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Safeway Schedules Product Recall

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Safeway Inc. continues to remain on headlines for the past several months. Following a disappointing third quarter 2013 performance, decision to sell its Dominic stores by fiscal 2014 and the company’s recent exit from the Canadian market, the company is again on news with its decision to voluntarily recall many of its products.

The company has decided to voluntarily recall a number of products supplied by (or ingredients of the products supplied by) Reser's Fine Foods or Taylor Farms. The recall follows the possible contamination of the food items with Listeria monocytogenes. The items are available behind the glass at the full-service deli counters or in self-serve coolers in the deli department of Safeway stores.

Although no confirmed illness has been reported so far, Safeway is taking additional precautions by recalling the products. The company is ready to provide the customers a full refund.

Listeria is an organism that can cause serious and sometimes even fatal infections in individuals with weak immune systems. Healthy people may also experience short term symptoms from this infection. Listeria infection can also increase chances of miscarriages and stillbirths among pregnant woman.

On Sep 26, 2013, Safeway had also recalled six Angel Food Cake products, thought to contain the undeclared allergens soy and milk. Consumption of such products can be potentially harmful for people who have an allergy or severe sensitivity to soy or milk. Risk of a serious life-threatening allergic reaction cannot also be ruled out.

Although shares were not impacted by this latest product recall news, we feel any additional product recalls in future could have an adverse impact on the brand image and popularity of the grocery and pharmacy major.

This is particularly pertinent at a time when Safeway is reeling under sluggish revenues and margin pressures. Such events can have a ripple effect, lowering investor confidence and hampering growth prospects for the company, going forward.

Safeway has been lately undertaking few initiatives to increase its focus in the core grocery business and subsequently increase profitability in it. The recent exit from the Canadian market is considered to be beneficial as it can ease the debt pressure of the company, along with providing attractive returns to the shareholders. Further, the plan to exit from the Chicago market is also a part of the company’s plan to effectively allocate resources and enhance profitability in the existing markets.

Customer loyalty programs like Just for U and Club Card have been introduced, understanding the need of the customers in the diverse retail U.S. market. The management disclosed of having 6 million registered users under the Just for U, digital platform.  The IPO of the Black Hawk Network Holdings is expected to improve the highly leveraged balance sheet of Safeway.

Currently Safeway carries a Zacks Rank #3 (Hold). Some better-performing stocks that are worth a look include Carrefour SA (CRRFY - Free Report) , Marks & Spencer Group plc (MAKSY) and Whole Foods Market, Inc. each carrying a Zacks Rank #2 (Buy).

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