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The Wall Street Journal reports that Safeway is developing partnerships with outside companies that will enable it to sell its “O” line of organic foods and beverages in places other than its own stores. The report days that Safeway has already made a deal with Sysco to sell the “O” products in foodservice locations, and the company confirmed that it is striking new partnerships in Asia and South America.

"We're in the process of monetizing that brand," Safeway CEO Steve Burd told an investors conference yesterday.

According to the Journal, “Since its launch, O Organics has grown to 300 items, including milk, chicken, entree and juice products. Safeway estimates O Organic sales will reach $300 million in 2007, up from $164 million last year.”

Burd also confirmed reports that Safeway plans to test a new small store format, and said that the company also was developing a new business – based on its own health care initiatives - that would seek to help other companies reduce health care costs,

At the investors conference, Burd also addressed rumors that Safeway might spin off its Blackhawk gift card business, which is expected to earn a pretax profit of $100 million this year.

"If you want to invest in Blackhawk, invest in Safeway," he told the investors.

KC's View:
As long as Safeway doesn’t start selling its “O” products in competitive retailers – and there is no indication that it plans to – this is a smart move. But the retailer has to make sure that it maintains its differential advantages wherever and whenever possible.

If there has been a company over the years that I’ve been wrong about, it has been Safeway. I used to say a lot of critical things about the company, and I have to admit that I have generally been proven wrong – its approach to health care has been innovative, the Blackhawk business has been a great example of out-of-the-box thinking (even if I think other retailers are making a mistake by feathering Safeway’s nest), and its commitment to organics has exceeded what I thought it was.

Is it a perfect company? Of course not. But more often than not, I’ve been surprised and impressed by the moves that Safeway has made.