Safeway Threatens Dealer

CHICO, Calif. -- In a move that may have some retailers thinking twice about their below-cost battle tactics, Safeway said it would file suit against a Northern California ARCO dealer if he did not stop using the Safeway name in a promotion.

At the heart of the dispute is Safeway's "Club Card." Although Safeway, unlike Sam's Club and Costco, does not require customers to purchase memberships in order to shop, the "Club Card" offers customers discounts on many items, including a 3-cent per gallon savings on gasoline at stores with pumps.

"Safeway works with their club card, so they may have a higher street price than the lowest competitors, but their net price is always the cheapest," Gary Lewis, owner of a Chico, Calif.-based ARCO station told CSNews Online. "If you come down to match them, they'll always go below you."

In order to eke out margin while stemming the flow of customers leaving his store for the Safeway down the street, Lewis offered a simple deal - Safeway customers could get the same 3-cents off at his store just by presenting the Safeway club card.

"I was able to keep my street price higher -- matching Safeway penny for penny -- while offering customers the same discount," he explained.

Yet while accepting competitors' coupons is standard practice in many channels of trade, Safeway took issue with the use of its name to advertise the promotion and has threatened to sue Lewis for trademark infringement and unfair competition.

Lewis may have some legal recourse -- Safeway's logo was never used, and the Safeway name was never used specifically to promote his store or to deliberately confuse customers. Nonetheless, unwilling to fight a lengthy court battle, he has already dropped the promotion.

"Personally, I didn't get too upset about having to stop the promotion, because I was probably helping [the local Safeway] more than hurting them. I was trying to recapture some of my lost customers, but instead, I feel like I might have been giving Safeway more publicity and getting more club cards out there.

Lewis also admitted that it had been very difficult to integrate the discount into his POS systems and ARCO's proprietary software. "It was very labor intensive and very difficult to track; my employees loved it when I discontinued the program."

Instead, Lewis said that he is now more focused on using California's general SBC (sales below cost) law to fight the grocer, saying that the company has been "blatantly" unobservant of the laws in his area during recent weeks. "As long as nobody gets punished for selling below cost, they will do it forever," he said.