Safeway passes the buck

The Lempert Report
May 16, 2014

As the cost of produce, meat and pharmacy items goes up Safeway has no plans to absorb any of it.

According to the USDA, Consumer Price Index (CPI) for food-at-home (grocery store food items) was up 0.4 percent in March and is up 1.4 percent from last March.  Furthermore, the expectation for food, food-at-home and food-away-from-home prices is that they will increase 2.5 to 3.5 percent over 2013 levels. And this is based on the assumption of normal weather conditions and normal weather has hardly been the norm with – California for example, is still battling drought conditions. 

So with food prices on the rise, where will those costs be placed? According to Forbes, we know at least one grocer who plans to pass that on the consumers; Safeway. As the cost of produce, meat and pharmacy items goes up Safeway has no plans to absorb any of it.  Safeway President and CEO, Robert Edwards is quoted as saying; “While sales met plan in the first quarter, income was slightly below plan, in part as a result of inflation in produce, meat and pharmacy that was not fully passed along for competitive reasons. We expect to pass along most of the inflation we are experiencing,” said Safeway President and CEO, Robert Edwards.  

Safeway is also in the midst of a $9 billion merger deal with Albertsons, something which may be affecting their decision to pass down higher prices in an effort to control costs while the merger is taking place.  

Will other retailers make the choice not to absorb higher food costs? Safeway’s announcement will either encourage others to do the same, or it will give others the opportunity to be very competitive.  Forbes also notes that Harris Teeter has actually cut prices on 1000 items thanks to “improved efficiencies” after joining up with Kroger.  If the key to survival is keeping prices low will Safeway find itself out in the cold?