Safeway 2008 Annual Report Download - page 31

SAFEWAY INC. AND SUBSIDIARIES
Profit Margins Profit margins in the grocery retail industry are very narrow. In order to increase or maintain our profit
margins, we develop strategies to reduce costs, such as productivity improvements, shrink reduction, distribution center
efficiencies, energy efficiency programs and other similar strategies. Our failure to achieve forecasted cost reductions
across the Company might have a material adverse effect on our business. Changes in our product mix also may
negatively affect certain financial measures.
Opening and Remodeling Stores Our inability to open and remodel stores as planned could have a material adverse
effect on our results. In 2009 we plan to open approximately 10 new Lifestyle stores and to remodel approximately
135 stores into Lifestyle stores. If, as a result of labor relations issues, supply issues or environmental and real estate
delays, these capital projects do not stay within the time and financial budgets we have forecasted, our future financial
performance could be materially adversely affected. Furthermore, we cannot ensure that the new or remodeled stores will
achieve anticipated same-store sales or profit levels.
Future Growth of Blackhawk Blackhawk’s business, financial condition, results of operations and prospects are
subject to certain risks and uncertainties. Consequently, actual results could differ materially from Blackhawk’s targeted
earnings growth. There is no assurance that Blackhawk will continue to grow at the same rate as it has in the past. Some
of the specific risks and uncertainties include, but are not limited to, the following:
• Blackhawk faces competition from other companies that may introduce new products that compete with
products offered by Blackhawk. This could limit Blackhawk’s future growth;
• Blackhawk is substantially dependent on the continuous operation and security of its information technology
applications and infrastructure;
• A significant portion of Blackhawk’s revenues and net earnings is realized during the last several weeks of the
calendar year and are related to consumer gift purchases. A reduction in consumer spending for gifts,
operational issues that result in limitations on gift cards available for sale in Blackhawk’s distribution channels, or
other factors that contribute to a shortfall in sales during this period could have an adverse effect on the
Company’s consolidated results of operations and financial condition;
• Blackhawk’s business depends on its ability to negotiate contract renewals with its key partners;
• Blackhawk has operations in several international locations, and it may find a different business or competitive
environment in markets outside the U.S. that could adversely affect its profitability; and
• Blackhawk’s prospects could be adversely affected as a result of regulatory changes affecting the sales of gift
cards or other products that Blackhawk sells or plans to sell in the future.
Food Safety, Quality and Health Concerns We 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.
Current Economic Conditions The United States and Canadian economies and financial markets have declined and
experienced volatility due to uncertainties related to energy prices, availability of credit, difficulties in the banking and
financial services sectors, the decline in the housing market, diminished market liquidity, falling consumer confidence and
rising unemployment rates. As a result, consumers are more cautious. This could lead to reduced consumer spending, to
consumers trading down to a less expensive mix of products or to consumers trading down to discounters for grocery
items, all of which could affect Safeway’s sales growth. Additionally, in this uncertain economy, it is difficult to forecast
whether we are entering a period of inflation or deflation. In 2008, Safeway experienced overall inflation, while early
indications suggest that there may be deflation in certain product categories in 2009. Food deflation could reduce sales
growth, while food inflation, combined with reduced consumer spending, could reduce gross profit margins. We are
unable to predict when the economies of the United States and Canada will improve. If these economies do not improve,
Safeway’s business, results of operations and financial condition could be adversely affected.
Unfavorable Changes in Government Regulation Our stores are subject to various federal, state, local and foreign
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