If you‘ve ever gone grocery shopping at Safeway, you‘ve likely experienced sticker shock at the checkout counter. Safeway is consistently ranked as one of the most expensive grocery store chains in the United States. In fact, according to a study by Consumers‘ Checkbook, Safeway‘s prices are about 13% higher on average compared to low-cost leaders like Walmart Supercenter and WinCo Foods.
So what is it that makes Safeway so pricey? As a savvy shopper and retail industry analyst, I‘ve dug into the reasons behind Safeway‘s high prices. What I‘ve found is that there are a variety of factors, from Safeway‘s business model and operating costs to broader economic trends in the supermarket space. Let‘s explore the key reasons you pay a premium to shop at Safeway.
Higher Labor Costs Due to Unionized Workforce
One of the biggest factors impacting Safeway‘s prices is the company‘s labor costs. Safeway is a unionized grocery chain, with the majority of its workforce represented by the United Food and Commercial Workers (UFCW) union. Being a union shop means Safeway employees earn significantly higher wages and better benefits compared to non-union grocery workers.
According to PayScale, the average hourly pay for a Safeway employee is $16.21, which is 29% above the national average for grocery store workers. Safeway also offers generous health insurance, retirement plans, and other benefits to its union employees. While this is great for workers, these added labor costs get passed on to shoppers in the form of higher prices on groceries and goods.
In contrast, non-unionized competitors like Walmart and Target can get away with paying their employees lower wages closer to minimum wage. This helps keep their operating costs down and allows them to maintain lower prices than Safeway across the store. So in effect, when you shop at Safeway, part of the premium you pay helps provide a livable wage and good benefits to the workers there.
Focus on Store Experience and Service Over Discounts
Another key reason Safeway is more expensive is that the chain focuses more on providing a high-quality store experience and good customer service rather than competing on price alone. When you walk into a Safeway, you‘ll notice the stores are clean, well-organized, and attractively laid out. Safeway invests more in store upkeep, decorations, and amenities to make the shopping experience more pleasant.
Safeway stores also tend to be well-staffed with knowledgeable and helpful employees. The company prides itself on offering better service than no-frills discounters. Safeway trains its staff to be friendly, answer questions, and go the extra mile for customers. This level of service is expensive to maintain, especially given Safeway‘s higher-paid union workforce.
All of these investments in store experience and service come at a cost though. Safeway has decided it‘s worth charging higher prices to cover these added expenses and uphold their brand standards. The tradeoff is that budget-conscious shoppers focused solely on getting the lowest price will likely take their business elsewhere. Safeway has made the calculation that enough of their customers will pay extra for a nicer store experience.
Costs of In-Store Services and Departments
In addition to the core supermarket offerings, most Safeway locations feature extra departments and services like a full-service pharmacy, Starbucks coffee shop, floral department, and prepared foods section. These additional services provide added value and convenience for shoppers, but also come with higher costs to build and operate.
For example, having a pharmacy means additional expenses to hire pharmacists and pharmacy technicians, maintain the necessary licenses and insurance, and keep the required technology and equipment up to date. Safeway has to comply with strict regulations on storing and dispensing prescription drugs. A Starbucks kiosk requires investing in expensive commercial espresso machines and keeping a separate staff of trained baristas on hand.
The costs of running these mini-businesses within the store inevitably get factored into Safeway‘s prices on groceries and other goods to some extent. Safeway may markup some items to help subsidize these additional services. After all, the fresh flower bouquets and hot deli foods don‘t just sell themselves.
Lack of Price Matching and Limited Discounts
Another factor contributing to Safeway‘s high prices is their lack of a price matching policy and more limited use of discounts and promotions compared to some other stores. Many of Safeway‘s budget-focused rivals will match a lower advertised price from competitors to make sure they‘re always the cheapest option. Walmart even offers an app that automatically gives you the lowest price if you find a better deal elsewhere.
In contrast, Safeway doesn‘t have an official policy to match competitor prices. If you find the same item cheaper at another store, you‘re out of luck at Safeway. The chain will occasionally have sales and promotional discounts, but not nearly as aggressively or frequently as other supermarkets that use low prices as their main draw.
Part of this ties back to Safeway‘s focus on a premium store experience over competing on price. Safeway also doesn‘t have the same economies of scale as mega-retailers like Walmart, Costco, and Kroger that can leverage their size to negotiate lower prices from suppliers. As a result, Safeway misses out on the bigger bulk purchase discounts its larger rivals get, making its baseline costs higher.
Targeting an Upscale Shopper demographic
Safeway‘s pricing and store strategy indicates the chain is targeting a more upscale, less price-sensitive shopper than some of its budget competitors. Rather than just appealing to shoppers looking to pay the bare minimum, Safeway aims to attract customers who value a nice store atmosphere, attentive service, and the convenience of additional departments and offerings beyond just groceries.
This fits with the demographics of where Safeway chooses to locate its stores as well. You‘re more likely to find a Safeway in dense, affluent urban and suburban areas than rural towns. These locations tend to have higher real estate and rent costs that get passed through to higher prices on the shelves. But these areas also have residents with higher incomes who are more willing and able to pay a premium for a better store experience.
You can see Safeway‘s upscale approach reflected in its product selection too. In addition to mainstream national brands, Safeway carries a lot of organic, natural, and gourmet foods that command higher price points. The company has also invested in developing more premium private label brands to drive higher margins. This is a different assortment than you‘d see at a discount grocer focused only on selling the cheapest offerings.
Safeway Buffeted by Broader Grocery Industry Trends
Finally, it‘s important to note that Safeway‘s high prices are influenced by challenging dynamics in the broader supermarket industry. Even before COVID-19, the grocery business was characterized by razor-thin profit margins, intense competition, and market saturation. The average net profit margin for grocery stores hovers between 1-3%.
In this cutthroat environment, smaller regional chains like Safeway lack the high-volume purchasing power of giants like Walmart, Kroger, and Costco to keep prices low. At the same time, Safeway faces steep costs to invest in e-commerce and delivery capabilities to keep pace with changing shopping habits and fend off online competitors like Amazon. Amid these pressures, raising prices is one of the few levers Safeway has to pull to maintain profitability.
So in many ways, some of Safeway‘s premium pricing reflects the challenging economics of the industry as a whole. Larger competitors are able to use their scale and market power to undercut rivals on price, leaving smaller chains like Safeway in a tough spot. It remains to be seen how Safeway will fare long-term swimming against this tide.
The Bottom Line on Safeway‘s High Prices
As you can see, the reasons behind Safeway‘s expensive prices are complex and multifaceted. Higher labor costs from a unionized workforce, a focus on store experience over discounts, the costs of additional in-store services, and upscale positioning all contribute to the premium you pay for the convenience of shopping at Safeway. Broader competitive dynamics in the grocery industry compound these pricing pressures as well.
So the next time you‘re experiencing sticker shock at Safeway, remember that it‘s not just corporate greed driving up the numbers on your receipt. Safeway has made a conscious choice to charge higher prices as a tradeoff for providing a more high-end experience compared to budget-focused rivals. As a shopper, it‘s up to you to decide if that premium is worth paying for.
If you‘re a bargain hunter laser-focused on getting the absolute lowest prices, Safeway likely isn‘t the most economical choice. You‘ll probably save more taking your grocery list to a discounter like WinCo, Grocery Outlet, or Walmart instead. On the other hand, if you value a clean, well-stocked store staffed with knowledgeable employees and offering additional services, paying a bit more at Safeway may be worth it.
Ultimately, whether Safeway‘s high prices are a dealbreaker depends on your individual priorities and shopping habits. But hopefully this in-depth look has illuminated the myriad factors influencing what you pay at the Safeway checkout line. The next time you‘re browsing the aisles, you‘ll have a better appreciation for how your grocery bill adds up.
