Safeway: Organic Food Contender?

Safeway (NYSE: SWY), the third largest supermarket chain in the U.S., has seen Whole Foods Market (WFMI) move into many of its key markets. Since the two chains attract a similar demographic, Safeway decided to compete head to head by introducing organic foods that are competitively priced with conventional foods.

Safeway has introduced “O Organics”, its own private label line of 150 organic products that run the gamut – beverages, bakery goods, cereals, canned and frozen foods, dairy products and snack items. Prices are comparable or, in some cases, less expensive than even conventional products.

This month, O Organics was introduced throughout Safeway’s chain of 1,775 stores in the United States and Canada.

In an interview with Reuters, James White, Safeway’s senior vice president of corporate brands, said O Organics is the broadest range of organic products offered by a major retailer other than Whole Foods Market. Some products are sourced from outside suppliers, while others are manufactured by Safeway. The goal is to make it possible for shoppers to “avoid additional shopping trips” by buying conventional and organic products in one place.

Organics are now big business – annual sales in the US stand at $20 billion as of 2005, up from $1 billion in 1990. The Organic Trade Association expects sales to rise by 18% annually through 2008, although they still constitute only 2% of grocery sales nationwide. 15-20% of shoppers buy organic products regularly and two-thirds of Americans have purchased an organic product at least once.