Safeway wanted a fresher, healthier image. The first step was to become fresher and healthier

In 2002 the management team at Safeway Inc. got ice water splashed in its face. After boosting annual earnings at double-digit rates throughout the '90s, the third-largest U.S. supermarket chain reported its first annual loss since going public in 1990. "We needed some fundamental changes," says Steven A. Burd, chairman and CEO of the Pleasanton (Calif.) company. "We [needed to] differentiate our offering from other conventional supermarkets."

Those supermarkets were fast becoming an endangered species. Big-box retailers such as Wal-Mart Stores Inc. were preparing to invade the low end of the grocery market and win on price. Specialty stores such as Whole Foods Market Inc. were conquering the high end with quality and atmosphere. That left traditional grocers like Safeway getting squeezed in the middle.

To escape, Safeway had to pull off a challenging feat. While continuing to offer popular food brands at low prices, it had to add higher-quality fare and transform its sterile aisles into a more stylish environment. Most important, consumers had to believe the change was for real, not just window-dressing. That's a tall order for an 80-year-old retailer whose customers associate it with fluorescent lighting and Oreos. So the company used what management gurus call authentic marketing: the art of telling consumers a story they want to believe, then delivering the products and experience that make the story real.

The project is the largest remodeling effort ever undertaken by a U.S. supermarket chain. Beginning in 2003, Safeway committed to spend $1.6 billion a year over six years to remodel all 1,775 of its stores. The company also resolved to pare back labor costs, which led to strikes and lockouts. In the end, Safeway got most of the cuts it wanted, but the negative publicity stung. Now, in concert with the company's $100 million ad campaign, things are starting to turn around. Identical-store sales growth has swung from -4.5% in 2003 to 4.3% last year. After reporting losses in 2002 and '03, the company is expected to earn $822 million on $40 billion in revenue this year, up 42% from 2005, according to consensus analyst estimates from Reuters Group PLC. In the past 12 months, Safeway shares have risen 31%, to 31.

Authentic marketing may seem a fancy term for a simple idea: Deliver what you promise. But history has shown that living up to that precept isn't easy. In 1985, the Great Atlantic & Pacific Tea Co., better known as grocery chain A&P, launched a glitzy ad campaign that declared: "We Built a Proud New Feeling." But shoppers got the same old feeling when they visited stores and found little had changed. Sales barely budged.

TRUE STORIES

So what did Safeway do right? The short story is that it delivered before it promised. "We were very careful not to talk about quality until we had stepped up quality," Burd says. That way, when Safeway told a story about quality in a TV ad, customers could walk into a store that day and see and taste the quality, leaving no doubt about the story's truth.

Before writing a word of marketing copy, Safeway studied its customers. They liked the wholesome food and pleasant environment of specialty stores but also wanted their favorite brands and low prices. Safeway saw that it could quickly distinguish itself with higher-quality perishables. Without fanfare, the company in 2003 and 2004 introduced more tender beef, sweeter grapes, and fresher bread until it had upgraded all its perishables departments.

Safeway was careful not to oversell the transformation. Today, when customers enter its Danville (Calif.) store, they might be greeted not only by a bin of designer Dulcinea cantaloupes but also by a stack of Gatorade bottles on sale. The message? Shoppers can get the familiar brands and bargains they expect, as well as items they might associate with natural foods stores. Brian C. Cornell, Safeway's chief marketing officer, calls it "completeness."

Once Safeway had improved perishables, it hired Novi (Mich.) retail design firm Orangetwice, then known as Avizia, to dream up a new environment. The firm's clientele has ranged from clothiers Barneys New York and Polo Ralph Lauren to Total Convenience Stores. Orangetwice was brutally honest about authenticity. "We said, 'What you are marketing you'd better deliver,"' says Liz Muller, chief creative officer. "Otherwise, you actually do more damage."

Orangetwice's mandate was to create an experience that would make Safeway's story about quality and wholesomeness believable. "We wanted to make sure when you walk into the store it gives you a natural, abundant, fresh feeling," Muller says. The firm replaced glaring lights with warm accent lights. Dull white walls got painted earth tones -- no store surface was left white. Hardwood floors were laid in the perishables departments, and wooden letters were attached to walls to spell out slogans such as "Fresh from the fields." The floral department increased the number and variety of flowers it stocked and added items such as scented candles and vases. Muller says it's doing 90% more business in the same space.

Not until the food quality and store environment were battle-tested did Safeway prepare an ad campaign. Its agency, Dailey & Associates Advertising of Los Angeles, conjured an "ingredients for life" slogan to suggest not only that people might live healthier if they buy Safeway's food but also that the food is designed for the way people live today. Dailey's TV commercial showed a diverse group of people eating food on the go. Safeway then put graphics from Dailey's ads on its trucks, shopping bags, aprons -- on any real-life artifact that could make the story palpable.

The moral of Safeway's tale? A compelling story is key to authentic marketing. Safeway's consumers don't just want cheap household goods -- they want to be part of a story about a healthy modern lifestyle. "The marketer's job is not to focus on facts but to present a story to people that they want to believe," says Seth Godin, author of All Marketers Are Liars: The Power of Telling Authentic Stories in a Low-Trust World. "You can make up a story, but when people visit your store, if the story is inauthentic, then people reject you and don't trust you again." That could be the costliest makeover of all.

Supermarket Makeover

Profits have been soaring since Safeway reinvented its look. Here's what the company did:

WALLS

Earthy tones replaced plain, old white to convey freshness and wholesomeness.

LIGHTING

Switched glaring lights for warm accent lights that direct attention to products and departments.

SIGNAGE

Big pictures of healthy food went up. Display stations throughout stores suggest meal ideas for time-starved shoppers.

PRODUCE DEPARTMENT

Enlarged organic section, moving it from case against wall to wooden crates at center of floor, suggesting a farmer's market.

FLOORS

Installed hardwood floors in perishables departments to provide a natural feel.

BAKERY

Knocked down wall to show off bread baking in wood-fired oven. Added island in center of department that offers custom bread slicing.

PLAYBOOK: BEST-PRACTICE IDEAS

The Secrets of "Authentic Marketing"

TELL A TRUE STORY

-- Consumers don't just want to buy a widget or save a buck. They want products placed in a meaningful context -- a story. Marketers don't always have to focus on facts, but their stories must hold up when consumers get the goods.

DELIVER, THEN PROMISE

-- A brand is a promise. When you tell consumers your brand stands for something, you had better be ready to deliver that special something. Safeway spent three years improving food quality before it rebranded the company.

DON'T OVERSELL

-- It's fine to add new meaning to an existing brand if you can deliver. But throwing out the old meaning in a radical about-face can seem fake. When Safeway extended its brand, it was careful not to climb too far upscale.