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Safeway bets that loyalty program will pay off

Associated Press Modified: October 11, 2012 at 5:30 pm •  Published: October 11, 2012

NEW YORK (AP) — Safeway Inc. is betting that its investment in a new customer loyalty program will eventually pay off, as the supermarket operator looks to fend off big-box retailers and other competitors that are expanding their grocery aisles.

The Pleasanton, Calif.-based company, which also owns Vons, Dominick's and other grocery chains, said the cost of launching its "Just for U" program continued to eat into its profit margins in the third quarter. But the program is already showing signs of boosting results, Safeway said, with its market share up and sales in the current quarter running up 1 percent.

Safeway also noted that the launch costs are now in the past.

The loyalty program, which offers personalized discounts based on past purchases, is intended to help Safeway hold onto shoppers in an increasingly competitive environment. In addition to competition from retailers such as Target, traditional supermarkets are increasingly competing with drugstore chains and dollar stores.

For the quarter, however, Safeway said that revenue at locations open at least a year edged up just 0.1 percent. The measure is a key indicator of a retailer's performance because it strips out the impact of newly opened and closed locations.

The company said the tepid increase was primarily because it raised prices less than expected. That was offset by improvement in volume from the new loyalty program.

CEO Steve Burd said "Just for U" is getting customers to "come to the store more often and to buy more when they're there."

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