Safeway to Market Private Label Brand to Other Supermarkets

With the rise in demand for organically produced products, Safeway’s private label O Organics brand is expected to do $400 million this year, with sales in the first quarter alone up 50% over last year. In an announcement this week, Safeway’s Chairman, Steve Burd, outlined a plan for the company to begin marketing its O Organics brand to supermarkets “other than Safeway”

No small player, the O Organics brand is represented by more than 300 SKU’s. From eggs to orange juice, cookies to pretzels and olive oil to frozen dinner entrees, the O Organics brand ranges across multiple product categories. The decision to market these items outside of Safeway to other grocery chains represents a very large endeavor and a break from the traditional role of the retailer.

So goes the recent trend of retailers moving upstream the supply chain to begin taking on the role of manufacturer, or even grower for that matter. Why and what are the implications?

Certainly retailers, like Safeway, create private label brands to increase revenue. More importantly however, these retail exclusive brands build equity that supports the retailer’s unique positioning.

In the case of Safeway, the O Organics brand connects directly with Safeway’s core positioning – “Ingredients for Life”. It provides shoppers with a clear and tangible reason to believe and clearly differentiates the Safeway brand from other retailers. While the packaging does not carry the Safeway name, the O Organics brand is exclusively sold only in Safeway stores (for now). This exclusivity is what reinforces the Safeway brand positioning to its shopper.

So here’s where things become a bit paradoxical. On the one hand, Safeway’s move up the supply chain offers them a new revenue stream. It offers them a chance to convert competitors ( Kroger) to customers.

On the contrary, when shoppers find that they can buy the O Organics brand at grocery chains other than Safeway will they react? If indeed Safeway is defining itself by the exclusive brands that it carries, will the fact that these brand are no longer exclusive to Safeway erode their equity and lessen the impact of “Ingredients for Life”? Wouldn’t Safeway be better served by trying to maintain “Shoppers for Life”?