper editions.

The Safeway $10 off store coupon, good for total purchases of $50 or more just like the one Tesco's Fresh & Easy distributed on Friday, January 30, was included on the back page of an eight page Safeway "weekend promotion" advertising circular geared to the Super Bowl game and event. [See this January 30, 2009 story from the Blog: Breaking Buzz: Tesco's Fresh & Easy Distributes its First Promotional E-Mail Alert Today; Has the Grocer Been Reading Fresh & Easy Buzz This Week? about Fresh & Easy's $10 off $50 coupon.]

The Safeway store coupon is good for only three days -- Sunday, today (February 2) and Tuesday, February 3.

Safeway and store coupons

We've been observing Safeway for many years and this is the first time we can recall in recent history (at least a couple decades) that Safeway has offered such a store coupon. We also talked today to a number of long time Western U.S. food and grocery industry players, asking them if they can recall Safeway distributing such a total purchases discount store coupon in recent times. All four of the industry players we asked today said that they could not recall such a coupon from Safeway in the past.

We also talked to a Safeway Stores, Inc. source who told us the grocery chain issued the store coupon for strictly promotional purposes and doesn't plan to make it a regular part of its weekly promotional efforts. Instead he told us its one among the many aspects of the supermarket chain's promotional elements, and that it is something that will be used infrequently. He also commented that like other retailer's, Safeway is getting even more aggressive because of the current recession. In fact, Safeway has been sharpening its "value proposition" since about the middle of 2008, lowering store prices, focusing more on store brands, and promoting much more aggressively than in the past.

Manufacturers' coupons v. store coupons

Safeway is using lots of manufacturers' "cents off" coupons these days as well, both as "in-ad" coupons in its print advertising circulars and online at its Web site. Many of the manufacturers' coupons are good if used only in Safeway stores. In fact, an entire page in yesterday's special ad circular directs consumers to the Safeway Web site for "Safeway specific" manufacturers' coupons they can download for additional savings on the advertised items.

Unlike with store coupons retailers issue themselves, grocers get paid back by the manufacturers for the discounts they give shoppers using the "cents off" coupons. The manufacturers pay the retailers the face value of the coupon plus an about three cent per coupon handling charge. Conversely, the discounts customers get using the store coupons issued by retailers like Safeway, Tesco's Fresh & Easy and all others, comes out of the given retailer's profits.

Of course, despite this fact -- that grocers lose profits from the store coupons -- as a promotional device used well the store coupons are much more powerful in most cases than the various individual manufacturers' coupons available to consumers are. That's because the store coupons allow a shopper to get a discount on her total store purchases, regardless of what she buys.

Additionally, since the store coupons are specific to the retailer -- they can only be used in a Safeway store, a Fresh & Easy market, ect. -- they are designed to pull shoppers into the retailer's stores where the grocer then hopes that the shopper will (1) buy much more than the minimum purchase required to use the coupon (which means less profit margin loss for the grocer), (2) buy some higher margin items while shopping -- such as store brand, specialty or prepared foods -- and (3) like the store so much that she will return to shop at it even without a discount store coupon.

Safeway's Super Bowl Sunday ad circular

The focus of Safeway's eight page advertising circular distributed in Sunday newspapers yesterday is the Super Bowl. In fact, with the exception of the store coupon, all 53 branded products advertised in the promotional circular were on sale for just a 12-hour period --yesterday (Sunday, February 1) from 8am until 8pm. Some of the items in the Sunday circular are from the grocery chain's Tuesday ad circular. Other items are original to the promotional piece.

The front page of the eight page Safeway ad circular has a headline that reads: "Kick off the savings," featuring a football goal post with a football passing through it, as when a team's kicker scores a field goal, which is something that happened a few times during yesterday's game between the Arizona Cardinals and the Pittsburgh Steelers, the Steelers' winning the Super Bowl by a mere four points.

Below the Super Bowl-themed headline is a football pennant that reads: "12 Hour Sale: Today Only."

In addition to the good for three days $10 off purchases of $50 or more discount store coupon on the last page, the front page of the eight page full-color Super Bowl-themed advertising circular features a coupon good for one free, large Safeway "Signature Cafe" ready-to-eat pizza on any total purchases of $25 or more.

The front page also features an in-ad coupon offering four 12-packs of Coke or 7up soft drinks for $7.99, or $2.00 per 12-pack. The front page also features four featured "ad price" items, in addition to the two coupons. Those items are: Lays Potato Chips (11oz bags) and Nabisco Snack Crackers @$1.69 each, Corona Beer, 12-pack for $9.99, Johnsonville Bratwurst Sausage (19.76oz package) at 2-packages-for $5.00, and fresh avocados @67-cents each.

The rest of the ad circular contains items across nearly all store categories, from dry grocery, fresh meat and produce, dairy/deli and fresh, prepared foods, to baby care, household cleaning items and health and beauty care products. Nearly all of the other food, grocery and beverage items in the ad circular have a Super Bowl Sunday snacking/eating/drinking theme. But the many non-foods items are everyday, basic items offered at promotional prices.

Among the prepared foods items is a coupon good for $1.00-off Safeway's in-store prepared Signature Cafe sandwiches. The regular-size sandwich, which normally sells for $4.99, is offered for $3.99, a savings of 20%. The sandwich deal also tells shoppers they can choose their own combinations of meats and cheeses on the sandwiches for Super Bowl Sunday, if they like. The "Signature Cafe" sandwiches are made to order at Safeway store deli counters.

Safeway regularly issues a supplemental advertising circular nearly every Sunday, in addition to its regular weekly promotional circular which it distributes in newspapers and via direct mail (and on its Web site) on Tuesdays. The promoted items in the Sunday ad circulars usually are good for three days -- Sunday, Monday and Tuesday. They also are mostly new and different items, not just a rehash of the items in the Tuesday ad circular. Yesterday's "12 Hour Sale" ad circular was the exception. We haven't seen Safeway do a "one-day sale" like that in ages, in fact.

Safeway joins the discount store coupon derby

Safeway's entry into the discount store coupon derby is an interesting one. Notice a couple things: First, the Safeway store coupon offers only a maximum 10% discount (if shoppers by the minimum $50 required purchase), and a less percentage off if customers buy more. Second, the coupon is good for just three days.

As we wrote about and suggested in this piece on January 27, 2009 [ Tesco Fresh & Easy's 'New' Advertising Flyer: Minimalism Without Thought or Design Does Not A Retail Advertising Communications Piece Make] (we had no knowledge of Safeway's Sunday store coupon at that time), having a three-day shelf life on discount store coupons is a good strategy for food and grocery retailers because not only does the shorter time period (as compared to a week or two) encourage shoppers to use the coupons right away (which is one key element of a promotion -time), it also limits grocers' exposure to the loss of margin from such coupons. In other words, a grocer knows that after three days (the coupon shelf life) it won't be receiving any more of those particular coupons in its stores. It allows for better planning and estimating in terms of financial impact. After all, it is easy to issue another coupon after the three days. But it's impossible to recall a coupon after three days that has a one or two week post expiration date.

It will be interesting to watch and see what Safeway does in the store coupon derby. The retailer also posted the $10 coupon on its Web site.

Based on our reporting, we don't expect to see liberal use of such store coupons by Safeway. But the fact that the supermarket chain, which is the fifth-largest seller (based on total annual sales) of food and groceries in the U.S., after number one Wal-Mart, Costco (2), Kroger Co. (3) and number four Supervalue, Inc., has entered the store coupon derby obviously makes it all the more interesting, adds even more to the already white hot competition in the Western U.S. food and grocery retailing market, and offers yet another option for saving money to consumers in this tough recession.

Safeway, the store discount coupon derby and Tesco's Fresh & Easy

The fact that Safeway is now offering the discount store coupons, and that as we wrote about here that the Raley's supermarket chain in Northern California also is doing the same on occasion, makes Tesco Fresh & Easy's regular use of the discount store coupons less unique.

Fresh & Easy has been nearly the sole food retailer to use such coupons in the Western U.S. market up until now. In fact, in our analysis it has relied on the coupons far too much as a retail discount price-oriented marketing device.

If even more food and grocery retailers join in the store coupon derby -- albeit most would do so in limited fashion like Safeway and Raley's (Whole Foods Market is sometimes issuing $5 off purchases of $25 or more coupons on its Web site as well) are rather than regularly like Fresh & Easy has been doing -- it could make Fresh & Easy Neighborhood Market's use of the store coupons less unique to the grocer.

This is another reason why we believe Tesco needs to get much more creative and broaden and differentiate its promotional merchandising and advertising arsenal, which we are beginning to see some positive signs of, like the introduction of its new 98-Cent Produce pack offering, but only on a limited basis thus far. Therefore, Safeway's entering the store coupon derby is another reason for Tesco's Fresh & Easy to do so in a much more aggressive and comprehensive way, in our analysis.

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