Safeway's ongoing transformation continues with more organics

On Tuesday, Safeway Inc. (NYSE:SWY) announced that it would expand its O Organics line into affordable baby food and food for children, as well as introducing Eating Right, a new brand for consumers in search of healthier fare. The move is part of larger effort to to attract consumers from both price-focused competitors like Wal-Mart (NYSE:WMT) and high-end chains such as Whole Foods (NASDAQ:WFMI), as well as in anticipation of the entry of British giant Tesco into U.S. markets, such as southern California, where it will compete with Safeway's Vons stores.

The O Organics line was launched a year ago, and it is featured in Safeway chains such as Dominick's. The line already includes coffee, milk, cereal, and produce, and has reached more than $150 million in sales. Eating Right products will feature icons that make it easy for consumers to make the choices that are right for them.

This is all part of Safeway's ongoing efforts to update its stores to a so-called Lifestyle format. It has already updated 43% of its 1,700 stores, and expects to have updated 94% of stores to the Lifestyle format by 2009.

A Credit Suisse analyst has upgraded Safeway to Neutral from Underperform based on its strong outlook for 2007.