Strategic Factors for Safeway

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Research the Safeway website.

Using your readings, the Library, and the Internet, and any additional resources necessary, you are being asked to complete the following sections of a Strategic Audit (See examples starting on page 78 and pages 179-185 following appendix 11.C):

1. Analysis of Strategic Factors. Since you are aware that your analysis of strategic factors or SFAS (Strategic Factor Analysis Summary) is based on IFAS and EFAS tables, and since we will need to understand your choices, you are required to submit the three tables in Excel format in one separate file from your written Word assignment. Non submission of an Excel file or submission of a table in a Word file will cause you to lose half of the points of this assignment. No comments are needed on the IFAS and the EFAS tables, but comments are needed on the SFAS table, which is the foundation for this assignment (You will submit one Excel file that will include three separate sheets, one for the IFAS, one for the EFAS and one for the SFAS). As a reminder, two files are to be submitted: One Excel file (counting for three pages) and one Word file (five to seven pages double-spaced). You will be graded on your knowledge of the software and math in building the MS Excel tables, and on your ability to communicate in writing and present your arguments.

Safeway, the Start-Up

In 1915, M.B. Skaggs started the retail business and in 1926 he merged his company with 322 Safeway (formerly Selig) stores. Safeway Inc. now is one of the largest food and drug retailers in North America. At year-end 2009, Safeway operated 1,725 stores in the Western, Southwestern, Rocky Mountain, Midwestern and Mid-Atlantic Regions of the United States and in Western Canada. In support of our stores, Safeway has an extensive network of distribution, manufacturing and food processing facilities.
http://www.safeway.com/IFL/Grocery/Our-Story

Environmental Analysis

External environment

Safeway is greatly impacted by the external environment which can be narrated as below:

Economic factors

The world economy is affected now by recession and contraction in GDP. Right now US economy is facing severe recession as U.S. gross domestic product (GDP) shrank 1% in the second quarter, following the first quarter's 6.4% drop. (Moneymorning, 2009) This may lead to reduced spending by the businesses and the consumers which can lead to the contraction in demand. This may lead to reduction in margins and revenues. In 2009, Safeway experienced overall deflation and if this trend persists then Safeway's revenue might not grow.

On the other hand there is good growth in Emerging economies like China, India. India is growing more than 7%.

Interest Rate Risk

Safeway has got considerable amount of debt, hence it's exposed to interest risk. Right now manages interest rate risk through the use of fixed- and variable-interest rate debt and, from time to time, interest rate swaps. The fair value of the interest rate swaps at year-end 2009 was a liability of $6.6 million. (Annual report, 2009)

Foreign Currency Exchange Risk

Safeway is exposed to foreign currency risk, primarily through its operations in Canada. Hence transactions and the Company's net equity investment in Canada are exposed to economic losses in the event of adverse changes in the currency exchange rate.

Commodity Price Risk

"Safeway has entered into fixed-priced contracts to purchase electricity and natural gas for a portion of its energy needs. Safeway expects to take delivery of these commitments in the normal course of business, and as a result, these commitments qualify as normal purchases. See Part II, Item 7, under the caption "Contractual Obligations" for the Company's obligations related to fixed-price energy contracts as of year-end 2009." (Annual report, 2010)

Political Factors

Unfavorable Changes in Government Regulation

This can greatly impact the Safeway as it is subject to various federal, state, local and foreign laws, regulations and administrative practices that affect our business. It must comply with numerous provisions regulating health and sanitation standards, food labeling, equal employment opportunity, and minimum wages and licensing for the sale of food, drugs and alcoholic beverages. (Annual report, 2010)

Food Safety, Quality and Health Concerns

"Safeway could be adversely affected if consumers lose confidence in the safety and quality of certain food products. Adverse publicity about these types of concerns, whether valid or not, may discourage consumers from buying our products or cause production and delivery disruptions. The real or perceived sale of contaminated food products by us could result in product liability claims, a loss of consumer confidence and product recalls, which could have a material adverse effect on our sales and operations. "(Annual report, 2010)

Competitors

Food retailing is intensely competitive. The principal competitive factors that affect the Company's business are location, quality, price, service, selection and condition of assets. Safeway faces intense competition from traditional grocery retailers, non-traditional competitors such as supercenters and club stores, as well as from specialty supermarkets, drug stores, dollar stores, convenience stores and restaurants. Safeway and its competitors engage in price competition which, from time to time, has adversely ...