March 31, 2003, 12:00 AM

A new chief has big plans for Safeway’s dot-coms

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Rhodes also says he’ll capitalize on the closer customer relationships that stem from frequent purchases and personalized delivery service. Although online shoppers don’t get the personal contact with store employees, including cashiers who often tell shoppers how much they’ve saved with their Safeway loyalty cards, the online experience offers other advantages, Rhodes says. For example, it’s easier online to display information on the loyalty card savings as well as the nutritional value related to each product, he adds. “We flag every item for Club Card savings, and let them know how much they’ve saved at checkout,” he says.

And while operating a delivery fleet may be one of the challenges that Safeway faces, Rhodes says it’s also a major opportunity to promote personalized service. He notes that drivers are trained to handle customer concerns on the spot, such as if a wrong type of product is delivered.

Focused campaign

His overall objective now is to let a broader customer base know how well Safeway is meeting those challenges and opportunities. In the first quarter, Rhodes kicked off a multi-media advertising campaign in the San Francisco area, including TV, radio, direct-mail and e-mail promotions. “We’re communicating that exists and offers great service that’s easy to use and reliable,” Rhodes says. The campaign offers promotions such as $5 off an order for trying the online service. “We’ve never had advertising that was this focused before,” he says.

Key to the campaign’s success, he adds, will be convincing more consumers of the convenience of online grocery shopping. Rhodes notes that of the 20,000 to 30,000 SKUs in a supermarket, the average customer shops for only 200 to 300. But GroceryWorks has designed its web site to make it easy for shoppers to organize and find the products they typically buy, providing for a fast online shopping trip. “We’ve heard from many moms who said they spent hours in a store and now spend 20 minutes shopping online-tops,” he says.

Safeway’s advertising will get that message across, but also will include targeted messages that promote particular products known to drive sales. “Wine, gourmet cheese or baby products-they can all be very salient e-mail messages to customers,” Rhodes says.

Automated maps

As one who worked through the early euphoria of the dot-com world in the mid- to late ‘90s, Rhodes says he’s confident that Safeway has its priorities in order. Unlike early online grocers and other dot-coms that over-invested in infrastructure before securing a customer base, and then overspent on marketing in desperate attempts to attract customers in order to pay already huge operating expenses, Safeway has taken more than a year to build its online presence along the West Coast, leveraging much of the existing infrastructure of its Safeway and Vons supermarkets.

It also took time to learn, implement and modify some of the best online selling and fulfillment techniques of Tesco. For instance, Safeway is employing an in-store product picking system that Tesco developed. The system, designed with wireless computer devices attached to shopping carts, provides professional shoppers with the most efficient in-store route for finding all the products in customers’ orders.

Jason Whitmer, a retail industry stock analyst with Cleveland-based Midwest Research, says he figures Safeway’s online operations will primarily complement the shopping experience in the company’s western supermarkets. “Their West Coast online operations will be incremental in customer service,” he says.

But how far Rhodes will be able to extend Safeway’s online presence, he says, may hinge on corporate matters beyond his control. Whitmer notes that, although Safeway operates chains across the U.S., it recently decided to sell its financially troubled Dominick’s unit in Chicago and is struggling with its Dallas-based Tom Thumb chain.

At this point, Rhodes doesn’t seem fazed by expansion difficulties, even as he sets his online sights high. “We’ll march this out and grow as fast it makes sense for our business,” he says.

Besides, of Safeway’s 1,500 U.S. stores, about 1,200 are on the West Coast and in other parts of the western U.S., giving its online business ample room to grow without expanding to the country’s eastern half. Safeway also operates 200 stores in western Canada. “The easiest thing for them would be to stick to the West Coast, so different regions of the country don’t have to buy their own infrastructure,” says Kathman of Chicago-based Morningstar.

Still, Kathman figures that concentrating on the West Coast while expanding to relatively nearby areas such as Phoenix and Denver could give Safeway the base it needs to at least hit the low range of Rhodes’s projected 3-6% of sales-assuming Rhodes can stick to a steady growth plan.

Whether this all works to Safeway’s and the customer’s advantage will be demonstrated through how willing shoppers will be to pay a delivery fee. Rhodes says he is determined to maintain a fee to offset distribution costs. The fees-$4.95 for orders of $150 or more, $9.95 for orders under $150-will only be temporarily discounted in promotions. So far, Rhodes says customers appear to be accepting the fees for the benefit of home delivery.


Moreover, he expects his new marketing push to help educate consumers on the convenience and other benefits of online shopping, including what he says is an easier way to organize loyalty card discounts. “When they figure out how much they save with the Club Card, it will be more than enough to make up for the delivery charge,” Rhodes says.

Although the company doesn’t break out financial numbers for its online business, Rhodes says the web sites are expected to eventually operate financially on par with stores. “We have to be able to scale and be efficient in how we do things,” he says. “Our long-term goal is to have a dollar spent online be as profitable as a dollar spent in a store.” l


Mitchell Rhodes

January 2003: President, GroceryWorks

1999-2002: General manager, VP marketing, Gap Inc.’s Online Division;
headed e-commerce for Gap, Old Navy and Banana Republic;

1997-1999: Gap, marketing and business strategy positions

1993-1997: Kraft Foods, director of strategy, business director of
$650 million cheese division

1991-1993: McKinsey & Co., manager in consumer practice

1986-1991: Procter & Gamble Co., brand manager, household
cleaning products

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