Melissa C. Plaisance
Good morning, everyone. I'm Melissa Plaisance, Senior Vice President of Finance and Investor Relations for Safeway, and on behalf of the management team, I'm very pleased to welcome you to Safeway's 2012 Investor Conference. We have those of you here at the Waldorf in New York, as well as those of you who are listening in via webcast. We welcome you, all.
As you may know, we put out a press release about an hour ago, and we filed an 8-K with a handful of slides that were deemed material. So those will be available for you on www.safeway.com under the Investor Relations tab. And as it has been a tradition for us, we like to kick off the meeting with a brief video that'll give you a sense of many of the topics we're going to cover today.
Now before we have Steve Burd, our Chairman, President and CEO, come up and begin the meeting, I'd like you to take a listen to the Safe Harbor language.
I would like to remind you that management will make statements during this conference that include forward-looking statements within the meaning of the federal securities laws. Forward-looking statements contain information about future operating or financial performance. Forward-looking statements are based on our current expectations and assumptions and involve risks and uncertainties that could cause actual results or events to be materially different from those anticipated. We undertake no obligation to update or revise any such statements as a result of new information, future events or otherwise. For a list and description of those risks and uncertainties, please see our filings with the SEC.
Steven A. Burd
Somehow I was expecting a little more drama there, a drumroll or something maybe. Well, first of all, I want to walk you through our agenda here a little bit. I might start by saying that I've said this for years, probably never publicly, but this is absolutely my favorite meeting of the year. And the reason it is, is it's our opportunity to tell our story our way uninterrupted for, hang on, 4 hours, okay? We'll interrupt it with a break. In fact, if anybody needs to take a break, raise your hand, we'll turn up the lights, so you can find your way out of the room.
We seized the opportunity this year to abandon the warm weather of California, hoping to get a taste of winter, but we're a little disappointed in that. I think it's in the 30s or 40s outside, right? And then the last thing, for those of you in the room, this is not a beetle climbing up my tie. This is, in fact, a microphone that will pick up any whisper that you even make in the back of the room. Well, in up front, it's even worse.
Okay, all right. So we're going to start with guidance. Some of you have already seen the guidance. I'm going to walk you through that in a minute, but I want to kind of give you a road map because I'm going to cover the guidance. And then I'm going to sit for a while and Robert's going to cover another piece of the agenda. So right after guidance, Robert will come up and review our performance for year 2011. And even though you've experienced 2011 in terms of our quarterly earnings reports, I think we'll be able to give you a lot more color about the year and it's important because that really sets the foundation for how we think we're going to perform in 2012 and beyond.
After Robert goes through the 2011 performance, I'm going to come up. I've got 2 quick slides and I want to talk just a little bit about what I might call quality of earnings in 2011.
After that, we'll cover our growth plans for 2012 and beyond and that really is the heart of this meeting. And we decided not to just talk about 2012, but we really believe in many respects that we've been coiling a spring here at Safeway, and so I want to give you some dimension really on the next 3 years. You're not going to see projections for 3 years, but you're going to get a sense for why we think that we're going to have a good, good performance over the next 3 years in terms of operating income, which also, of course, will translate into earnings per share growth.
I'm going to talk about the elements that will drive core business performance. We're going to have Diane talk about some of the loyalty-building things that we're doing, but I'm personally going to take on just for U. And we may spend 45 minutes to an hour on just for U, and we think it deserves that kind of attention. I think you'll be impressed with the tool that we've created. We started that project more than 2 years ago. It's been in test for almost 2 years now, and we're ready to unveil it and roll it across the rest of our division.
In addition to that, part of that growth description here is going to involve Bill Tauscher, the CEO of Blackhawk, revealing for the first time something investors have long been wanting to see: the operating performance of Blackhawk. So we'll give you the operating income numbers for Blackhawk, and we'll give you in terms of pretax and we'll also give you the EBITDA. And Bill will give you a sense for why we think that's a real growth vehicle for us.
And then a year ago, we unveiled for the first time another entity we had created that we call Property Development Centers, which is essentially a shopping center development company, for the most part, anchored by stores, Safeway stores. We described that process last year. I think right now, I would say we have about 32 shopping centers under development. We're going to speak to kind of the income potential from the first 27 of those, and we will give you a sense for how the Property Development Centers will generate income over the next 6 or 7 years. And we'll give you a sense for the reliability of that income, and we'll also talk about the level of capital that we will commit to that business. And in our view, it is a relatively modest amount of capital and a very strong income stream.
And then I will also talk about the share repurchase strategy, how that plays into increasing shareholder value, and then we'll finish with a summary. The summary will be a bit different from years past. In the years past, I would pull some of what I thought would be the best slides of the conference and review those. We're not going to do that this year. My summary will be much shorter. I want to make sure we get to a Q&A period before we get to the lunch. So that kind of gives you a road map, 4 speakers this morning, and we're going to start with Robert.
Here you go, Robert.
Robert L. Edwards
Thank you, and welcome to all of you. We appreciate you being here and hope you find the conference informative. So as Steve mentioned, I'll cover a review of 2011 results. Pardon me.
Steven A. Burd
Darn, I'm so wrapped up in my own momentum, I still look at guidance as my purview, all right? So just stand there in the wing as if you're a second of some kind, okay? All right. So let's talk about the earnings guidance. Again, you saw this, I'm sure, already this morning.
Our guidance for earnings is between $1.90 and $2.10 a share. That's a bit higher. That range is a bit higher than what the current consensus is. In fact, I think even the low end of that is higher than the current consensus, but I think after today, you'll understand why we have that kind of a range.
ID sales. We'll talk about that in some length. We've tempered this a little bit. We're very optimistic about what we can do with just for U, and I will show you some metrics. I mean, we've got -- while we've never fully marketed that vehicle, I will show you some metrics that I think will give you quite a bit of optimism for what we can do with just for U in driving core business ID sales. But for right now, we're going to give that a range of 1% to 2%.
Operating profit margin. Last year, we thought it would be flat. We were actually down about 8 basis points. Now we're saying kind of in the plus or minus 5 basis point range, and then cash capital expenditures will be less than they were in 2011, and they'll run about $900 million. And then free cash flow will, again, be very strong, actually stronger than 2011 at $850 million to $950 million.
Again, I don't think this slide is news to anybody that got up early this morning because this has been posted, I think, Melissa, for a couple of hours. But -- so that's the guidance for 2012, and Robert, now you're ready to go. One more baton pass.
Robert L. Edwards
All right, thanks. So on the screen, we showed you the original guidance that we gave over a year ago and then our actual performance. So going down each of the line items, identical store sales, excluding fuel, on the right, you can see our actual performance was 1.0 at the low end of the guidance range that we had given. Inflation, as we measure as price per item in our stores, increased 3.2% or about 220 basis points higher than what our initial estimate was.
Operating margin was down 8 basis points entirely due to LIFO charge that we mentioned on our recent earnings call and I'll cover in just a few moments, compared to the guidance of flat to slightly positive.
CapEx. We spent about $1.1 billion. The original guidance we gave you was approximately $1 billion.
Cash flow came in at $751 million, at the low end of the range that we had given.
And then earnings per share, which is our reported -- $1.78 is our reported earnings per share of $1.49 plus the taxes associated with the Canadian dividend of $0.29 for a total of $1.78, which is in the middle of the range that you can see on that slide.
Now we had a number of significant accomplishments or highlights during the year. As you, I think are well aware, we returned a significant amount of cash to shareholders totaling $1.74 billion. That included $1.55 billion of stock buyback and then a total cash dividend of $188 million.
As I just mentioned, we achieved our guidance range in terms of earnings per share and free cash flow. Nonfuel identical store sales improved 300 basis points from a negative 2.0 in 2010, again to 1.0 in 2011. And then we maintained price parity and I'll show you some information on that in just a moment.
As Steve indicated, we've significantly enhanced our digital marketing capability with just for U and we'll cover that extensively during the presentation.
2011 was again a very good year for cost reduction and I'll give you some details on that in just a few moments. And then I think you're well aware the dividend that we made from Canada early last year of about $1.1 billion, also dividend some cash toward the end of the year as well. That was done in a very tax-efficient manner, and then Bill will cover later the very good year that we had in Blackhawk.
Now traditionally at this conference, we've included some comments on the Consumer Confidence Index, and you can see that beginning late 2007, early 2008, the significant decline in the Consumer Confidence Index reaching a low of about 26.9 in the first quarter 2009. And although there has been some improvement recently in the last reported metric, it was 70.8, well below historical levels.
Now on the graph now in red, we've shown our identical store sales relative to the CPI index. You can see that they are relatively correlated over this time period. We tracked -- our IDs track below the index up through about the beginning of 2005 and then as we began, if you recall, our Lifestyle store program, their ID sales moved above the index, stayed above that index until early in 2009 when we started to have deflation in the industry, continued below as deflation continued and then moved above the index in late 2010 and then '11 based on the success we were having and with identical store sales. So highly correlated with the Consumer Confidence Index.
Now as you're well aware, unemployment has fallen to a 3-year low at 8.3%. I'm sure you're aware that the underemployment index or rate is north of that as well and so some slight improvement in the unemployment level.
Now on this chart, we have listed identical store sales on an annual basis for the last 3 years, and on the right, we'd broken out our quarterly IDs for 2011. So as you recall in 2009 and 2010, we had significant deflation that affected the IDs, and then we achieved 1.0 in 2011. On a quarterly basis, you'll see that we improved from 0.4 to 0.5 in the second quarter and then the second half much stronger at 1.5% IDs excluding fuel, both for Q3 and Q4.
Now for the last couple of meetings, we've showed you our change in price per item. And the history there, as you recall, we looked over quite a long period of time when we think the average inflation in our stores measured as price per item is about 3%. You see in the 2007-2008 period, prices were moving up ahead of that and then we had almost unprecedented deflation, and particularly the change from 2008 to 2009, let's say, 550 basis points was really unprecedented in our industry and then deflation got worse in 2010. And then as we reported earlier, price per item increased in our stores about 3.2% in 2011.
Now on this chart, we've broken out price per item changes on a quarterly basis. I'll just focus you on the right portion of the chart where we've broken out each quarter in 2011. So you can see that in Q1, price per item improved by 1.2%, 2.7% in Q3 and then finally reaching 4.7% inflation price per item in the fourth quarter 2011.
I mentioned earlier that we had maintained price parity. We've had charts the last couple of meetings covering this topic. Basic conclusion on the left is we measure ourselves against our primary competitors on a shelf-to-shelf basis or prices our customers actually pay were essentially equal to our primary competitors. And there are 3 price checks indicated on the screen: late in 2009, Q1 of last year and then toward the end of 2011. And then on the right, we've compared or shown you the comparison or our price advantage relative to our secondary competitors. So the key takeaway from the chart is, is that we believe that we've maintained price parity during 2011.
Now the next several charts, about 8 charts, talk about our margins in historical terms, but primarily in 2011. So you can see that there is quite a bit of correlation here between the changes in price per item and our operating margin. So in the early years, positive operating margins and then based on the deflation that we saw in both 2009 and 2010, the reductions in operating margin. And then you'll see in 2011, our reported operating margin declined about 8 basis points. But when you include -- or exclude the effect of the 16 basis point LIFO charge that we took recognizing inflation during the year, operating profit margins were actually up 8 basis points.
Now the components of the change in operating margin. The reported operating margin are a 13-point decline in gross margin and then a 5 basis point improvement in operating and administrative margin. I'll cover both of those. So again, our reported decline in gross margin during the year was 13 basis points. But again, if you look just -- if you exclude the LIFO charge that we took, which was equal to 16 basis points, gross margin rate was, in effect, up 3 basis points.
Now I thought you'd be interested in this chart. And this chart, we've compared the change in our gross margins for each of the last 6 years relative to one of our key competitors. And the change in our FIFO gross margin, yet excluding LIFO charges, is shown in red and then a key competitor is shown in blue. And then if you look -- excuse me, if you look down at the bottom of the chart, you can see that we have indicated the differential in the 2 numbers.
So let's just focus on 2011 here. So our FIFO gross margin up 3 basis points, a key competitor down 33 basis points for a total differential better or worse in our favor of 36 basis points. And if you add the -- look at the average of these numbers across the bottom of the chart, you'll see that over the 6-year period, on average, our gross margins were positive 24 basis points relative to a key competitor.
Now I think one of the key takeaways from this chart is, and we'll cover this in more detail later, it's a demonstration of the benefits of our focus on shrink. We think that we are the best in class in our industry focusing on shrink, and so you look at the change in our gross margins compared to a key competitor, it is a demonstration of the evidence of the benefits that we derived from our focus on shrink, so very good performance on gross margins.
Now this next chart focuses on our O&A expense margin, and this is calculated by taking our operating and administrative expenses and dividing those by sales. So if you look over this period again, very positive performance in the early years, deflation affecting 2009 and 2010. And as you look on the right, our O&A expense margin was positive or improved by 5 basis points in 2011.
And here are the components of the breakdown of the O&A expense margin for the year. You'll see on the left that property gains contributed 10 basis points to the improvement. But again, 7 of those 10 basis points were included in our plan and included in the guidance that we gave you about a year ago. Depreciation as a percent of sales contributed 10 basis points. And then looking on the right, you'll see in the red colors, we made significant investments during the year to support future revenue growth, first at Blackhawk, and Bill will talk about that, I think, a bit in his presentation. And then you can see the 10 basis points negative impact from additional spending on information technology at Safeway and is primarily for the just for U platform that Steve will talk about in a few minutes. So very good control of operating expenses and an improvement of 5 basis points during the year.
Now let me talk briefly about some of the headwinds that we faced during the year and then we'll look at our cost reductions. There were a number of significant headwinds that we had to overcome during the year, the first being labor costs is always an item that we face; the LIFO charge that we talked about a moment ago; increased spending for information technology again, that's both at core Safeway as well as at Blackhawk; debit and credit fees were higher during the year, primarily due to increased usage and particularly, say, in our fuel stations based on the increase in fuel prices; distribution expenses were up and that's driven by energy costs; and then additional cost for utilities and repairs. And so if you add up these headwinds that are shown on the page, they come to about $360 million.
So this is a chart that we've showed you in prior meetings and we've updated this again. So just focusing on the top portion of the chart for a moment. We put together an ambitious plan for either cost reduction or profit improvement for 2011, which totaled $463 million. If you look at the upper right portion of the chart, you'll see that we exceeded the plan by about $10 million or a total of $473 million.
Now moving clockwise around the pie chart, you'll see that the biggest piece of our cost reduction or profit improvement program was gross margin-enhancing activities and the key initiatives in that area are shrink, and we had the best year in the history of the company on shrink performance, and we'll cover that in just a moment. Second, category optimization work that Diane and her team worked on a number of individual measures there that contributed. And then third would be the improvement in our consumer brands portfolio, and Diane will cover that later. We have a very strong portfolio, and they contributed to cost reduction and profit improvement during the year.
And as you move clockwise around the pie chart, you'll see that sales initiatives accounted for 10%, and then cost reductions in supply chain and in the stores contributed. Those can be energy efficiency programs, improvement in the utilization of our warehouses, a number of different measures there. And then finally, finishing up with general and administrative expenses were primarily driven by the improvements we've made in workers' compensation, and we'll cover those in detail in just a moment.
Now some may wonder based on our focus on cost reduction, how has that affected our customers' experience in the store? And so we regularly monitor a number of key performance indicators to make sure that we're providing a good experience for our customers. So if you'll look on the upper portion of the chart, you can see that our overall service score was 7.97. Again, this is on a scale of 1 to 10, so on the upper end of the performance we've had over the last 5 years. Check-out success was on target at 87%. And out-of-stock conditions are really best in class at 190 per store, and we monitor this very closely and I think we're best in class in this category. And then perishable presentation at 98%. And so our focus on cost reduction has not hurt the customer experience. In fact, I think on any of these measures, we would be first or best in class in the industry.
Now the next section of the presentation, we'd like to focus on areas where we think that we have a competitive advantage and there are 6 areas here: labor, health care, workers' compensation, energy, shrink and real estate. And our basic message to you is we believe that in each of the 6 areas that we're best in class at either reducing costs or implementing profit improvement initiatives.
Let's first look at labor. So on this chart, we have graphed our labor costs divided by sales. And then we've used 2004 as an index and so 2004 would be 0. Again, total labor costs divided by sales, and you can see that in 2005, '06, '07, 2008, our labor costs as a percentage of sales by 2008 had declined by 10% and that's based on contract negotiations. That's based on achieving efficiencies in those agreements, removal of unnecessary work, employee buyouts occasionally. And so very good progress on that.
And then you can see that the index has moved up somewhat. And I'll remind you that 2009 and 2010, we had significant deflation, which affected the denominator in this calculation. And so that by 2011, you can see that we were still well below the index in 2004. And so although higher than 2008, very good progress in managing labor costs. I think we are leader in the industry in this regard and best-in-class performance here. And you can see the compound average growth rate over this time period, it's indicated on the slides, so very good performance in managing our labor costs.
Now a second look at the change in labor costs here, and this is based on cost per hour from 2004 to 2011. On the left portion of the chart, we've listed the major cost categories and you can see those wages, health care, pension and other. And the key column is -- the key information is shown in the middle of the column. We've shown that compound average growth rate in each of these individual expenses and then what the relative weighting is to arrive at the total. So you can see on wages a very attractive compound average growth rate. Health care, and if you look at this health care number relative to national numbers on the increase in health care, is very impressive there. Pension costs, probably the highest compound average growth rate on the chart. And again, if you just think about the downdraft of the stock markets that's happened that's affected all pension plans, we're really in the same situation as many of the companies. And so as you focus on the bottom at the combined compound average growth rate, we've been very effective at managing our labor costs over this time period. And again, we believe that we are leader in the industry in managing our health care costs, and this is best-in-class performance.
Now the next area to talk about is health care management. I think we are known nationally and recognized for our innovative approach to health care, and we really I think stand alone in keeping our health care cost flat, about flat since 2005 relative to a growth rate that's at least about 8% annually.
One of the key focus efforts for health care management is improving the health of our employees. We've listed some statistics in the middle of the page here. What this basically means is we compare the health metrics for our employees. We have a program called Healthy Measures. And the group -- the numbers shown on the page are for employees who initially failed to meet a national biometric standard and then based on participating in our Healthy Measures program, this percentage -- so, for example, the first metric on blood pressure. Employees -- all employees in this group initially failed the national biometric standard for blood pressure. But after participating in our Healthy Measures program, 73% of those employees met or passed the federal biometric standard. You can see the statistics for glucose and cholesterol and the other metrics. And so one of the key areas of focus for our health care program is improving the health of our employees and we're enabling our employees to be better consumers by providing better information. And our plan is designed to provide incentives to encourage healthy living. And so as a result, the company saves money on health care costs, but also the employees save money and are healthier as well.
Now the next area that I'd like to cover is workers' compensation because I believe, here, that we have a significant competitive advantage. There are 2 key trends here that are indicated on the slide. The top portion of the chart graphs the number of workers' compensation claims per 200,000 man-hours. So in 2004, we had 8.3 claims for every 200,000 hours worked. And you can see by 2011, that ratio was down in the 30% range to 5.8. So excellent progress in reducing the frequency of claims, which is key to driving lower workers' compensation costs.
On the bottom of the chart, it lists a number of open claims that we have, and you can see that in 2004, it was 10,600 claims. The number of claims had been reduced to 5,700 at the end of the period here or a significant reduction. And so we're very active in trying to reduce the frequency and severity of claims and then also just we reduced the number of outstanding. And so one of the competitive advantages we have here is we may be the only grocery retailer who self-administers our own claims. Most other companies outsource the administration to a third party and so -- particularly in the State of California, but also generally in the insurance industry, we are known as having the best-in-class claims administration process. So excellent progress here.
One additional chart here. This graphs the compensation -- the workers' compensation cost in California where a high percentage of our expense is incurred for the average time off claim in California, and we've used 2004 as a baseline metric. So if you'll look at our costs, which are shown in red on the chart, basically over this period of time, our costs for every time off claim has been flat over this period. There are a number of industry studies looking at workers' compensation costs in California. And you can see in blue, we shown the industry trends for workers' compensation costs in California. And over this time period, they're up by 95% relative to our claims being flat over this period. So excellent progress here.
One last slide on workers' compensation, and this focuses just on 2011 to demonstrate the progress that we've made here. On the left, you can see that our planned expense for workers' compensation was $141 million. In the next bar, you'll see that we've achieved cost savings of about $39 million based on aggressively trying to reduce the number of open claims and reducing the number of accidents in the company.
The second bar focuses on new cost-containment strategies that we've implemented. Those saved about $10 million with some very innovative work that's going on there in terms of review -- electronic review of bills versus medical utilization trends
The third column, we've implemented what we call a culture of safety. So we're increasing the emphasis on safety within the organization. That program has just been underway about a year. It yielded $4 million of savings in 2011 and we expect additional benefits as we move forward through time.
And then the last bar, which is shown in red, was a negative impact of $21 million. And I think we've commented on this occasionally on the earnings calls. In calculating workers' compensation costs, we present value our expected liabilities and we use a 5-year treasury bill rate to do so. In 2010, the rate we used to discount the claims was 2.0%. In 2011, the rate for the 5-year T-bill we used was 0.75%. And so with a lower T-bill rate, that increased our expense by $21 million. And so the actual progress that we've achieved here in the $30-plus million range would have even been higher, but for the change in interest rates. So we are negatively impacted by that, just the way the accounting methodology requires you to calculate expenses. So this gives you a snapshot of the progress we're making on reducing worker's compensation, which we feel that we're best in class in this area.
Now in prior investor conference meetings, we've shown you a chart like this. I think one -- again one of the competitive advantages we have is in the area of energy savings. And if you recall in the 2004, 2005 time frame, we contracted with an independent power company to lease generating capacity, and we buy natural gas delivered to this independent power producer and they, in turn, produce power for us, which is returned to the electricity grid.
So what's shown on the page is our savings relative to regulated utility rates in each of the years shown. And you can see that over this time period, which includes an estimate for 2012, we have either saved or will save $564 million, and that the savings last year was in the range of $60 million, again relative to regulated utility rates and we expect that same level of savings to occur in 2012. If you look at the bottom line on the chart, this calculates the average savings versus utility rates, and that's ranged from about 13% in 2002 up to about 34% in 2006. So we're one of 2 companies, 2 retailers that have a license from the Federal Energy Regulatory Commission to buy power for ourselves, and we're really the only company that's actively using that. And so there really is no competitor who can duplicate these kinds of savings.
Now one of the other areas that we've emphasized is growing our fuel volumes and gasoline sold within our stations. So what we've demonstrated here is we've taken our fuel gallons sold at our stations, our U.S. stations so excluding Canada, for comparability purposes here, and that's shown as an index basically from the first quarter of 2010. So you can see over the last 8 quarters, our fuel gallons have grown about 25%, so very good success there. In the blue color shows the demand for U.S. gasoline over the last 8 quarters, and you can see based on an index basis that gasoline demand in the U.S. is down about 1% over this time period. So we clearly have gained share in fuel sales and has been very good.
I think that we've got to demonstrate this point. I could give you a number of reasons why we think this is true. But recently on one of the local station -- TV stations in San Francisco, we just opened up a new store in Pleasant Hill, California, which is in the East Bay, not far from our corporate office. And so a news team came out to one of our stations was interviewing our customers, and so rather than me explain the benefits and why we've grown our fuel volumes, we'll let our customers tell you.
So I think this is a very good advertising for our program here. And so again, we've been very successful at growing our fuel volumes, and it's helped generate sales in the store.
While we're on fuel, maybe one last slide on fuel. We believe that we have higher gross margins on our fuel basis than some of our competitors, and what we tried to do is show you what we think the premium is we achieve on our fuel gross margins relative to one of our competitors. If you'll focus on the gold bar on the right that you can see if you look over this period from the fourth quarter of 2007 through the third quarter of last year, the average premium we think that we get on our fuel gallons, we have a very experienced team that runs our fuel business, all from the energy sector. We manage all components of the supply chain whereas a number of our competitors outsource many of these key functions. So from everything from procurement to supply chain, but also to day-to-day pricing and the competitive checks we do during a specific day for each station and then adjust our prices and then the algorithms we use to set prices, I think, helps us generate a premium on our growing fuel sales relative to competitors.
Now one of the other key areas that we believe that we have a competitive advantage is on shrink. And on the chart, you can see that the average annual savings from 2000 to 2007 about $65 million. In the fourth quarter of 2010, we really reinvented the shrink effort and stepped back and thought differently about it. We set an aggressive goal to achieve $300 million in savings from that program, and so we've looked across all of the departments in the stores and really reinvigorated the shrink program, and we believe it's a healthy effort, meaning that it’s focused on improving sell-through, reducing inventory, reducing waste. And so as you look at the performance shown in green in the fourth quarter of 2010 and last year, it totals about $229 million. And the performance that you'll see in 2011 is the best performance we've ever had in the history of the company on shrink.
If you cumulatively add these numbers that are shown on the chart, it comes to just over $900 million in shrink reduction since the year 2000. So we believe and the evidence supports that we are best in class in reducing shrink in our business.
Now the next area -- the last area I'd like to talk about in terms of relative competitive advantage is real estate. At Safeway, real estate is a core competency and a competitive advantage. We believe that we have superior assets and an experienced management team. And then if you look over an extended period of time, we've created significant benefits here. And because of the growth potential we see here, which is a core activity, we are increasing our capital spending focused on real estate.
Now this first slide looks over the last 6 years at our gains on property dispositions. You can see on the top in the middle of the slide that our average gain on property dispositions over the 6-year period is $27 million. You can see it was a low performance of $13 million in 2009, and that was based, if you recall, at the -- based on the economic conditions then and the effect on property values we actually held off on some disposition and waited until 2010 to sell properties that normally would have been sold in 2009 and $42 million in 2007.
Now on the right, you can see that in 2011, our property gains were -- exceeded our average of $27 million. But you can also see we've shaded in the right bar that $54 million out of the $66 million was included in our plan and included in the guidance that we gave you. So on average, over a 6-year period of time, gains on disposition have been about $27 million.
Now on this chart, we've listed property impairments for the same time period, and you can see in the middle of the top of the chart on average, we've impaired stores or take an expense of about $49 million. And you can see that the low is about $27 million in 2007, higher expenses in '09 and '10. In 2011, it was $44 million and lower impairments last year because we had fewer stores with operating losses.
Now there are some have suggested that we exclude or should exclude from our income, real estate gains. Now for those that who would suggest that, I think you should also suggest that we exclude impairments because impairments are really the flip side of real estate gains. So what we've done, on this next chart, is we've combined the last 2 slides, gains on dispositions as well as impairments. If you combine those 2 elements in net property gains, you'll see the average income effect is a loss of $22 million a year. And so again, 2011 was higher primarily because of the sale of the Burnaby distribution facility. But if you include gains and losses, as well as impairments, the average annual loss would be $22 million a year.
Now this last slide on real estate looks at the cash flow that we've received from selling real estate over a 10-year period. And you'll see in the middle of the chart over an extended period of time the average cash flow from real estate dispositions is $121 million. Again, the low was in 2009. Again, that was based on poor economic condition, we held off dispositions and kept the properties that normally would have been sold then. But you can see over this period, the low, excluding 2009, was $80 million. If you look back in the 2003, 2004 time frame, $189 million, $195 million. And then again, based on the sale of the Burnaby property in Vancouver, British Columbia, cash flow was $188 million in that year. And so I think the key takeaway for investors here is that we generate significant cash flow and have done so over a long period time from disposition of property. And we think it is an area that creates value for shareholders at Safeway.
Now just one slide on our Lifestyle program. As I think you're well aware, we're approaching the completion of the Lifestyle program. At the end of 2011, 87% of our stores had been converted to the Lifestyle format, and many of the remaining stores will be replaced with new stores.
So let's just focus for a moment on capital expenditures. If you recall in the 2006 through 2008 period, we were spending heavily to accelerate the conversion of our stores to the Lifestyle program. In 2009 and 2010, we are able to reduce capital based on the condition of our assets, particularly relative to competitors. And then last year, capital spending was $1,095,000,000.
Now if you look at our capital spending relative to competitors, you can see in red it shows our spending in the early years shown here 2005 through 2008 again, we were pulling forward capital spending on Lifestyle stores to improve the condition of our assets, and then based on that, we were able to reduce our spending as a percentage of sales. And generally, the rule of thumb, we believe, in our industry is each company should be spending about 3% of sales to keep their assets in good condition and have enough capital for expansion.
And we've listed 2 competitors here, one in blue and one in green. And if you'll look at those -- the percentages, we think that our competitors have -- may have under spent on their capital. And as we look for -- first couple of conclusions, we think we have the best assets in the industry, which provides us a competitive advantage. And then secondly, as we move through time, our spending relative to others should be less, and therefore, our ability to produce cash flow going forward should be higher than a number of key competitors there as well.
Now just some detail on how we've allocated capital. 2010 on the left, 2011 on the right, and you'll see that total spending on the upper right was up $258 million during the year. If you'll focus on the red bar down on the bottom, that focuses on new stores. New store spending was up $88 million in 2011. Last year, we opened 25 new stores. 2010, we only opened 14 new stores. Spending was higher on remodels during the year. And then also in the green color, we spent additional money on information technology, about $20 million, and that was primarily associated with the just for U platform. And then you'll see in the PDC color, which is blue shown on the chart, spending was up in total $97 million or an increase of about $45 million. So that's a look at how we allocated capital during 2011.
Couple of slides now on free cash flow. I think we showed you these charts historically. Again, in 2009 and 2010, very strong free cash flow years. Again those were years where we had reduced capital spending relative to the 2005, 2008 time period because the progress on the Lifestyle stores and then we had a large onetime tax benefit in 2009. And then cash flow in 2011 was $751 million.
Now this chart explains the change in free cash flow from 2010 to 2011. You'll see the additional capital spending reduced cash flow from the prior year by $258 million. If you recall, we had to contribute to the U.S. pension plan that reduced cash flow by about $158 million. On the far right in the purple-colored bars, you'll see that working capital improvements increased cash flow by about $57 million. We had a very good year in reducing inventory. That was a primary driver there, and then real estate sales contributed a little bit over $100 million as well. So that's analysis of cash flow between 2010 and 2011.
Now just a quick reminder on the dividend that we made from Canada last year, and I mentioned that at the start of the presentation. We were able to do a dividend of $1.1 billion from Canada. I think as many of you know, we have an excellent business in Canada. It generates quite a bit of cash flow. We had trapped cash in Canada and so we were able to bring this cash down in a tax-efficient manner. Cash on hand, did some borrowings and had to pay cash taxes of about $100 million. We used about $400 million of that dividend for share repurchase and then $600 million was used to pay down debt.
This slide, just as a brief review of our cash dividend. We began paying a dividend in 2005. That totaled about $45 million. You can see that over the last 5 years, the increase in the dividend paid per share has been in the 20% to 20% [ph] annual range, and that by 2011, our dividend last year totaled $188 million.
Now on this chart, we've graphed the percentage of free cash -- cash returned to shareholders as a percent of free cash flow, and so we're including the dividends were shown on the prior chart plus the amount of money that we spent on stock buyback divided by free cash flow. And so you can see that in the 2006 to 2010, we were in the 75% range and even as high as over 100% in 2006. 2006 was relatively modest cash flow year, so the percentage looks high. And then based on the accelerated activity we've done on stock buyback in 2011, cash returned to shareholders, as a percent of free cash flow, was 232%.
Now just a couple of -- a slide on our debt position. You'll see that from 2002, when debt was $8.4 billion down through 2010, we had reduced debt by $3.6 billion and was a significant use of our free cash flow. In 2011, we refinanced early $800 million of debt that's coming due this year to support our stock repurchase strategy.
So just one slide on that. If you recall, and I think you're well aware, that we refinanced early those notes and we issued $400 million of 5-year notes and a $400 million of 10-year notes in the fourth quarter. We also completed the syndication of a $700 million term loan as well. And then we still have excellent access to commercial paper at the rates that we're showing on the screen there and so very attractive source of money.
Our current ratings are shown here. I think as many of you are well aware, after we had done our refinancing activity, we had met with the rating agencies. And as expected, both Moody's and Fitch lowered us one notch, and so these are our current ratings here. And the investment grade rating's important to us again because it provides us significant access to low-cost commercial paper ratings.
Now interest coverage, I think, is an evidence of the strong financial condition of the company. If you look at the 8.9 interest coverage ratio in 2011, you'll see that's the highest coverage ratio we've had in the period shown on the chart back to 2003. And in fact, at 8.9x interest coverage, it's the second-highest coverage ratio Safeway's had in the last 20 years.
Now this slide shows our interest coverage ratio relative to 2 competitors. And if you can see on the right, our 8.9x coverage compares favorably with the competitor that we've shown in blue. And then is over twice as high as the ratio for one of our other competitors as well.
So now just in summary of the 2011 performance, a number of significant highlights: We returned $1.74 billion of cash to shareholders; achieved both EPS and cash flow guidance; significant improvement in our IDs from 2010 and maintained price parity; significantly improved our digital marketing capability, we'll cover in detail in just a moment, achieved significant cost reductions; completed a significant dividend in a tax-efficient manner, which I think has improved shareholder value; and then finally, Blackhawk had a very strong year last year.
So that concludes the review of 2011.
Steven A. Burd
Thank you, Robert. One of the things I want to do is -- I'm sure this is fine. My fault. We're on now? Okay.
Probably should have said this at the beginning of the meeting, but we want to apply kind of what I call the White House standard, okay, to this meeting. I've been to the White House a number of times, and the President doesn't allow me to take photographs of him or anybody else. And so I know that BlackBerries can do wonderful things and smartphones, but we would ask that you refrain from taking photos, and we can see the photos because there's a little blip on the screen every time you take one. So if we can just play by those rules, that'd be great.
One of things I wanted to say is that I purposefully asked Robert to concentrate on some of the work that we've done in the area of cost reduction because if you just think about our O&A expense ratio given the low level of ID sales that we've had, it's extraordinary that we've been able to leverage our O&A at the modest ID sales that we've had. And so, we wanted to let Robert talk about it and give you a historical perspective so that when I get into 2012, I'll show a pie chart for the costs that we're going to take out of 2012, but I'm going to spend the vast majority of my energy on top line sales growth and Diane will do the same.
So I don't think we have anything more to prove on cost reduction. We're better than anybody in the industry. And the items that Robert featured, I would say, we're head and shoulders above anybody that we compete with. And if I were to add one in there, Robert, I might have added tax, the ability to manage tax as we treat as any other expense.
All right. When we announced our fourth quarter, we were a little bit surprised at the market's reaction to that fourth quarter. And as we sort of digest that, I decided to add 2 slides to this presentation. I'm not going to belabor it, and I think Robert's covered why we consider property gains and property impairments to be an integral part of being in the real estate business.
There's a tremendous advantage to owning real estate because it allows you to do a bunch of stuff, and particularly when I get into the PDC work, you'll see how advantageous that can be. But I think some people had the impression that our operating profit is on some kind of a decline. And so I thought I would talk about operating profit first. And operating profit in 2011 was, in fact, a bit lower than 2010, but it's worthwhile to look at some of the component pieces of that.
Very popular for people to take out property gain, and this is the perspective just comparing 2011 to 2010. I'm going to also show you another slide that talks about performance relative to guidance, but property gains were $66 million in 2011. They were only $28 million in 2010. So if you have a compulsion to remove property gains, you ought to have an equal compulsion to remove impairments because they are the flip side of this coin. You are never going to have gains without having impairments. And so if you want to make an adjustment, you should then take out the $44 million in property impairment in 2011 and the $72 million in 2010.
And then the whole purpose I think if I were in your position in trying to make any kind of adjustments is I'm really trying to understand the ongoing earnings power of the enterprise, particularly from a cash standpoint.
And so the LIFO credit or charge is merely an accounting charge, and it's an artifact of what's going on in the inflation world, and the reason we had such a big delta of $63 million this last year -- I've been in this business for 19 years. We've had deflation in 2 years. Those 2 years were 2009 and 2010. It was unprecedented, okay? Amount of deflation followed by not unprecedented inflation, but above normal inflation. So I would make an adjustment on the LIFO line if I were wanting to do all these adjustments. And then finally, kind of hidden from view, but we called it out in the earnings call, this interest rate phenomenon. You're going to see a slide later for me that in the '80s, the 5-year T-bill rate was 14% and some change. You're going to see that 4 or 5 years ago, it was as high as 4%.
And so it was hiding from view all of the hard work that we've been doing to lower accidents and to lower the cost of those accidents and closeout claims. The reason the closeout claim number is so important is the longer that claim remains outstanding, the higher cost the actuaries assign to that and logically so because if someone's not settling with you, that item is going to balloon.
So when you make all of these adjustments, you would get an adjusted operating profit, if you want to create such a term, of $11.70 versus $11.75. And so I would say that on the year, the operating profit was about the same in 2010 as it was 2011 with those adjustments.
Now let's look at the fourth quarter and again I probably won't take you through this line-by-line, but we reported $0.67 in the fourth quarter. It's common for everybody to compare that to the consensus estimate, which at the time was $0.64. And remember the consensus estimate begins with this meeting where we provide guidance. And as Robert pointed out, of all those property gains that we had in calendar year 2011, all but $12 million of them were contemplated in our plan. And I'm sure some of you recall, we talked numerous times on the earnings call about Burnaby and the fact -- the reason we moved out of Burnaby was predominantly so we could have a lower ongoing operating expense. That's why we did it. But we pointed out to the shareholders that there's an opportunity here for a relatively large gain. So that gain was basically embedded in our numbers in our guidance, and therefore, should have been embedded somewhere in the consensus estimate.
So the property gain in the fourth quarter -- and of course, we didn't know exactly when that would occur. We were highly confident it was going to occur in 2011, but you don't always know if it's going to be in the third quarter or the fourth quarter. I don't think any of us thought it was going to be Q1 or Q2. So embedded in the property gain guidance, and therefore, I would say consensus, was about $0.11, not $0.13. So we did better there.
On the property impairment, we did better there by about $0.01 on the LIFO charge. Remember, we came off a year of a credit. You are constantly putting a LIFO charge on your P&L each quarter. In the fourth quarter, it's true up time. So if you haven't put all the money there in the first 3 quarters and you try to do it on a ratable basis, and so LIFO actually hurt us by about $0.02 in the quarter. Workers comp, that’s that interest expense, going from 2%, 2.75% [ph]. Tax rate, we benefited.
Now we had said, I think, since the middle of the year that we were going to have a lower tax rate, but we ended up with an even lower tax rate than we thought and part of that was we had that extra dividend that we brought down from Canada for which we paid a lower tax rate.
And then on the currency side, currency is kind of hard to predict, but that hurt us by a $0.01 in the quarter. And then we, as you know, did a large number of share repurchases in the fourth quarter, but the amount that we did that was above what we contemplated only had a positive $0.01 effect in the fourth quarter. And obviously, it'll have a much more positive effect in 2012 and beyond.
But the long and short of it is, and frankly, I didn't know this was going to come out 7 and 7, but basically I think it says to me that there shouldn't have been that many big surprises, and I think the $0.67 was a real number. The other thing I said in the earnings call, if you're sitting there and you don't like property gains, well, then get used to it because we're going to have a lot more property gains going forward because of this entity that we've created. And I think when I explained the logic of PDC, you will start to love property gains, and we can give you a level of predictability that you can contemplate in your projections and frankly that might make everybody feel a bit more comfortable.
So I'm now going to talk about the growth plans for 2012 and beyond. First of all, I hope I don't have to say this in 2013. We said it on '09. We said it in 2010. 2011 is going to remain a challenging year, I think, for everybody in business, certainly for us in the retail food business. Our expectation is the economy is going to improve, but it's going to improve only moderately. I don't think anybody really expects anything more than that.
Inflation, which you saw from Robert's charts, peaked at 4.7% in the fourth quarter. Frankly, been running a bit higher than that in the first quarter, but it's our expectation, putting high inflation on top of high inflation, which really sort of started in the latter half of the second quarter. It's not going to happen. So we think that inflation rate will come down.
Sales increases, on a go-forward basis, are going to be driven by loyalty programs. We have some loyalty programs in place, but nothing like what you're going to see when I talk about just for U.
And then noncore businesses. Again, think about this over a 3-year time frame, but it's certainly true for 2012, will play in an increasing role in growing operating income. And I could take you back to probably 2006. Might have been the first year that we really talked about the idea that we found ourselves in a relatively capital-intensive, relatively slow growth business, and we didn't like that. And so we had as a strategy going all the way back to 2006 that we were going to develop some businesses related to the core that had low capital intensity and actually high growth because we have an ambition to be a growth company.
And actually if you were to look at our growth, I, of course, me -- from my perspective, I start with when I began with Safeway, we have outperformed the S&P 500 over an extended period of time and by an excess of 50% in terms of earnings per share growth. Last 5 years, not very good. But we think that's about to change. So we want to marry noncore businesses with core and accelerate our growth.
In terms of macroeconomic assumptions. Just so you know what's embedded in our thinking, Robert covered the unemployment rate currently at 8.3%. I could be surprised here, but I don't see this number falling below 8. And I think everybody has their own perspective here, but that 8.3% today doesn't feel that much better than the 9.2% 6 months ago. It really doesn't feel that much better, but I don't think it's going to drop below 8.
On the consumer confidence front, we've had some very low numbers for a long period of time. Now we've seen our first number in the 70s for the first time. You recall last year, it flipped up then it fell down into the 40s. And so we're kind of contemplating that this number is going to drift in there between 70 and 75. I actually think this number is far more important than the unemployment statistics. I think consumer confidence really drives everything.
Now the other factor that is overlaid from a macro standpoint is rising fuel prices and we've been talking about it for a long time. The first line on here is 2009. And obviously, you saw it move from just above $1.75 a gallon. Now, these are Safeway's retail prices, so we're probably higher than the rest of the nation because of our concentration in California. You saw in that Pleasant Hills, we're at $4.05 or $4.07 on the unleaded low-end range at that station, and the national average today is around $3.75. That's because of the California taxes. But it moved up steadily all throughout 2006 and then pretty remarkable -- excuse me, 2009.
In 2010, every single week was higher than every week of 2009. In 2011, every single week was higher. And now here in 2012, so far, every single week is higher. And you recall on the earnings -- on earnings day, I indicated that in the consumers' budget today, the fuel cost is about an 8.4% basket of spend and food is around 13%, 13.2%, something like that. And so I think there are a lot of folks out there that think this runs north of $4, which in California probably means north of $5.
Now I think, while Robert didn't say this, you probably know, if you don't, this will be new news, when it comes to fuel, there is no one that is lower than us. No one in the country. So we are the low price leader in fuel, and we use that to drive the business. Now with the ability to do more personalized pricing, which you'll hear about later, there's an opportunity for that to become even much more of a driver.
So our basic strategy for improving shareholder value is: First of all, improve the performance of the core business. And that’s where I'm going to spend a fair amount of time, and then Diane will help me with that.
Secondly, we intend to improve the performance or enhance the performance of what today would be the noncore component pieces of that, the most relevant ones for you today would be Blackhawk and PDC. But you should understand there are other noncore entities that we're creating. We may not have formed an entity, but they represent future income streams that we've been working on and not just for the last 3 weeks in preparation for this, but actually for years.
And then finally, I'm going to talk later about the share repurchase strategy, what's important to us. I might say now that we think this is an attractive way with our free cash flow to increase shareholder value. At the same time -- and you know right now that we're using some borrowed funds to accomplish that, but we enjoy being investment grade. We love our access to commercial paper. Given our coverage ratios, our access to commercial paper is much greater than most people at our credit ratings, and the rate that we pay is much lower than most people at our ratings. And I think that is -- that underscores really how the financial community views the quality of our debt. But even though that is an important component going forward, it is also important for us to maintain investment grade. So that kind of sets a limit and we know exactly where that limit resides.
So let's talk about the core business. And first of all, I thought I would just define it for you. The core business definition I'm using here, it involves the sale of items and services that are currently sold in our store today. So let me illustrate with an example. When we sell gift cards in our store, the sale of those gift cards and the profit that flows from that in our store, that's core. Now the margin that Blackhawk makes on distributing those cards to us, that's noncore. The margin that Blackhawk makes in selling those cards to other retailers throughout the globe, that's noncore. So anything sold in our stores would be considered core. So it's conceivable that something starts out as noncore and then becomes core.
Our approach to growing -- our approach here to improving the core business is fundamentally about top line sales growth. Now we're going to be every bit as good as we've been in the past at managing our operating expenses, and it's become part of our culture. We're just really good at this. As Robert talked about, what we've done in shrink, if you want, just think back or go back to your notes over the last 5 years and think about how many times other retailers that we compete with have featured shrink in their earnings call. If they don't feature it, trust me, they didn't remove $148 million in a single year.
Every once in a while, we monitor those calls. Every once in a while, we hear something about shrink. One of our competitors has a goal, I think, to remove $180 million, I think it's over 3 or 5 years. And we consider that just a little over a year's worth of work after having already done about $900 million. So we'll continue to be good at that.
So what's our strategy on the sales side? It's basically to build shopper loyalty, and the just for U platform that I'm going to walk you through is a critical element of how we do that. And then we'll continue on the cost side down the path of innovation. And it's about more than innovation, it's about discipline.
So when you think about building loyalty, there are lots of ways to build loyalty, some of which are fully activated at Safeway. One is to provide a superior shopping environment. That's really what the Lifestyle store does. In terms of the physical environment, we put that in place beginning really in 2004 and essentially at 87% complete, that will just continue to sort of drift and approach 100%. We have stores that we haven't lifestyled. We might have 2 or 3 years remaining on the lease. We're not going to lifestyle those stores. So it will take a while before that number looks like 100%, but it's essentially completed at this point.
We also believe that we offer a differentiated perishable quality, and that's a reason for people to be loyal to us. I don't have slides with me today, but I think last year, we showed you among our most loyal group of shoppers, that we were experiencing double-digit sales growth. That actually continues to this day. That was actually true also in the fourth quarter.
And then we're very focused on operational excellence. That speaks to the store standards, in-stock condition, the interaction between our employees and our customers. So we think that's a part of how you build loyalty.
But the next 2 bullets are also important and I don't know if I should use this analogy or not. You have to be probably over 55 or a movie buff to appreciate this. Diane is now wondering what I'm going to say, but as I thought about this conference, the movie, The Graduate, was very popular when I was in college. And if you're over the age of 50 or 55, you're going to remember when Dustin Hoffman asked the business guy for his best advice on what he should get into as a line of business. He said plastics. All right, we had 5 people. So 5 people in the room said plastics. Plastics is right. So what would I say? What's the secret to our success? Personalization. Interesting, it still begins with a P. But there's an opportunity here. First of all, consumers are demanding personalization, and we believe we are unique in our ability to personalize the experience.
So we're going to talk about 2 things. We're going to talk about something you've been hearing about for over a year, and that's just for U. Diane's going to talk about where we are on the spectrum of further clustering our stores, which begins to personalize the shopping environment and some of that shopping experience for our consumers. And then, we're very proud about our consumer brands. You'll see that the more consumer brands categories that you buy from us, the larger the share of wallet that we get. And we've got some killer brands, we've created over the last couple of years.
But if you're sitting there and you say, well, what's going to be the big difference between the 1% ID that Safeway produced in 2011 and, let's say, the upper end of the range depicted in the guidance or if you get to the upper end of the range, you're obviously knocking down much larger numbers in the back half of the year than you are here in the first quarter. And the difference is, frankly, our ability to personalize that experience and I'm quite confident when you see what we prepared for you, your confidence in our ability to do that will grow and I think significantly.
I'm going to start with a video. The video is going to quickly capture everything you're going to hear me talk about in the next, say, 30 minutes. And so I'm going to stand -- and why don't you hit the video? Something in here for shoppers, something in here for Safeway, something in here for shareholders.
Okay, now if you're sitting there on the webcast, you didn't see the film. All you heard was a bunch of music, but you will not have missed anything because I'm now going to take you through just for U on a piece-by-piece basis. And in fact, I'm going to take you through this through the eyes of a shopper, actually through the eyes of a California family. But before I do that, let me just make a couple of comments upfront. While we started developing this product some 2 years ago and have been in pilot at various stages of aggressiveness over that 2-year period, we built this platform to really capitalize on some of the existing shopper trends. I think most of us -- technically, I suppose you would say we're not in recession, but you'll never convince the American public of that. We've been in a lull for an extended period of time and so we think that we've created a lasting change in consumer behavior, and we don't think that's going to change anytime soon.
Increasingly, shoppers are engaged in a pre-shop experience. Probably everybody in this room, if you were going to buy an automobile, would engage in a pre-shop online experience. If you were going to buy a large flat screen TV, so let's say the most expensive flat screen TV out there might be $3,500 to $5,000. That's a meaningful expenditure. Well, when you think about the spends that a family has, they're easily going to spend $5,000 to $10,000 a year in food, and it's an activity they engage in every week. So part of what just for U does is take advantage of the growing trend among consumers to engage in a pre-shop experience.
Robert showed you essentially that we have maintained our price parity against our primary competition. I would simply remind you that, that is the shelf-to-shelf pricing. You're going to see here in a minute that if someone engages in a pre-shop experience and does it with regularity, there's an opportunity to beat that shelf-to-shelf by 15% to 20%. So if you want to know how we compete with the price guys, that's how we compete with the price guys and on a completely stealth basis because everything is personalized for that individual household.
So shoppers are in a constant quest to save money. And as you know, as the world becomes more digital and more mobile, one-on-one marketing will become the norm. And we think that Safeway, with its just for U platform, will be on the leading edge of that change. We think we're the only ones who really pull that off in this particular channel.
Now just to sort of underscore the pre-shopping activity that goes out there in the food space, some of these sites you would be familiar with, others you would not. For the most part, these are sites to help consumers save money. Most of them are coupon sites, and typically, you would go to that site. You would look for the coupons that were on there. More often than not, you print them and you take them into the store. Some of these sites have worked with retailers and there's an opportunity to download that to your loyalty card. But one of the things you'll hear me say about our site is the largest digital coupon site -- I haven't been to Brazil, so I'm just going to say in North America. All right? But there's a pretty good bet that it’s the largest site anywhere in the world.
So let's look at the activity or propensity for consumers to use coupons. It had actually flattened out in the pre-recession world, and this is 2.6 billion coupons in our channel. It took a jump of 23% in 2009. It jumped again in 2010 and 2011. And today, the vast majority of these coupons would be paper coupons, printed coupons, not really digital. All that's changing at a relatively rapid rate.
Then there's a group of folks who really are heavy users of coupons. And the definition of heavy users would be people who either use a coupon every time they shop or almost every time they shop. And so not everybody uses coupons. But in our world, given that it's digital, given that it's invisible, given that it's loaded on your card, we're now seeing people in our stores who never used coupons before that are now using coupon. So some people might have felt there was a bit of a stigma associated with using coupons, not with the just for U website.
So a 38% increase in the heavy users. Now if you look at the digital coupons that you can capture through a mobile device, if you go back to 2010, from 2010 to '11, that essentially doubled. It increased another 50-plus percent from 2011 to '12, and then it increased again in 2013. So not only is coupon use increasing, but the idea of mobile access to coupons and mobile redemption is also increasing. And that plays into what we've done with our new platform.
So the challenge has never been about personalization. The challenge has been about the delivery mechanism. We've had a loyalty card now for 14 years, not all, but the vast majority of conventional food retailers have a loyalty card. But the challenge has always been how do you deliver that personalized offer to the consumer?
We've been doing targeted mailings, and they're okay. But to a large part of the population, it's just more junk arriving in the mail. So it's really hard to distinguish yourself.
E-mails, texting, it's helpful. And I would be the first to tell you, in fact, I'm going to show you some of our own metrics on e-mailing, which I think are pretty impressive. But it's hard to rise above kind of the quantity of messages that people get.
Now for me, I don't get nearly as many e-mails as some of the rest of my executives because if I get some extra e-mails, I'm liable to text back or e-mail back and say, "Why did I get this?" But the average executive might get 300 e-mails a day. So do you really want an e-mail from Safeway? It seems at first blush to be a powerful way to communicate. It's very personalized. Now if the consumer gives you permission to do that, and their experience has been good value, different story. They're actually looking forward to that e-mail. And those are the kind of e-mails that we send out.
So think about just for U as a digital platform that we believe excels at one-on-one communication. And consumers can access their offers on their schedule, not ours. In fact, this is very much like having the Safeway cloud. Instead of that cloud being information, say, your music that you put there, accessible through your desktop, accessible through your laptop, accessible through your mobile device, it's information that we put there, about your personal pricing opportunities that you can access through all of those devices.
It's very important that consumers be able to access it on their time because consumers are on the move. So with a mobile device, you can access it while at a soccer game. You can access it while on a commuter train. You can access that while carpooling. You can access that while waiting in a doctor’s office. So there's no down time. If you want to, at the break, just go down to the lobby and see how many people are sitting there, waiting for something and they're on their iPhone or their Android device. That's time that they can be accessing just for U. So this is not a burden. Mobile devices, I'll cover that on the downtime. It works.
So this is all synced up. So when you're signed on to just for U and you have an iPhone, okay, everything you do on the desktop, everything you do on your tablet is also stored and accessible from your iPhone.
We started with the iPhone application and are moving also to the Android. So we believe that we've created a state-of-the-art digital marketing platform. And it provides relevant personalized offers to each shopper. That's the beauty of this. When you have all this information, you can, instead of engaging in what everybody has been doing for 90 years, maybe 100 years, mass marketing to consumers, and trust me, that will continue for some time yet to come. We'll continue to do it. But increasingly, that communication will be personalized. And so different items create a different response from different consumers and we can harness that through just for U.
And the whole idea here is to provide what consumers want, provide more relevance and cause them to be more loyal to Safeway. And I'm not just going to suggest these things happen. Before I finish here, I will show you the metrics, largely flowing through the Dominick's market because that's where we've come the closest to actually marketing this thing. But I would be the first to tell you, we have not hard marketed this at all up to this point. But that's about to begin.
And then we target shoppers also to try new brands, and I'll cover this in more detail. But this is particularly valuable to a consumer packaged goods company, historically, about 50% of their growth comes from new items. So you're going to see how much more effective it is to get a consumer profile from the CPG company, lay that up against the profile that we have in the purchase history we've seen and then drill those free trial offers directly to those consumers. The conversion rate is so much higher. I'll save that for the slide. I don't want to tell you now, I want those eyes to pop when we put that slide up.
So the other thing I would tell you is that 90-plus percent of all of our transactions are basically on this card. That number should be higher than most other retailers. And one of the things that we've been doing over the last 14 years, we are highly disciplined about this process. You can go in a number of retailers today and they'll ask you, "Do you have a loyalty card?" Because they didn't see you swipe one or they didn't see you enter a telephone number. And in some of those retailers, if you say, no, the checker brings out a card and swipes it for you to give you a benefit. Well, the problem is that destroys the integrity of your data. And so we don't allow that. We have a very quick in lane sign-up process so you can get the benefits of being a loyalty card carrier in our stores. We also have a fraud protection function in our stores. So that if the checker were swiping because maybe there was a reward going with increasing your own purchases, we'd be able to detect that in a matter of less than an hour. And we'd be able to shut that down. So we have been working on maintaining the integrity of our data for a long time.
So how does it work? It starts with a sign-in process where you register and I'm going to expand on this in a little bit. But you can register on the desktop or in Dominick's today, you can register on the iPhone. And that iPhone application will be available in Vons within the next couple of weeks. Shortly thereafter, we can make that available in Northern California, and I'll show you the rollout schedule in a minute. We have 2 ways to access it, and they're completely synced up. And then I'm going to talk about 3 sort of relationship areas on the platform.
The first is the coupon center, where you can access virtually any paper coupon that exists in the market and any coupons that Safeway may have created on its own. But they're all stored digitally.
Personalized deals. What that amounts to is that we offer our shoppers anywhere between 25 and 40 items on a routine basis that represent items that they have a history of buying and we've elected to give them their personal price. If that price, which doesn't happen often, if there's a large mass promotion underway and that price, that promoted price is lower than their personal price, which doesn't happen very often, it overrides their personal price and gives them the promoted price.
And then club specials, in any given week, we would have with 45,000 SKUs, we might have 7,000 to 8,000 items that would be marked down with a club special, essentially completely financed by consumer packaged goods companies. But everybody has their own sort of club specials. So that I'm going to show you a family here in a minute where I think that of those 7,000 items that are promoted weekly, there may be only about 140 or 150 that, that particular family buys. So the key is to make sure that they don't miss an item that happens to be in their pallet of purchases. And that's what this club section is about.
So the first 2, the coupon, you load the coupon and once you use it, it's done. The personalized prices could be good for as many as 7 days, it could be 30 days, could be, in some cases, as much as 90 days. So you can use that personal price all during that time period. We have a tendency when you act on that personal price, we have a tendency to renew that for you and give that to you again.
All of this gets loaded to the card. The club specials are already on the card, but we've put them on the site so you could add that to your grocery list so your grocery list is complete.
So larger site, I've talked about that. When you go on the site and then you go to the coupon center, it's organized, you can organize it different ways, but the default organization is purchase history. And so the beauty of this is there could be over 200 coupons available in the market that week, and there could be maybe 16 coupons to a page. So you're going to go through 14 pages of coupons, not necessary. Since it's organized by your purchasing history, you probably wouldn't go any deeper than the first 3 pages. But if you've got some downtime, you might be attracted because you might be buying the category, but you may have no history of buying the brand. And so we've made this really consumer friendly so the consumer doesn't need to spend that much time on the coupon site to get the items that are -- they're accustomed to buying. And there's no printing required. Simply download to the card. And when you do that, if you have an iPhone today, it's automatically downloaded to that device.
So I think most of us would rather leave our wallet at home than leave our cell phone at home. And so you always have your grocery list with you. And I'll show you how that works here in a few minutes.
On the personalized deals, our objective is to make sure that those personal prices are the absolute best prices in the market. Well, what we mean by that is no one in the market is going to have a lower price.
And on this site, we often provide a reference price. If it's an SKU that's not carried by one of our competitors, we'll reference our regular price. But if it's carried by anyone else, particularly a price operator, we'll feature that price operator and its price that week for that item. So the consumer can see the quality of the personalized value. And then, as I said, good for 7 to 90 days.
And then the club specials. The real advantage here is funneled to your purchases history and it avoids a scavenger hunt. So let's say that we have 7,000 items on ad. Let's say there are 150 of them that I have been known to buy. And I probably put items on my list, not knowing when I get to the store whether it's promoted or not, whether it's a Club Card special. But I can now organize this data by expiration. So I can actually make sure that an item that is on sale, that I wasn't going to buy this week but next week and it expires this week, but I have an opportunity to buy that at a discount. And so that's really the power of the club specials. The only other way to do that is to walk every aisle, look at every price tag and look at every expiration date. In the digital world, that's no longer required.
All right, I mentioned that we've been in test for some 2 years. It doesn't take 2 years to test this, but we have been learning so much and elected to make a number of changes to the platform. Now I should probably say this, I mean, I think that if you're a shareholder, you're sitting there, and you're saying, "Look, these guys are really good at cost reduction, I wish they were better at top line sales growth." We could have simply spent more money. And we could have driven the top line.
We made a decision 2 years ago, we were hoping to bring this into market sooner than this, we made a decision 2 years ago that we wanted to do something in a highly differentiated way. We wanted to do something that was leading edge. We wanted to do something that would give us a competitive advantage. And so it has taken us longer to get to this point, but we would estimate that we would have, based on the knowledge we have, 18 months, 2-year lead on anybody else out there. And so we've chosen to do this in a differentiated fashion and we believe it will work.
So the registration process when we launched in our first pilot market was a little bit rough. We didn't have all the kind of self-help tools. People constantly forget their password. I mean -- and so you've got to be able to get them to recover that right on the site without having to leave the site. And that's now true with our new registration process.
We initially, in an effort to get to speed to market, we use a third-party to help us with this. And it was -- it's been very awkward. There's been a baton pass that hasn't always worked very well. In addition to that, that third-party a much smaller company than us, not scalable. So we had to go back into the lab and basically, do kind of the Apple thing and develop our entire integrated platform ourselves. In the meantime, we have strengthened the basic underlying offer management system, which allows us -- you're going to see a slide later. We actually have 30 million unique offer sets sitting there on that platform, in case anyone who has shopped us in the last 12 months, but not with regularity, they have a tailored offer just for them.
And so it's a rather large system here. The receipt. Our receipt tape is fairly detailed. But we wanted to organize it in such a way that it reinforced all the different ways you can save at Safeway. So we reinvented the receipt. We created more reasons for consumers to return to the site weekly when we originally did the site, where the prices were good for 90 days and what we discovered in pilot was that we had to give them a reason to come back every week. And that's why some of these offers are only 7 days. That's why we got active on the e-mail side. And so you'll see what the propensity is to do that.
And then, of course, one of the things is that when you download your list and it says, let's say, Bounty, and you get to the store, and it's personalized price, it's not a coupon. Well, was it single roll, was it 3 roll, was it 6 roll, was it 8 roll? What was it? And so consumers were picking up an item and concluding that they didn't get their personalize price. And in fact, they picked up the wrong size.
With the mobile device, and I'll show you, when you download your list, you immediately see the size that you're buying. So I've just featured a bunch of these, we made over 100 changes to this site. And frankly, had we not put it in Northern California, where the entire office staff shops, we would not have been able to make all these discoveries and make all these adjustments.
So what are the benefits to the shopper? The first one is a extraordinary opportunity to save beyond the club specials. And we would put that number at 15% to 20% per week. Now you can only do that in a tailored personalized world because I can't take the 10 items that are important to this shopper and the 10 items that are important to that shopper and give both of them exactly the same prices.
But on a personalized way, I can afford to do that. And that gives me an advantage to compete with anybody in the marketplace, whether they're conventional, high-end or price players. The offers are much more relevant than the weekly ad. Will we continue to do the weekly ad? We will. But I can envision a point in time where that's not really very important.
Club specials, there's no need to miss them. Coupon clipping, organizing and bringing to the store, if you are a coupon shopper, probably not a large cross-section in this room, but you've had to clip them, that's taken you a good amount of time, then you've had to organize them in some ways and you had to remember to bring them with you to the store, then you've got to organize them in another way for expiration date. It's really a cumbersome process. That goes away. And then you have this integrated list, you can add things to the list that were not coupons, that were not personalize prices and weren't even club specials and they’ll appear on your iPhone when you enter the store.
So how about the benefits for us? Well, you can personalize these specials and generate a much stronger consumer response, translation, much higher sales. And I'll show you how we've done that.
You can save on markdown dollars by concentrating your spend on a much more personalized basis where you have a history of knowing that it drives incremental sales. And the beauty of all of this is that your marketing effort, your go-to-market strategy becomes a lot more invisible to your competition. So how do you deal with this if you're a price guy? Because that individual is no longer shopping at your store that's now shopping at Safeway. They're shopping at Safeway because it's more convenient, a better environment, better service, better in-stock condition. And they get the same prices for the items that really matter to me. And they're just trying to figure out where that business went. And they can't lower all of their prices again to accommodate that.
And we can spend efficiently against the impact of competitive openings. I was going to bring you an example of that, but maybe I'll just talk through it. I may have covered this on an earnings call, but a competitor opens, it's half a block from the store, everybody goes over to see what it is, we can actually now look to see who went to that store, what did they buy? We can personalize prices to that group. And when we did that, we got all of our business back plus another 20,000 a week. So we didn't design this as a competitive response tool. But it can be used as a competitive response tool.
And if you're a shopper, you invest about 4 minutes a week, or maybe more correctly, most of our regular users, since they don't do a stock-up shop every week, they're typically going on the site twice a month. And we have some that shop us less frequently and they're going on it once a month, but increasing their spend on that one trip by $40 or $50 with us for that one shop. So it's a relatively small investment in time. So what I'm going to do is I'm going to walk you through the site in the eyes of a real Safeway family.
Now I'm calling them the Wilsons. That's not really their name. We changed their name. The photographs I show you will not actually be this family either, but it will give you a sense for who they are.
So essentially, we've got a couple in their mid-30s. You see their ethnic background. They have 3 children, ages 2 to 8. So you can imagine they're going to be buying diapers and they're going to be buying things for older children as well.
This is a family with an annual income of $124,000. Give you a sense for their purchasing power. And they also have a dog. Again, I didn't want to disclose the name of their dog so I'm using Bosco. Bosco is actually the name of somebody else's dog that works for us, and they wanted to feature Bosco in this presentation. And then they also have a cat. Now how do we know that? We know that from their purchasing history.
And so we know that cat food and dog food are going to be important. We know that diapers are going to be important. And we even know what brand of diapers are important. We know whether or not they buy the lowest priced diaper or whether they are committed to one brand or another.
And so we tailor the offers to them to account for that. Like most California families, the weather is quite good out there. They're an active family. They're engaged in all kinds of outside activities, you have video games, all kids of that age. They have an Xbox, they will be playing video games. You can see Gloria, that's the name we gave the wife in this household. She's engaged in yoga, her son does soccer. Her husband still is engaged in softball. I play competitive softball until I was 56, and so I can appreciate that. So I would buy things to repair my muscles that were aching more than they should. And so we see a lot of business coming from him down the road.
So what Gloria is looking at right now is one of the e-mails that we sent her. And she always opens these e-mails because in addition to what has been on the site for the last couple of weeks, we have an additional special offer for her today. So she goes on that site and eventually, accesses the site. Once she gets to the site, this is the landing page that she sees. And the first thing she's going to do is she's going to navigate the coupon center.
So she's going to click on the coupon center and -- let me use it this thing here. You're going to see that this particular week, and this is a real week, I think it was in the first quarter, there were 146 digital coupons available. So sell fire [ph] and others would have had fewer coupons than that. But there are some that would approach us in maybe the 115, a 120 coupon range. But there are 146 coupons available. And if she wanted to navigate the site by category, she's free to do that, and this tells you the number of coupons that are available in each of those categories.
I'm not going to point out all features of the site. But you do see the different items. And I think I said earlier, usually about 15 items to the page. And if you were sitting on a computer screen, it would be readily apparent to you just looking at the packaging what that item is. So this starts in the left hand corner with HUGGIES. I'll blow that up for you so you can see it a little bit better. Then we've got small pizza. And we've also got some pizza rolls, which would be snack items. So this is organized, as I said, in default position to the purchase history. Because we found from our consumers that that's the most meaningful. It's going to minimize the time that they spend on the site.
Now I'm going to ask you to focus a little bit on the lower right-hand corner. I'm not going to take you through everything that she clicked. But what I'm going to take you through is a real shopping experience that she had and how much money she spent and how she navigated the site. And she spent about 4 minutes on this site. So up to this point, she's been on the site for 10 seconds. Because of the 2-year-old, she picks the diapers. And by the way, it doesn't show the size of the coupon, but that regular price for that diaper, without that coupon, is north of $25. So it's a very significant savings.
And then, you can see, she elects to go after the pizza. Again, don't know how many she's going to buy just yet, and then the pizza rolls. And she would continue to scroll through this as she works through the coupon, not likely to go beyond the first 3 pages. But in her downtime, possibly at the soccer game, that might be a really good time to go back on the site and just to see, particularly if she senses a store visit right after the soccer game, she can go ahead and look to see if there's some other coupon items of value.
Then she goes into the personalized deals section. And these are prices now that have been selected just for her. And again, just to point out in this thing, right now, she has 27 personal deals that have been selected for her. And I've indicated earlier, that would probably run between 25 and 40 on a regular basis. So the first thing we'll do is we'll kind of blow this thing up for you so everybody can see it.
And the first item in the corner there, which is a Frito-Lay variety pack. Again, we picked it for her because she has young kids. It's a good thing to potentially pack on a lunch. And in this case, we show you one of the price guys in the marketplace and what their price is that very week. So this again is a personalized item under the salad dressing, happens to be a SKU. We picked really 2 of the -- we can do it. We can pick a conventional player. We can pick a price/near conventional player as a reference point, or we can pick one of the math guys that are known to have great prices. Over in the far right, were you see butter lettuce, not a SKU carried by the players that I just described. And so we show our regular price.
So again, one click on this adds this to her card. And remember, now she's navigated, at this point, the entire coupon section. And she's gotten through a large part, if not all, of the personalized deals section. And I'm not going to show you the other elements in navigation because I can't do this real-time and give you the same explanation. That's why we put the clock there.
So now the third section of the site is her club specials. And so, again, it will automatically start with a category sort. And here, of all the things, all those 7,000 items that are in the ad, there are only 148 that her household has any history of buying. And we would welcome Gloria to buy anything in the store. But remember, this is a free shop tool. So we're just trying to help her the best way that we can. And so it starts with beverages, but she decided that she would not do it by category. She would do it by exploration. So that she just wants to -- she will roam the aisles and she will buy things that she needs that week. She may or may not -- she may take a pass if it’s not in Club Card special. But she wants to make sure that she does not miss anything that's in her palette of purchases that might expire in the next 7 days. So this then gets organized by expiration. So beverages is no longer at the top. She sees an opportunity to save on avocados, yellow nectarines. Now remember, she doesn't have to add these to the card, they're already on the card. What she’s now really formulating is a grocery list. So that doesn't say add to card, it says add to list. So we click that. And then the yellow nectarines, we add that. And we go through, in all likelihood, there's some cereal on this list. And so by the time we finish this exercise, we've spent 3 minutes 35 seconds on the site.
And again, the more often you use it, the more proficient you become and you discover other features of the site.
So now let's go to the, what we call the savings list. And you can see all the items that she clicks. So sure enough, there was a breakfast cereal, General Mills' Frosted Cheerios. And you can print this list. And when we first launch these pilot locations, people were printing the list and it was a little bit frustrating because, as I said earlier, it didn't dimension for them necessarily the size or they made a mistake and they didn't look at the fine print. Now they can e-mail themselves. But the best of all worlds is to make sure that this thing is synced up with your personal device. And in that case, you have everything that is on this site.
So it took her 4 minutes to do that. She's ready to engage in some other activities, maybe throw the ball for Bosco here, and she's off to a soccer game. While at the soccer game, she learns that this is a weekday game. So that on Saturday, she's responsible for the refreshments. And she's thinking, well, you know what, I didn't click on that Gatorade that was in my personalized deals. So maybe that would be a good item. So she pulls out her iPhone, she clicks on her personalized deals, she pulls up the Gatorade. It's a savings of $1.10 over where she might go to of price location and she adds that to her card. And she can also then add that to her list. Sometimes you would add to your card but not to your list because you don't want it on the list this week, but you're going to buy it maybe over the next 2 or 3 weeks.
So now you go to your Safeway store. And today, now with the new platform, if whatever personal price you have, it would work in Chicago. It would work in Northern California and it would work in Vons.
So now she's navigating the aisle and did not have bathroom tissue. Bathroom tissue, I think, Diane might touch on, not a category with a lot of loyalty to it. And she sees this tag. And it says, save even more. It's really saying that there's a digital coupon available. And maybe she's not a regular buyer of Northern, and therefore, she didn't get -- she may have never bought Northern. It may have been on Page 15 of the coupon site. But she sees it and is attracted to it. Goes to the coupon site on her iPhone, clicks it. Sees that it’s the 12 roll, makes sure she gets the 12 roll package here. Saves an additional dollar. So if I go back for just a second, okay, it was already having a club price. It was one of those 8,000. So with the coupon, she gets another $1 off that item. And adds it to her card. So this can be done as little as 4 to 5 minutes before checkout. So I know there are some people that don't think that Safeway is as good as others in technology, we disagree. You can't imagine how hard it is to actually make this happen, and we didn't have that in the first version of just for U, which is why we didn't originally roll out a mobile device.
So when she gets to the check stand, that will have been downloaded to her card and she'll get the benefit of having done that.
Now she's down another aisle and she notices the Bounty, she knows it's on her list, but she doesn't remember the size that, that involves. So she clicks on her list. There's the Bounty. Well, that doesn't tell her very much. So she touches on Bounty paper towels, and it tells her that she now has a personalized price here, which is really attractive. You notice there's no coupon for this. But it's the 6 roll. So don't pick up the 3 roll or the 1 roll, pick up the 6 roll and get this great price. So that too goes in the basket. Now how does the transaction end? The transaction ends with on this shop -- see, I don't want to blind anybody here, so she spent an entire $92. So let's, first of all, look at the Club Card saving. That's the value of being connected to the Club Card. And the Club Card savings in this transaction are $19.79. You can view those as being, in large part, funded by the consumer packaged goods companies.
The just for U personal items. You would find -- that was a savings of $13.60, which would be heavily financed because they're heavily targeted by the CPG world. And then you would have the just for U coupons, which are available to anybody in the market, financed entirely by the CPG world. And so the just for U savings are $29, which by themselves are a 32% savings. So in this particular shop, not 15% to 20%, but I can look at other shopping experience for the Wilson family and it might be 10% or it might be 15%. But we believe that regular users of this platform can achieve a 15% to 20% savings.
So if you then look at this family, so the pre-just for U versus post-just for U, what you see is they were always -- they were spreading their business around and there were coming to Safeway for the specials they would see in the ad 4x a week, but making very small purchases. Now they don't come any more often, but they've really committed more loyalty to Safeway. Pre-just for U, they shopped 8 categories. Post-just for U, Wilson family, now shopping 25 categories. Weekly spend used to be $65. Now an elite shopper for Safeway, coming in at $169 per week.
Again, I picked this, there would be others that I can tell you they're only increasingly their spend about $10 a week. But I wanted to just kind of show you the power of this. And we would have hundreds of families that would have a very similar experience.
And keep in mind, this particular example I gave you was in Northern California, where we have not marketed just for U in probably over 1 year. There's a little line item in the weekly ad. There's nothing to support it, and yet we continue to get increase registration in the Northern California market week after week.
And we only put -- we only recently put this, our own platform in place. In fact, it's been in place in less than 7 days in Northern California. So that's sort of a precursor to beginning to really market this thing.
Now there are other things that we do with just for U. We do e-mailing. And -- but if we send you 5 e-mails over a 5-week period and you do not open them, we get it, okay? We're not going to send you an e-mail in the sixth week. So we're really trying to prune the tree, if you will, trying to be helpful to our shoppers. But we send them often 6 items a week. And again these are personalized tailored to them. So it's a different offering for different consumers. And we organize it by items that we -- that you buy, that there's a history that you buy. And then we'd like to expand the selection a little bit. So based on your purchasing history, items we think you might like. And in this particular case, on the items that you might like -- I don't think I have a blowup of this. No, I don't.
So on the items that you might like, we have a Sara Lee pie in here. This particular offer was made to a relatively broad group of people on e-mail. That pie would normally sell for $6. Sara Lee, underwrote the entire purchase of that because it was targeted to people that are in the habit of buying pies and targeted to reflect some profile that they gave us that would say that would be a very good spend for them. They like to get people who they think could buy pies on a more regular basis. So at this point, being in only 3 markets, we still have millions of offers to go on in a personalized basis on a weekly basis.
So let me just show you a couple of statistics here. And these metrics are really going to come from the Chicago marketplace. And the reason I'm using Chicago, this is where we've come the closest to a fully featured offering and the closest to really marketing this to consumers.
So the industry norm for essentially opening an e-mail is about 15%. So we have a category that I'm going to call highly engaged. The highly engaged group goes on the site at least twice a month and gives us an incremental spend in the $10 to $11 per week range. So if they go on it twice a month, they're going to give us $40 to $45 a week of additional spend, heavy user. 59% of that crowd opened this e-mail.
Because they've got demonstrated value and they're eager to see what the offer is. In terms of another group that we call engaged, frankly, equally valuable, they only go on the site once a month and they only visit our stores once a month. But in that one visit, they spend at least $40 more than they did before they became a just for U user. So they don't open it as often because we're kind of not in their schedule as often but a 37% open rate. So on the highly engaged, 4x greater than the industry norm. The engaged, 2.5x greater. And the less engaged, much more like an industry norm.
And I think the open rate is what it is because these offers are targeted. Translation, they're more relevant than they would get from other people who are e-mailing. So what about the click-through rate? The click-through rate is about 17% on the industry norm and at 68% on the highly engaged. They engaged, a little less so but still very good. And the average click through for all 3 of these groups on a weighted basis is twice what the industry norms are.
So we think e-mails properly targeted, can be pretty effective. And then we also reinforce this whole activity with some hot offers from time to time. Many of those funded by the vendor community. And in this case, this one was Unilever. If you look in the upper-right hand corner, I don't think I have a blowup for you, but this is $3 off of ice cream, which probably goes for a normal $6. And so these are very attractive, and again, what Unilever is trying to do is they've given us their criteria. And then, they want to get people shopping across category. And so this kind of an offer is made. Sometimes we do themed offers. Here's an example of a themed offer. Again, it doesn't go out to all shoppers. It's relevant to a particular demographic sponsored in part by us and in part maybe by a consumer packaged goods company.
So from a CPG standpoint, digital coupons, obviously, there's a much more use of digital coupons than paper coupons. But they can also tailor coupons and offer them exclusive to us. They can target offers to shopper segments. I talked about new item, I talked about file, cross sell. They've got lost and lapsed shoppers. And in the pilot activity that we've done, we have not brought 300 CPG companies into the auditorium and said, "Hey, here's what we have to offer, we'd like to work with you." If you can appreciate in the early stages of this thing, we're dealing with 8 or 10 big players out there, who are willing to work with us as we develop this. And so I think the real potential of being able to do this, we haven't even scratched the surface in terms of the upside here.
So just to kind of show you. You can do a trial offer. And I'm going to show you the results of a trial offer here in a minute. And you can do all kinds of other criteria as well. Down to the bottom, these are actual offers made, where we made an offer to a select group of people, $5 off the continental bathroom tissue, $2 off of some frozen novelties. We've done some free introduction. Now if you offer the product free to everybody in the marketplace. It would just be extraordinarily expensive. But Coca-Cola has a profile of who is likely to like Zero. And with their information in our data, we can actually deliver that free item to that particular crowd.
So in the CPG world, your after trial, your repurchase rate would run anywhere from 2 to maybe in your best day, maybe 15%. And so we actually have a 52% repurchase after trial because it is targeted. It makes sense. And then, if you look, they didn't just buy 1 item, they bought more than 2.
And then, in the case of somebody who used to be a buyer, but no longer is, and we with the consumer packaged goods company have reminded them just how good their product is, we again have a 50% repurchase rate. And these numbers are extraordinary.
And so it causes a CPG partner of ours to want to do a whole lot more this. And I will leave you with this thought. The historically 50% of the growth coming from a typical CPG company has come from new product introduction. And we think we have the absolute best new product introduction vehicle. We have only experimented with this. We were beginning to ramp up and I can think of a product that we're going to do this with, which, I think, is going to be extraordinary. And it just so happens the manufacturing capability resides on the East Coast and the first market they’re going to enter is on the East Coast. And they want to do this, but we're not yet on the East Coast with just for U. We will be by the end of June. And so that compromises a little bit what we can do in the near term.
I talked about coupon usage, heavy users and trends in general. In the grocery sector, it's actually a negative use of coupon. In non-just for U division, it's positive. In just for U markets, again, just in kind of pilot stage, we have a healthy number. The bulk of the expansion in coupons has actually been in the health and beauty care area, which -- for which we're more of a convenience play that some of the other players out there. But one of the ironies here is that a relatively big player in health and beauty care would be in the drugstore business. And if you were to look at their shelf-to-shelf prices, you would typically be 15% higher than our starting point. And so I think there's an opportunity here, particularly with the new platform, for us to go aggressively after this business.
And our digital coupons in the rest of Safeway, without the assistance of this tool, are running about 2% in the fourth quarter. We're nearly 10x that. And again with no real aggressive marketing.
And then I thought you'd be interested in kind of consumer response rates, the different ways of communicating. So FSI and I've always used the term, probably not appreciated, but I referred to FSI as sort of a carpet bombing approach to getting product sales, just broadly to the marketplace and the redemption rate for all those coupons out there runs about 1%. Those mass-market coupons in a just for U market are running about a 9% redemption rate. Then I think probably everybody here knows about a company that a lot of retailers use. And their coupons that they will deliver in the check stand, it's really not based on a broad purchasing history. It's based on that particular transaction.
And so if someone who were to buy Coke, it might spit on a coupon for Pepsi. And frankly, that might not make any sense at all because we might know that this family has never bought Pepsi in 30 years or 14 years. I mean, it would be straight 14 years.
And then shopper mailings. Now shopper mailings, that would be a typical number. If you're an avid shopper mailer. If you are highly targeted and very experienced at doing this, as some people are. And you have a sophisticated offering system, you can get that number probably in the 30% range, which is very close to what we're experiencing with just for U. But here's the difference. The people that do that because, it is so much work, are doing quarterly mailings. So that's 4 a year. We can do 52 a year. We can do 104 a year. We can do this once a week. We can do this twice a week. We can do this virtually at will. We can do this for just this Saturday. We can do it between -- good only between the hours of noon and 6:00 on Sundays. Do 4 hours before Super Bowl, okay? So that's the power of being digital in this mode. I mean, to be in the 30s is very impressive. I think it's more impressive to be able to do this virtually at will.
Now the other thing I thought you would find interesting is -- and I featured logging in and downloading and redeeming, what's the relative usage of someone who is wedded to a desktop versus someone who has downloaded the mobile application and now is free to do this more hours of the day? So on terms of logging in, what this 47% says that is of the people that have tried just for U, if you're a desktop-wedded individual, about 47% of the time, you've converted to this and you become a regular. But if you are a mobile app user, the conversion rate between trial and usage is around 68%.
On redemption, the numbers are almost as good. And obviously, almost as good in downloading. So the mobile app is very important here because it gives you more opportunity to use the system and more opportunity to save.
So I mentioned earlier that we have 30 million offer sets, just in case someone decides today that they want to personalize their prices from Safeway and they get on this effort to maybe save as much as 15% or 20%.
So if I were sitting in your shoes and hearing all of this for the last 30 minutes or so, I think my reaction would be, this is really cool. This looks like it's state-of-the-art. This has a lot of potential. But here would be my question. This is a fundamental change in consumer behavior. People -- how easy is to change behavior? How readily can you get somebody who never used to do this to go online and do this? That would be my question. Well, I have the answer to that question. And I'm going to take you through this chart.
Now we have 30 million unique households that visit us in 1 year. But if you look over the period of 1 month or 1 quarter, it's a smaller unique set of households. So these are all per store metrics. So let's start with the top line. I'm showing you the average number of households that would visit the average store over the course of 1 month. Again, these are Dominick's numbers. Then, I've showed you the number of households that are registered. And you can see that the registration is running about 34% of the number of people that visit those stores. And then I've created a line, says that they've registered because we gave them free eggs if they registered. But outside of picking up the free eggs, they never returned to the site. So I would call those not real trial users. So if I subtract that from the registered group, I have just under 3,000 trial users per store. And then how many of them converted to regular use? The answer is about 47%.
Now I think that's an extraordinary number. After one real usage, almost half of our consumers with no marketing found enough value in this new behavior to become a regular user. Now that's just in the first 2 categories, the highly engaged and the engaged. We have others that are using the site with less occasion. And then I've provided for you the number, the percentage of the household together with the percentage of the spend. So how do you increase sales? You increase sales by increasing registration. You increase sales by creating increasingly more relevance in getting people to convert to regular use. And you become increasingly personalized and tailored in some of your heavy promotions to create raving fans. And that grows the usage, which increases the spend.
So at the end of the day, what we're looking for is more sales. So just taking the regular users from the Dominick's marketplace. And I've given you a range of incremental spend. What we've really measured is on the far right. It's really the upper range that we're experiencing right now. But the trick here is to sustain that and an even bigger trick is to grow that. So I've provided a little bit of range there because this is sort of early process and the platform is evolving. And remember, we have no Android application at this point, but that is coming soon. So that's a large part of the market. It can't be as mobile. And we know they convert to regular users with greater frequency. But just that incremental spend with those regular users, yields an incremental ID impact north of 2%.
Now the potential here is to do a lot of this tailoring with your promotions as well. And as I said earlier, I like being under the radar, quick response to competitive promotion. We can focus on lapsed shoppers. We can focus on people that are no longer buying particular consumer brands. And we can be very helpful to the CPG world.
So what I now want to show you is a promotion. I've disguised it a little bit here. And this is something that we have -- we're only now sort of engaged in but we're highly confident of the results. So this is a promotion that was done across the entire U.S. market. So it was a mass promotion. So it was spend X and get Y dollars off on your next shop, okay? So the redemption are the number of households that made the spending threshold, which was not insignificant. And then they got the extra dollars to spend on this subsequent shop. And we got over a 4-week period, a very serious sales lift. The sales lift that by itself, would have contributed more than 1% to IDs over that 4-week period.
We spent a fair amount of money. And if I look at the profit-to-sales ratio, it is pretty anemic. But we did move the needle. So it is possible to drive sales but at the expense of profits. Now we could do this, we could do this every month and it would be profitable in the aggregate, actually be worth an excess of $0.02 a share. But I would describe it in terms of incremental profitability, would be on the anemic side.
So we made the offer, we know who accepted. So what if, on the next round, we decided to make the same offer, but on a targeted basis, to people who had demonstrated tag [ph] record of saying, "That's valuable to me, it's relevant. I can make that spending threshold. This is good." My redemption would be a lot less. My sales would be essentially the same. My markdown spend would be dramatically lower. And suddenly, I've got a much more profitable promotion. And I could do this once a month if I chose to with a lot more incremental benefit.
I can do better than this. What if I just gave it to the household that gave me a positive result? After all, it's all stealth. I can do this. And my sales lift is dangerously close to the original one. I've now cut my markdowns in half. I've got a respectable profit-to-sales ratio, and I've got a real opportunity here to improve profitability.
Now so I could take a dozen things like this and find the right button to push, the right amount of relevance with all of our shoppers and for -- in some cases, I could probably finance 3 promotions for the price of one, get a lot more sales and a lot more margin, a lot more profitability. So again, we see this as the -- as a potential, and we're active on one of these highly targeted deals right now, we're going to launch another one in the middle of this month. And I think there's a lot of benefit, both on the sales, consumer and for us, the income size. So what does the rollout look like? I probably could have, if I were to read on this slide, it would have straddled Vons across January and February, who actually did kind of a soft launch on San Diego, major marketplace for us, make sure the new platform works without any difficulties. Then we've rolled out Vons completely in the month of February. We, again, being a little bit gingerly with the new platform, we did not engage in hard marketing on that site at this point. That's about to begin. Then we thought, well, look, we've got Northern California and Dominick's operating with the old platform with not the same ability to market that as we do now if we put them on the new platform with mobile capability. So they came live, 5 to 7, less than 7 days ago, right? Then we've got 2 divisions that will launch in April, another 2 divisions in May, and we should complete this by the end of June. And all of these markets will be launched with mobile applications. And they'll be launched with some really aggressive marketing to get trial with the site.
So I've completed the biggest part of the personalizing the shopping experience. And we think this is a good time to take a 10-minute break. And then, Diane will come up and talk about what you can do with store levels in terms of clustering and she'll also cover the proprietary brands. And I think there's coffee in the room next door.
Steven A. Burd
If I can have the mic here. All right, we're going to get started. We committed to a 10-minute break, and we still have a lot of material to go through and I want to make sure that we have an adequate Q&A session as well.
So I think Melissa was going to the other room. So I think, Diane, you're in a game-ready mode? As soon as Melissa gets back, we'll get started here. Everybody come in there, Robert? Okay.
All right, Diane, I'm going to let you pick up where I left off.
Diane M. Dietz
Okay, okay. So I wanted to jump into our marketing strategies. As Steve kicked off the meaning, he talked about what are we doing to grow core business, and our marketing strategies are very focused on what we're doing to grow core and also how we think about our innovation.
So I've really divided the 4 strategic platforms in 2 buckets: One is what I call a point of parity where we have to be right on one of the most basic ingredients for being in this business. And then the other 3 I would call points of difference. And with any brand, you want to really think about how do you differentiate yourself within your competitive space.
So from point of parity, we know how important price is, we know how important value is and we have to be right on price. So that is obviously a point of parity. That's what our shoppers expect. And then as we think about what are those points of difference where we uniquely want to build our brand and build the overall image of Safeway, there's really 3 key areas: unbeatable quality, and Steve touched on this; legendary experience; and world-class innovation.
So today I'm not going to be able to touch on everything we're doing within these buckets. Steve talked about just for U. Obviously, that is a big component of our marketing efforts and what my team is focused on, but I want to just touch on 2 additional areas: shopper-centric merchandising and clustering and then also what we're doing on our Private Label brands.
So starting out with shopper trends and kind of what informs our decision-making and what informs our strategies. We know there's been a continued shift towards organic, natural and healthy food. When the recession hit, organic growth slowed down in terms of the organic produce and organic products. But now as we look at the past year in food, organic and natural is actually growing at double-digit indexes, and we're actually double that of the average. So really nice trend within both of those. And also healthy foods, consumers are looking more and more for healthy options, healthy offerings.
The bifurcated recovery has also really caused a real shift in what premium shoppers are looking for and what value shoppers are looking for. And every day, we read what's going on with different retailers, the high-end retailers doing really well, like the Neiman Marcuses of the world. So they don't seem to be really feeling the economic pinch. And then we know that at the other end of the extreme, there are still a lot of shoppers out there looking for value and still feeling a really tough economic time.
There's a shift away from traditional meals to more snacking and mini meals. And really as we think about and we spend a lot of time with our shoppers and with consumers, sitting down the whole family at 6:00 p.m. eating one meal, that has changed quite a bit. So it's very different nowadays what consumers are doing in a time-starved economy. There's different meals for different people at different times within the same household.
And then more in-home meal. So again we're still seeing, because of the economic situation, more dining at home and a lot more entertaining. And you'll see some of the things that we're doing to really try to make use of these trends.
So now starting to think about shopper-centric merchandising and what has informed our decision to think about our stores and our offerings within the store, first of all, we know and this goes back to this personalized feeling and personalized experience, we need to have a relevant assortment for the shopper that's coming into each and every store. Not a "one size fits all" approach, but a very relevant approach when it comes to our assortment.
Solutions, not just products. And an example I would give you there is another trend we see is every day when people end their workday, they think about what am I going to have for dinner tonight? We know that a lot of folks get online. They look for ideas. And we also know they come into the store often with no idea what they're having for dinner. So we try to think about ways to give them very simple solutions. And one of the little terms that the merchandising team came up with was this idea of take it, bake it or make it. Some folks want to come in. They want to grab a rotisserie chicken. They want the meal prepared. Some folks come in with a recipe list. They're going to make a more gourmet dinner. And then we've got some folks who want an option that's just simple, put it in the oven. It feels like a homemade meal, but obviously, Safeway helps with that experience. So again, really thinking about these things informs our product offerings and what we bring to the shopper. And again, it all really leads to a highly differentiated experience, which has really led us to think more and more about this opportunity of clustering.
And I talked about this at last year's conference a little bit, but I wanted to further elaborate because there are a lot of a different things we think about as we think about clustering our stores. One of the things we look at is we look at our current store base and we think about the shopper demographics. Who's going into that store? And I can assure you there's a lot of differences when we look at various geographies. No store is alike. They're all different. They're all unique with unique shopper bases. And we think about purchase behavior, pricing sensitivity, and we basically came up with I'll call 3 macro buckets.
Now within each of these buckets, there's overlays and there's nuances. But to just bring it down to the simple, we really decided -- divided our store base into 3 clusters: I'll call one our premium store, which is really a shopper mindset doing well, not as affected by what's going on in the economy; mainstream, which is really an aspiring consumer, wants to do well, wants to do better, but really you would call it more of a middle-income consumer; and then we also have -- and I'll show you the numbers, a value store concept, which is again someone who's living on a budget. Times are tough. You're going to have a very different offering in that store versus a premium store.
So to kind of give you a representation of our geography, and you can see the breakout as we divided up our stores, so you kind of look at opposite ends. You've got just as many premiums as you do value and then quite a bit in the middle. And the thing that's important to remember here is you may have a premium store that also has a segment of value shoppers. So there's a lot of overlays that go into this design. It's not to say we just pick a store and say every category is going to be premium, every offering is going to be premium. We have to think about different nuances, and a lot of inputs goes into the decision store-by-store.
So again, we think about our shopper. We look at insights. We know from a card data what these shoppers are buying. We have a lot of history and demographics and our shopper segmentation, which leads us to store clusters. Now why do we care? Why do we want store clusters? It's really what does that enable us to do? And it's about thinking of pricing and promotion that speak uniquely to that target shopper, which is going to vary quite a bit.
Assortment and merchandising. I mean to give you some category examples, you can kind of see how this manifests and how this comes alive. But assortment and merchandising will vary pretty dramatically and even the shopping experience. So I know many of you have visited our stores when we've had tours. You can think about some of the offerings we might have in a premium store. Starbucks, sushi counters, that is not going to play as well in a value store. And in fact, it's going to give the opposite image of value. So again, these are the kind of nuances we are thinking about and incorporating as we look at our store base.
The other thing we do is we look at from a category standpoint because again you can think about the macro store, but really where this comes to life is down to the category level and what do we do in each of the various categories. And again, we think about demographics, income, age, gender. We think about geographical differences. As you saw the map, there's a lot of different regions that we're operating in. And then we look at category profile.
So I'll take geographics, for example, and think about a store we opened about a year ago in Georgetown. And if you think about a store in that area, it's very premium store, one of our most premium stores. And then I'll contrast that to a store in Riverside, California, near L.A. Tough economy, tons of houses foreclosing, high unemployment rate. Just think about those 2 opposite ends of the pendulum and the kinds of shoppers that are going into those 2 various stores. Very, very different approach on how we merchandise, what type of assortment, what type of solutions go into those 2 various stores.
And now at the bottom, what I also wanted to try to do is if you're sitting there and you're thinking about these category nuances, you're also wondering how far do you take this. Is every category right for clustering or only some? And what I would suggest to you is, again, you have to go into the details of the category, and Steve talked about bath tissue. You don't need a ton of variety, okay? So when you think about bath tissue, there's a few brands that stand out. Usually those brands will have a premium offer and maybe a mid-tier offer. We will obviously have a Private Label offer, but you're not going to go stand at the bath tissue aisle and want to browse for 20 minutes. You want to go get your product and you want to leave the aisle.
Now I’ll contrast that to wine. And wine is our most clustered category. And actually wine was the inspiration for a lot of this work. Wine started back in 2006, and we have multiple clusters for our wine area. And again, if you think about wine, that scenario where you want to go, you want to spend some time, you want to think about what type of wine you want, what pairs well with your dinner. So that's a very, very different category, which lends itself very well.
So again, thinking from a simplistic standpoint, some categories really don't need a ton of clustering yet even in bath tissue in a value store, I might have more facing of our Private Label business, our Private Label brand, than I will of the national brand. And then I go into our more clustered stores and again, it's going to really be based on categories that are really variety-seeking categories. Now within this journey of clustering, we have done about 40% to 50% of categories. And when I say done categories, what it really means is we're on a journey within 40% to 50%, yet we have the goal to cluster every single one of our categories, and I'll give you a little bit more detail about our clustering journey.
So to boil down kind of how does this happen and what do we do, I'm not going to go through every detail here, but really the merchandising team looks at various phases to the clustering approach. And really in the first phase, this is where we'll look at a category and we'll literally put together manual schematics. So almost if you picture putting stuff up on a board and taking various brands, moving them around, thinking about what gets eye level placement, how much shelf space do we give to different brands. So it's very manual to really look at what we think is the right schematic for premium stores, value stores and our mainstream stores.
We also look at which stores have the biggest potential. It takes a lot of time and a lot of effort to change out an entire shelf. So again, we think about let's start where we think we have the most right to win.
And then as we get into the next phase, we automate the schematics. So we make it easier to replicate and scalable versus trying to do this manually for every single store. We look at regional variances and pricing clusters.
Now when we get to phase 3, this starts to get into a lot more detail. So now we have automated store-specific schematics. So it's down to the map I showed you earlier. Every single store by category having its own schematic, multiple clusters.
And another thing that's really kind of powerful and cool about this is we can now cluster our advertising. So I might offer one price and one promotion in one market. I'll go back to my Riverside, California, versus Georgetown. I'm going to one ad version in Riverside. I'm going to have a very different ad version in Georgetown. And again, it goes back to being efficient with our marketing and our promotions and speaking to that shopper.
So I took the biggest categories and I wanted to just show you because I know you've heard about many of these categories in past years, kind of where we are in this phased approach. And again, we have looked at and are on a journey in about 40% to 50% of all categories that really lend themselves to clustering. But as you can see in some of our biggest categories where we think there was a lot of opportunity, you can see where we are.
So now I want to talk a little bit more about what are we seeing as a result of this. And I know you last year, many of you toured the store and you got to see what we were doing in coffee. I know you've been exposed to some of the things we're doing in wine and have heard a bit about yogurt. But as you can see from the metric, the second half of last year, we had ID sales growth in all 3 of these categories. We grew volumes, we grew transactions and we grew market share. So again, I think if you get this right, there's a lot of growth potential because it's more relevant to the consumer. They feel like we understand them when they walk into their store, and as you can see, starting to really see some nice numbers behind this effort.
So wine, as I mentioned, is our really most clustered category. And this effort started in 2006 and really went into store-specific assortment and pricing. And another really important part of the ingredient of what we've done in wine is really created a very unique look, tone and feel, including having beverage stewards that help with wine selections. Again, that's not in every store. You can see down at the bottom. We're growing our steward count, but it has to be the right store. I'm not going to probably put a beverage steward in Riverside, California. I'm absolutely going to put one in Georgetown. And again, these folks really develop rapport with the customer. They get to know the customer. The store I shop in, the minute the wine guy sees me, he's pulling me over. Let me tell you what we've got now. This just came in. I've got a case back -- in the back if you want to get it. So that's kind of their job. They really want to help you make decisions. Being in Northern California is great because we have very, very close relationships with a lot of the top wine producers. In fact, we've actually developed 34 of our own labels that have done very, very well. And then on the top, I just wanted to point out the effort started in '06 and you can see the growth that we're getting, and that's contrasted to our growth versus what the ID sales growth. So wine is dramatically outpacing, and again it gives us a lot of encouragement that we're on the right path with clustering.
Coffee is another category, and I'm going to split coffee into 2. I want to give you a feel for how it plays out in Private Label and how it plays out for national brands because again when you do clustering right, it's not just a benefit to our Private Label. It's a benefit to the branded players as well.
So in Private Label, we actually looked at our Safeway SELECT package and saw a real opportunity to grow this brand and we reformulated, changed packaging and we actually set a criteria in product testing to beat or match the best player out there. And I won't use their names because I don't want to get anybody mad, but we went and we taste tested every single SKU we had and we beat or matched every SKU of theirs.
So again, it felt really good because we can't offer products that when the consumers goes home and tries, disappoints. We've got to delight our shopper and make them feel good about the choice they made in buying a Safeway brand. So we expanded the space, especially in value stores -- we're going back to the clusters. And again, we saw a very nice lift and our sales are up 35%. Sales, volumes and share all up.
So now let me go to the opposite side of the house and talk about national brands. So last year, I think you saw coffee. But as I mentioned, clustering is a journey. You're never going to be at an end destination because every category is constantly bringing new innovation. Then you have to think about how does this innovation play out with various clusters.
So one of the things we have set as a goal is to really be best in class when it comes to see the shelf especially on big new items. I spent 19 years on the CPG side and it was always a frustration meeting with retailers and hearing how long it would take them to get to full ACV distribution. So we have changed that mindset and we want to be best in class. And as you can see on this trend, we got out quick, we were first mover and we expanded our shelf space. We've dedicated end-of-aisle displays, not only with K-Cups but also with machines, and our market share up -- is up significantly since we launched. And again, all metrics are positive. So we see that this can work for Private Label and it can work very well for national brands.
Yogurt. This journey began in 2011 and the interesting thing with yogurt is the merchandising team actually went to Europe and studied what they were doing in Europe. In Europe, there's much higher household penetration. There's a lot more frequency. And we thought, okay, there is a real opportunity here for us in this category, especially our geographies. So we increased our space in our relevant clusters. We got behind Greek first and fast and we put in a lot of effort into that because we thought it was a big innovation. We grew sales and volume in every single division. And our yogurt growth is faster than any other retailer out there. So again, it speaks to getting it right, making sure your cluster's right, making sure that you're out there first, fast especially on these big innovations.
Now this is kind of an eye chart. For those of you in the back of the room, you're probably thinking what is this, I can't read anything. But you can see the top of it. And really the other thing that I would point out is it's great if we cluster and we do all this work. But if the shopper gets to the store and it's still difficult to shop and it's difficult to navigate especially categories that have a lot of innovation. When there's a lot of new items, often consumers get to the shelf and say, I just want to find my product and there’s all these new things.
So one of the things we try to do as we cluster categories, we also see that as a real opportunity to improve shopability, and we try to organize it to help that consumer navigate. So across the top, you can see kind of the big headlines of how consumers are shopping. We know some are coming, looking specifically for Greek. Some are coming, looking just for kids. Natural organic is housed together. So again, there's always that opportunity to improve that shopping experience for our customer.
Frozen is a category we haven't really shared with you or talked a lot about, but another really good success story for us and one of our more recent clustering approaches. And what we really did again here was we looked at what was happening with our shopper. And first on value and premium, we noticed that there was a lot of different innovations coming, targeting those 2 ends of the spectrum. So we wanted to really make use of that trend.
In the health and wellness area, a lot more innovation in weight management, a lot of different companies launching into the space with new innovations, new items. And also natural organic is another area that we saw really growing within frozen.
Snacking is another big area, and I talked about an early consumer trend, we're seeing more entertaining at home. So even for Super Bowl parties, they want to come in and find snacks and different appetizers at Safeway versus going out and spending probably significantly more if you were to bring things home from the restaurant. So we thought about this as it relates to how do we think about clustering and how do we set the shelf within this space.
And then meal solutions, there's a lot more in-home consumption and rapid innovation in meal serving size with restaurant-like quality. One of the things we've seen is people think about frozen food and they think the Hungry-Man or this big tray of lasagna, and that's actually the opposite of what's happening from an innovation standpoint. There's more and more smaller meals. There's more and more opportunity to create unique meals for several folks in the household. So that has changed pretty dramatically, too, within the last few years.
So we thought about, okay, where do we place some of these big bets? And we thought snacks, pizza, meals, natural and organic were all areas that were ripe for us to think differently about, think about our space allocation and how we help the consumer navigate. We expanded our assortment, we re-prioritized the space and we integrated natural and organic as we saw this trend to be a lasting trend. We got behind that and really invested again in new items, which is a constant theme you'll hear me talk about. We wanted to get out there with things that we thought had real appeal to the shopper. And as you can see in every single area, our Q4 market share went up: pizza, snacks and family meals.
Again, this just shows -- what we try to do here is think about shopper behavior, how they shop the frozen aisle and really make it simple because this is another aisle that can be very difficult to shop. You got the frozen doors and you can't see in that well. So again, we thought about not only is there an opportunity to think about clustering, there's always an opportunity to improve navigation and shopability.
We also -- I mentioned snacks. It was really underrepresented. We saw an opportunity to increase that. We increased our variety almost 50%. We now have the most variety in the food space. We added several SELECT items. We actually advertised this over the holidays. We added more Snack Artist. I know many have probably seen Snack Artist chips and bags, but we actually took Snack Artist into frozen snacks as well. That was a great halo for that brand, and we're seeing snacks growing share by 100 basis points. So again, real progress when we get clustering right.
So now I want to talk a little bit about what we're doing on our own proprietary brands. I think there's some really exciting news in that area. And start with how do we think about our own brands and just from a strategy standpoint. So the first thing I wanted to mention is we really think about innovation versus replication. And again, I’ll contrast back to my days at Procter & Gamble. Most time when I met with retailers, I was always nervous thinking, I'm going to present an innovation and they're just going to go knock it off. So they're basically going to just replicate what I'm making. That's not what Safeway is about. Safeway is about true innovation that meets unmet consumer needs, and that's what our strategy is about. And I think as you see some of the things that we've launched, you get a feel that we have a very different strategy versus most retailers.
We really try to manage our portfolio as brands and treat them just as a CPG company would. Advertise behind them, promote them in store, PR. We think holistically about how we launch our brands. We try to create shopper loyalty using these brands and I'm going to show you some data that suggests that's exactly what it's doing, and we have 100% guarantee on every single product we have or your money back.
So the foundation for all of our innovation really starts with our consumer and our shopper, and the neat thing about Safeway is we serve every consumer out there at every life stage. From the moment a little shopper is born, we have products for that family. So again, we go across life stage. We think about all of the various insights, demographics when we're creating our brands.
In terms of our shopper, we also try to really stay in touch and in tuned just like the CPGs. We're out with our shoppers in store. We're conducting focus groups, and we're really trying to understand what is on her mind? What is she thinking about? And I boiled it down to just some of the thoughts I thought you might find interesting.
First of all, it's around meeting my definition of health and wellness. And you'll see not one person has the same definition of health and wellness, which for us is actually good because it offers a lot of room for innovation because as we dig into how consumer think about health and wellness, there are so many different options and things that they're looking for that we can uniquely create and meet their needs.
Simplify my life is another thing we hear a lot from shoppers. I don't have time. There's so much going on. I just want things to be simple. I want to come into the store, I want to find what I need and I want brands that are simple to understand.
Elevate my experience. Give me some delight factors. I mentioned when we tested our coffee products, we wanted to make sure that the quality lived up because the worst thing we could do is sell something with a Safeway name and that not live up to that experience. So again, it's about simple delight factors, and I'm going to show you some products that I think do that.
So on health and wellness, I'm not going to go through every single one of these, but as I mentioned, no 2 people in this room would have the exact same definition of what they're looking for in health and wellness. Simple ingredients. This was something that was really the inspiration for Open Nature. Consumers would tell us, when I go to the store and I read the label, there are things I cannot pronounce. I don't know what is in this product. I do not want to feed my children something where I don't know if it's good for them or bad for them. So that really was the inspiration for Open Nature, and I'll tell you more about how we use this inspiration in our packaging, in our advertising and every aspect of our communication.
Functional nutrition, changing dietary needs, self-help. This is another great one. We heard from mom, I want to feed my children really good things but as soon as they know it's good, they don't want it. Okay, well, we actually came up with a pasta that's made from vegetables, but it looks like pasta. It tastes like pasta. We call it self-help. You're giving your kids something good, but they think they're just having a pasta dinner.
Organic everything. This is another thing we hear is that a lot of shoppers are moving almost exclusively to organic. And I'll tell you for me, when I had a 2-year-old, I changed to organic. Not in every single thing, but my pediatrician said get organic milk, get organic produce. So that was a life-changing moment for me that made me think differently about my shopping. So again, these are all things that we think about as we look at our innovation program.
Simplify my life. Again, just a few examples for you. Functional packaging. We thought as we entered into snack, one of the things we heard as frustration from shoppers, I buy a bag of chips, I don't eat the whole thing. Hopefully, we're not eating the whole thing. But it goes stale, okay? So isn't it just kind of a simple idea to make a resealable package so it doesn't go stale? Simple delight factor that we put on our Snack Artist packaging.
Help me cook. We've actually come out with a whole line of products where the meats are already marinated and we have a kit that goes with it for vegetables, or fajita meat and then all of the veggies that go with the fajita. We've done the chopping, the prep, all of that for you.
Another one I really like is cooking convenience. For those of you who are grillers, when you try to put marinade on, it's sort of a pain in the neck. You either have to marinate the meat ahead of time or you're at of the grill, you put something on, the fire's flaring up -- I'm not a griller, but I've kind of observed it. So I see my husband doing it and I'm like, oh, my god, what is he doing? He's burning the house down. But we came up with a really simple package, which you can just spray it on. So you can actually spray your marinade, give it some flavor. Again, simple, really simple, but a delight feature that we were able to bring out in our innovation program.
Elevate my experience. Again, a lot of different areas that we've seen as really powerful to the consumer. Explosion in ethnic offerings. So people want to experiment. They want to try new things, and so we've innovated quite a bit in that area. World cuisine. I mentioned snacking before, the fourth meal.
And all different types of things, I have down in the corner, do-it-yourself decorating. We actually partnered with Oprah's party planner, and we actually put together different floral arrangements and things that you could do yourself. So when you're having a party at home, it's not going to cost you a fortune because we'll actually help you with decorating ideas, how to do floral arrangements, again at a very reasonable price.
So now let's step back and look a little bit at our portfolio. As I mentioned before it's about creating mega brands. It's not about creating a brand in every single category. It's about creating big brands with big affinity with the ability to go across many categories. That's a more efficient way to market. That's a more efficient way to reach your target consumer. And once they like a brand in one category, it's affinities within other categories, something we can use on just for U.
So again, I just kind of listed as we look at all of our brands, we try to meet the different needs of all those diverse consumers. You saw the visual with all of the different types of consumers we're trying to reach. We've got a very diverse portfolio of our brands, starting at the value level where we've got folks on a budget, a lot of great offerings in that, all the way to premium, baby care. And then all the way to the right, you see big, growing trend areas where we have innovated and we have these brands playing in several different categories.
So now I want to touch on Open Nature a little bit. Open Nature. Again, the idea and the brand idea here was about transparency. As I started on this whole idea of meeting my definition of health and wellness, people are concerned with what is in their products. So the team really came up with a very simple idea that I thought was just extremely powerful. Rather than putting the ingredients on the back, if you're so proud of what you have, why don't you put them on the front? Why don't you list what's actually in your product right on the front of your package? And so that's what we did and we put together kind of a description of the product.
We actually have over 150 items in 30 different categories. That's when you know you're onto a big idea when there's an idea that can go across multiple categories. Again, this is about innovation and very different -- at the very start of my point on Private Label, very different than just going and knocking off what a CPG company is doing. That's not what this is about. It's a very, very different approach.
So now we launched Open Nature. Again, we think about our brands in the same way a CPG company would think about it. We prepared a 360-degree marketing launch going across multiple touch points to hit our consumer from digital, PR buzz, microsites, TV, radio, print. Every aspect of what could reach our consumer, we had a unique marketing message.
On PR, we actually came up with this idea of Open Nature should be in nature. So let's build the longest picnic table. Let's try to beat the Guinness World Book of Records. We put it in Marina Green area in San Francisco, generated tons of buzz. We partnered with Tyler Florence who's a very well-known chef in our market, has several really great restaurants in the Bay Area, and we actually served our products. We got over 1 billion impressions with our launch of Open Nature that would rival any CPG company. So again, when you have a big idea and you think about marketing just like a CPG, we got a ton of impressions, a ton of news coverage and just really, really exciting launch for us.
We also used digital and social. So again, online display advertising. We worked with various social sites to get fans, to get messaging out there about Open Nature so that was another key aspect of the launch. Now I just want to show you the launch spot for Open Nature.
So a bit tongue in cheek, but as we heard from our shoppers as we prepared this brand and this innovation, this is top of mind. You go to a lot of the new upstart restaurants, farm to table, that's the big trend. So again this brand is doing very, very well. The advertising was simple, but it resonates with people and it resonates with this idea of fresh ingredients, no preservatives, all-natural.
I wanted to share our results, which I think Steve alluded to earlier, we're pretty proud of. If you look at all the launches that happened in 2011 and the point I would make here is our number compares to all of these other brands that are in every retailer in the U.S., and we were the fifth largest brand launch in all of the U.S. and all of you cover us, so you know we're in a small percent of markets compared to being in the entire U.S. So again a pretty good effort and when we saw this, we were really excited. We had a goal for this brand, but we think it just has a ton of potential. It's really resonating with our shoppers.
So now I want to talk a little bit about loyalty, and Steve touched on this. One of the great things about our brands is you can only get them at Safeway. And one of the things we've seen is as we look at our shopper group and average weekly spend and on the left side, these are our most loyal -- you've heard us talk about our elite shoppers. This is their average weekly spend and you can look below that and see that these elite shoppers are buying over 50 categories, 50 consumer brand categories. So they are basically buying a lot of our brands within all of these categories. Now as you go down all the way to the opposite end and you have occasionals, their weekly spend is a lot lower and they're buying consumer brands in 5 categories, but we see a real connection with the loyalty of our shoppers because you can only get the brands at Safeway. And again, in focus groups and in shop alongs, many of our brands consumers view as a brand from the CPG company like O Organics or Eating Right, not even viewed as a Private Label. It's just viewed as a brand that they really love and buy on a regular basis.
The other place I would give you in terms of looking at loyalty is we know from a share of wallet standpoint, I just wanted to highlight 2 of our bigger brands. When O Organics or Eating Right is in the basket, we have a 60% higher share of wallet. And as we look at all of our brands -- we don't have the Open Nature data, it's coming next month, but we really see this trend. So again, this is really tells us that there's a real connection here by the innovations we're coming out with and the loyalty we get from our shoppers.
We have a higher margin, obviously, with our brands, so it's good for us. It's good for the bottom line. And especially when we've got these consumers, our top consumers, our most loyal consumers putting lots of these consumer brands in their basket.
We have over 40% #1 or #2 positions within all of the scanned categories, and that's pretty hard to believe when you think about it. And I'm going to show you some examples of this, but having a #1 or #2 position in 40% of categories that are scanned. That's a pretty high number. And, in fact, when we look deeper into some of these categories, we have a #1 share in bath tissue versus Charmin. Big brand, lots of advertising, lots of marketing, new innovations. We are #1 in ice cream versus Dreyer's. So we have a bigger share than Dreyer's, which has been out for a long time, high-quality brand. Same thing on salsa, bacon. Cheese is a great story behind Lucerne. We've had the #1 position there. So again, really strong results and even beat HUGGIES with our Mom to Mom brand and baby wipes for those of you who may have a hard time seeing that in the back of the room.
We also received a lot of industry recognition this past year behind the launch of Open Nature, Snack Artist. I tease these guys a lot with their mug shot. They're available at lunch if you want autographs. They're giving them a hard time, but I'm really proud of what my team has done in the Private Label space. We have really strong players who have been with Safeway and then we added a lot of new folks from the CPG world. But really, really good story, creating loyalty and really creating blockbuster brands.
So in summary, I wanted to just touch on a few things. Steve obviously, talked just for U, the differentiated platform, how we can drive incremental sales, how we can personalize. This is truly a marketer's dream. just for U is the future of marketing. Mass marketing -- and I spent years in the mass marketing side, is becoming less and less effective. There are DVRs. You don't have to watch TV commercials. You have to figure out how you will market and how you will speak to each of your shoppers in a unique way.
So again, we think there's a real power in this platform. Clustering and shopper-centric merchandising. Again, that's part of personalizing that experience. We hear all the time people talk about shopping and they say, well, that's my Safeway. That's the Safeway I go to. Pretty simple insights, make it feel even more like their Safeway. And then I touched on corporate brands. We think we have a very unique portfolio. We think we have a unique way we innovate and we think that that's really creating loyalty with our shoppers, and that should lead us to greater loyalty, increasing our growth and we hope a real sustainable advantage.
So there we go. Turn it back over to Steve.
Steven A. Burd
Thanks, Diane. I think in the Marines, they call it double time and maybe sometimes they say triple time. So I'm going to go through a section here where we really pick it up because we've got about 1 hour left because of the detail that Robert went into on managing our operating expenses, I'll be able to cover that very quickly.
Much like 2011, we have a lot of cost reduction to do. There are some headwinds that go with this. Order of magnitude, those headwinds are kind of in the $400 million range. We may beat that. But I need a bunch of savings to offset that, and obviously, I need growth in sales to accommodate a growth in operating income. So a big effort in shrink, a big effort in business unit optimization and then a big effort on labor efficiencies and work removal. So I'm just going to quickly cover the 3 biggest pieces up here.
Shrink, we're very good at, but we intend to take another $67 million out of shrink in 2012, which would take us over $1 billion over a 12-year or 13-year time period.
Business unit optimization. That's taking a business unit, which could be something -- a category could be like frozen. But in this case, we're talking about negotiating some new contracts, some of which are already now done, enhance our merchandising in selected stores. This is some of the clustering work that Diane talked about, further leveraging our consumer insight. We haven't been serving the value segment in many of our markets as effectively. We put together a pilot in the fourth quarter of 2011, had some outstanding results. That began to roll just this week, Diane. And so there's a lot of upside there. And then improving product quality and reducing weight.
Flipping over to labor efficiency. We've had store standards in place for every conceivable function really for decades. We're very good at it, but we have an opportunity to get even better and we have an opportunity to reduce some of the work requirements in different departments across our store system. And then we have an opportunity as well to prioritize the focus that we give to improving people that are operating maybe below standard. So we intend to take over $60 million out of those functions.
And let's see. So I covered the 3 big areas. Again, moving at relatively high speed here.
You hear about new stores opening against us in Canada. You hear about stores here in the U.S. market. So the truth is that in the markets in which we operate, we are going to see an increase in the number of competitive openings against us, although it's still 30 percent down from a high point of 441 stores in 2008. But again, last year, we showed you the effective openings, which is looking at how each of those competitors really affect us and sort of reflecting that as kind of an effective opening. So effective openings will actually be down slightly in 2012 versus 2011.
Robert mentioned pension expenses. Our pension expense that we'll book in 2012 is going to be higher than in 2011, but the cash contribution we make to that will be lower, but these are significant, significant numbers and we wanted to draw your attention to them.
In terms of our capital spend, Robert already covered what we spent in 2011. We'll be spending, as I indicated in the guidance, around $900 million this year. And what you see is a reduction in several categories. You see an increase in our commitment to Property Development Centers and I'll show you the P&L implications of that in a little bit. And then kind of in the all other category, there's also an increase that's taking place there.
So our capital spend will continue in the range where it's been for the last 3 years. We anticipate it would step up slightly in '13 through '16. And if you look at that as a percentage of sales, remember Robert gave you kind of an industry norm, which I think those of us that have been hanging around the industry or observing it for years are familiar with that 3% number. That 3% number probably ignores the fact that a lot our sales now come from fuel, over $3 billion and so I'm looking -- I'm dividing this by total sales. So given the fact that a lot of that is fuel, probably the 3% has probably become more like a 2.8% or 2.9%. But going back to the chart that Robert presented earlier, we stand tall against all of our primary competition: assets in better shape, have been spending more capital, we can well afford to back off and still we will have outspent them over a 13-year period. Nobody has spent 2.8% nor do we think they have an intention to spending 2.8% over this time period.
Looking at free cash flow and starting with how we ended 2011 at around $750 million. We have our cash taxes in 2012, unless there's some legislative action, will actually increase. We've actually been operating under something called bonus depreciation since about 2001. That number has been anywhere from probably 30% to 100% and it's scheduled, I think, Robert to drop to 50% this year. Now that could change legislatively if people want to stir the economy a bit, but that's our current expectation. We will save money on the capital expense side because it's down. Asset sales will actually be up, largely as a result of PDC. Pension contribution, from a cash basis you saw in the earlier slide, will actually be down, and that's how you reconcile to about $900 million in free cash flow.
Now if you sort of project out, we think these are -- we haven't been built these plans for these future years yet, but as you try to look forward as we do, we think that because operating profit will grow, both inside the core business and in the noncore businesses that we create that our free cash flow should continue to build. Keep in mind the noncore businesses that we're creating, and I would argue even PDC are not particularly capital-intensive. Now when I go through the PDC material, you'll come to understand why I say that.
And then if you look at our free cash flow over the next 5 years, we're going to generate $5.7 billion of free cash flow. Our debt maturities, matched against that, would be at $2.5 billion, so well over $3 billion to do other things with. Now, of course, we don't have to pay off that debt. In all likelihood, we won't pay off that debt. So we're in a very strong position. The coverage ratio that you saw, cash flow to interest coverage in 2011, which stood at about 8.9%. Two, 3 years out, that number is going to be well into the double digits, which just gives us flexibility for any future activity we might engage in.
So I want to comment briefly on Genuardi's. We made an announcement that we sold 16 stores to Giant Foods at a price of $106 million. That transaction requires some FTC approval. We are still -- have another 11 stores that remain that we have to find a home for. Obviously, we can operate them before we do that or while we do that. And so we're really concentrating our efforts in market areas where we have a much stronger presence.
Now those will be listed as a discontinued operation, and so all gains and losses will be presented below the income line and so you'll see a split between continuing operations income and then discontinued operations. The operating results of those stores will not be reclassified. In other words, while we operate them, those will enter our continuing operations. But the implications of the sale and impairment charge, which is coming plus a gain, which will more than offset the impairment charge will be booked essentially below the line, and so the gains and losses will not be recognized over -- the gains and losses will be recognized over more than one quarter. If we booked it above the line, our income guidance would, frankly, be higher, okay? So we're not booking this into ordinary income.
You always take the impairment charge first, and that's one of the reasons why we keep saying you can't decouple these things. You take an impairment charge. Even though you're anticipating you will sell that asset for a gain, you have to take the impairment charge when you make the announcement. So again, below the line we'll take a pretax income charge of $13 million. Current estimate is somewhere between the second and fourth quarter. We'll actually book a large gain on the sale of those assets, so for the full year it's a pretty serious number. And from a cash standpoint, it's worth almost $100 million in cash back to the business.
So now moving on and these are not -- we're not through 1/3 of this. We're through about 70%, maybe 75% of our agenda. So I want to talk about enhancing and creating noncore businesses, and what we're going to do, I think, if I got the order right here, is I'm going to let Bill Tauscher go through Blackhawk, and then I will come back up and cover PDC.
And just a couple things about Bill. I've known Bill for almost 20 years. We served on the Vons board together when I joined Safeway in late 1992. We later asked Bill to join the Safeway board. So he's a unique presenter today. He is both the CEO of Blackhawk and a longtime board member of Safeway. By way of background, Bill, I think, would describe himself as a lifeline entrepreneur, and he's been on the Blackhawk board since that board was formed. And so he's a very logical guy to take Blackhawk to the next level of growth. And when you think about the numbers that he produced in 2011, we're well on our way. He will reveal the income numbers and EBITDA for Blackhawk. And when he finishes, I'll come back and reconcile that. Maybe that's not the right word. In 2006, we identified to all of you that at the end of 2007, we would produce $100 million from the efforts of Blackhawk.
When we did that, we said there were 3 pieces. We consistently said that. We said there's the contribution to the Safeway P&L. There's the contribution to the Blackhawk P&L. And in 2006, Blackhawk was still managing the miscellaneous or we call ancillary income from Safeway. We took that back so that Blackhawk could focus on the prepaid business, and I'll show you how those numbers work, and what the total of those 3 components look like today. So Bill, you're up.
William Y. Tauscher
Good morning, everybody. My job today is to shed a little light on Blackhawk. It's been a little bit hidden from view over the last few years, and hopefully today, we'll enlighten some of you.
There we go. Blackhawk, as I think you all know and Steve's spoke on it before, was essentially formed out of this idea to figure out a way to gain leverage from the 30 million shoppers that shop Safeway stores over the course of the year. The simple idea was to figure out something to sell those shoppers that wasn't traditional in a grocery store and then make that into a business that could spread even outside Safeway.
So the idea was to create a growth business, not one that certainly had the growth characteristics of a grocery chain. And Blackhawk has certainly accomplished that and it was intended, and you'll hear a little more from Steve today, to be the first of a number of ventures utilizing this same concept.
So what did we create? We created a distribution company. It's, in fact, the largest third-party distribution company for prepaid gift cards literally in the United States, and for that matter, the world. It distributes those cards through a network of about 72,000 retail locations. In fact, in the United States with the primary locations or the most productive locations are the grocery chains, and we have over 90% of the top 50 North American grocery chain stores. We offer cards across 650 different providers or issuers of those cards. So a huge breadth of content. And of course, our products include closed loop gift cards, open loop gift cards, telephony or prepaid telephone cards and prepaid financial cards, a broad range of cards not just gift cards today.
If you look at the history of Blackhawk, Safeway essentially founded or put together an entrepreneurial team back in 2001 and that team's mission, of course, was to create something like Blackhawk to explore these different ideas. And in that same year, the idea to sell gift cards in Safeway was, in fact, launched. The next year, that idea moved out into other grocery retailers across the country. The following year in 2003, Blackhawk was formed as a vessel or an entity to hold these activities. In 2007, after going to Canada, it moved outside North America to the Far East, Australia and Europe in particular. And by today, and 2011 was really the year that we accomplished it, all the necessary steps for Blackhawk to stand alone has been accomplished. So operationally, system-wise and financially, we completed a whole series of tests so that Blackhawk would be in a position if it needed or wanted to be a stand-alone entity.
Now if you look at the product and services of Blackhawk, we put up here 7 boxes. The top 4 are how we think of sort of the base core business, the one that we've historically had. The first one, of course, is the closed loop gift business. That's gift cards issued primarily by retailers, gift cards that are issued and can be bought in all those 72,000 distribution points, but in fact, can only be redeemed, therefore, closed loop in the stores that issued them. The open loop cards are cards that are again bought in those 72,000 distribution points, but can be redeemed in all the sites that Visa or MasterCard or American Express are redeemed in, therefore, the term open loop.
Prepaid telecom is a category that many in this room don't think about. Most of you probably have your cell phone with a contract. In fact, the prepaid telephone category is the fastest-growing category in telephony. It's very dominant in the way telephony is bought outside the United States. It, in fact, happens to be as large a category for third-party distribution as the gift card category, and we'll talk a little bit about our opportunity in that regard.
And we have some other services, marketing and card printing, et cetera, that sort of tuck in with those.
Now our new categories, ones that represent future growth for us, is we've entered over the last couple years the prepaid financial marketplace. Some of you may know that as a Green Dot company or a NetSpend company, 2 companies that have gone public in the last year. And, in fact, Blackhawk has its own branded product. It has set up its own platform to process those products, its customer care capability and all the program management capability in that product, as you hear, is growing very dramatically.
In the last year, however, we became a distributor across our network late in the last year of Green Dot and of NetSpend, therefore, whole category for prepaid financial products. I'll talk to you a little bit about something we call the secondary market. There's an emerging market of essentially exchanging or redeeming gift cards and getting people the correct gift card that they like to have, and we've acquired a company late in the year in that regard. It's growing tremendously fast, and we'll talk about its opportunity.
Finally, we'll cover what we call the digital wallet services, which is Blackhawk's, frankly, requirement and opportunity to move into the digital space in aggressive way.
Now if you look at the closed loop categories, we categorize them here in different buckets. In each of those categories we, of course, have the leading brand that you would recognize. We have a full collection of brands in each of those categories. We've actually been adding to our content as we've sought out both regional and local cards and made sure that the categories were as robust as they could possibly be as we expanded our presence in the stores.
If you look at the distribution that we have, of course, grocery is, by far, the most productive place for gift cards to be sold. It's the most frequent shopped. As we mentioned already, we've got a huge position in the U.S. grocery market. If you go down to the right-hand bottom corner, you'll see we've begun to duplicate that position internationally. Loblaws, the biggest in Canada; Tesco, the biggest in the U.K.; Woolworths, the biggest in Australia; Carrefour, the biggest in France; Albert Heijn, the biggest in Netherlands. So in these cases, we're replicating a formula that we've done.
One of the new trends in the last couple of years that's also been adding to our sales is that we went to our card partners, the specialty stores and what we've labeled as the other stores, mass merchants and different types of department stores, and they've become to be distributors now of the content that we've developed with other retailers. And many of them are growing very nicely with the selected collections of product that we've got them distributing.
And finally, a couple of years ago, we opened up an online presence. Today, we operate the largest online gift card site, and we have made and arranged with exclusive agreements for that gift card site to be distributed and offered through Amazon, eBay and Staples, which, of course, you’ll recognize are the biggest sites for such things on the Internet.
The big challenge for our business is to literally have the customer recognize that we're in this product -- the grocery stores are in this product. We started with very small displays and over the years we followed a best practice, if you will, as the content got added of creating these destination displays.
You see on the left our newest display. That display, just to give you a sense for it, fills about half an aisle. It's in the greeting card aisle, which is a natural affinity and that display, itself, drove double-digit sales increases without any other difference. So we've learned as the category and its presence gets larger in retail, it has a huge impact in sales. And you might ask the question, well, what's the retailer doing giving all this space? Let me give you a couple simple facts. The greeting card -- excuse me, the gift card category in grocery today, if you look at conventional grocery in the grocery consumer product goods area, is somewhere in our best practices stores between the fifth and sixth biggest category in that store. It's the fastest-growing category in that store, and of course, there's no inventory cost in that aisle. And it creates one of the highest returns, either 1 or 2, in the store in margin or contribution return per square foot that it takes up.
So what we've done, of course, is striven to get our retailers to adopt the largest category, causing our consumers to really be aware we're in the business. I talked to you a little bit about telephony earlier or telecom. We found that we have this huge category across retail today that we're not really participating in. Third-party distribution in telephony is about the same size as gift. Unfortunately for us, it's largely done in Wal-Mart and Target, small bodega stores, convenience stores and the like.
So what we have done is essentially put destination stores or started to do our destination sections, if you will, in grocery stores to bring that business back into our grocery retail footprint. And my comment that outside the United States, that's where telephony is bought, and of course, this category has begun to grow as we've got new smartphones with the Android operating system and we've got all-you-can-eat product offerings where you can buy a month's worth of service without a contract across the various name brands that exist.
This is the double-end caps that's in many of our stores today. You've seen some pictures of those before. I talked about points of interruption and awareness. The idea's to put multiple locations throughout the store, not big footprints. Here's a tower location. Sometimes they're in front of the stores as you come in. This one shows it near a floral category, an obvious affinity, might be near the bakery. And then, of course, one of the best ones for awareness is the checkout lane. Most of our best practices stores now have a prominent display in their checkout lanes. And while it's not necessarily a place to have tremendous sales, it drives the awareness for that consumer that we are in the product and that, alone, the difference between the store who does that and not is about a 30% or 40% uplift.
The category in the left is that prepaid category. You may not be able to see completely from the room, but in that category now it's both the Green Dot and the NetSpend offering. So classic retailing, we have created a full offering for the product. You've got the 2 biggest well-known national brands and you've got what essentially is the house brand. This category is now -- especially since the introduction of these 2 brands that we're distributing, along with our own brand, if you will, has really begun to grow fairly dramatically. Here's another shot of a destination, telecom [ph] end cap.
I spoke to you a bit about the secondary market as one of our new growth strategies. If you think about yourself for a moment, think about -- I don't know where you keep gift cards, but if you're like me and you're typical, you've got some number of gift cards that somebody gave you that, frankly, you don't want. It might be a camping gift card for REI and you simply don't camp. Who knows what it is, but it's a gift card you're either unlikely to use or you really don't want to use it and you're trying to figure out a way to use it.
We know that about $2.5 billion minimum number is created just from breakage alone of gift cards people don't use. We actually think the number's much bigger than that if you think about unwanted gift cards or gift cards people use reluctantly as I spoke to and all of you are really in that same state.
We did a survey and we queried consumers and asked them about this it was the #1 thing they saw sort of an aggregation with gift cards as much as they like them is the product for the industry. So we looked at all the companies today. There's a fledgling industry out there. People that are buying unused gift cards online and reselling them. And we bought what we thought was by far the #1 company in that category. This company's growing very dramatically. Our big added value here is that we're dropping into our retail locations, our distribution locations, the ability to come in and redeem those gift cards for cash instantly or other gift cards or cards in our prepaid makeup. We think this will be a large part of our business as we move forward.
I spoke to you about our digital offering. Again, gift cards, #1 gift in America. People have come to love them as something to give, something to receive. It's the biggest part of the overall gifting category. Blackhawk's built a huge business by creating a third-party easy frequent shop for all consumers to buy gift cards. That's why we've got a gift card business that's growing double digits. We've got a third-party gift card business that's inherently growing even faster than that.
But there are a series of things that people don't like about gift cards, and this slide and the survey work that we've done highlights them. Again, think about your own experience. People have a bunch of gift cards and they're scattered all around. They're not stored. It's not convenient to put them in your wallet because frankly, if you're typical, you could have literally 10, 13, 15 gift cards. You constantly can't remember what the balance on a gift card is especially if you've used one before. And so now what are my balance, how does it figure into my spend? I go to the store and I forget to take it and when I do that I'm now annoyed because I don't know if I should make the shop I intended to make or not. And finally, we already talked about the card exchange.
So what Blackhawk is doing now, and it's spending literally multiple millions of dollars on investment to do this, is it is taking its unique position with all the card partners, and it's building a series of services on a server cloud platform that intends to offer out to the consumer, and those services satisfy these needs. So you can register a gift card. We've come up with some very easy ways to do that. You can take that gift card and check its balance. If you lose it, we can provide some easy ways for you to replace or if it's stolen. If you go to the store and you want to use it and you've left it behind, either through mobile technology or a proxy card, you could use that to redeem and use the gift card that's in your wallet. And all of these capabilities, including offers from our card partners that are specifically targeted to the gift cards in the wallet, all of these capabilities we've built on a server platform. And while we'll offer that through our own online site and through our own mobile apps, so we have almost 100,000 people just in our test and development thing using these today. Our real intention is to plug these services into all the mobile wallets that you're reading about into Safeway's just for U program and others like it and make it essentially ubiquitous service, solving this problem in all the various consumer-facing ways that various currency instruments are going to be used of which, of course, gift cards is just one.
Okay, we talked about 2011 being a good year. Here's some key metrics. The load value or the face value put on our cards, $6.9 billion across all those distribution points, that was a 25% growth over last year. The commissions that Blackhawk takes in, the gross commissions and fees on all the different products that I talked to you about that Blackhawk takes in, average about 9%. Our transaction load was $185 million. That calculates now an average transaction value of $37.44. That value is, in fact, going up.
Of course, our selling stores have already told you about.
Now this is an important and interesting slide if you go back to '06 and '07, a time frame Steve talked about, Blackhawk was, of course, growing 100% plus, 80%. It was adding new distribution partners across the U.S. It was adding new content. It was really an area of its network being built out. Even into '08, the numbers were still growing substantially until, of course, it got to the very end. As you'll see in a minute, we do a dramatic amount of our business because it's gifting in the fourth quarter until we get to the end of '08 and the economy downdraft hit and it affected Blackhawk.
In '09 and '10, we essentially had 2 factors going on: One was the economy and its effect on gift cards, but the other was the network had been pretty well built out and it became a challenge now to take the participation that we had and drive productivity through the network. In the last year, 1.5 years, a couple of very important things have led to us turning that fact around. As you can see in '11, we actually grew faster than we grew in the last couple of years, a number that is sustaining as we go into 2012 and that we think we can continue with a couple of things I'll highlight as we go through the rest of this presentation.
So 2011, this is a look at our seasonality. I spoke about it before. We do almost half of our business in fourth quarter. What that means, of course, is that the profitability of the business is really skewed to the fourth quarter. The only good news about this is that it's declining as a factor as we introduce and get stronger in the telecom area, that spreads over the year, the prepaid financial instrument spread over the year, our card pool secondary market tends to spread across the year with less seasonality. So all of that will have some impact, and something I'm going to talk to at length in a minute is about our loyalty program tie-ins tend to spread it across the year as well.
This shows the distribution of our content and our distribution partners. A couple of key statistics. You'll see that we've got no content provider that's over 10%. We've got a fairly broad distribution of content.
I told you we had 650 cards in total, a lot of those cards passed the top 100 are this attempt that we're doing to develop regional and local cards where oftentimes in a market we can find a card that can be the top 10 card even though it only sells in that market. And of course, internationally tends to add to our content as well. There's been some speculation about Safeway size, it's been dropping over the years. It continues and will continue to drop as our productivity in our other grocery chains moves up to match Safeway. It's now only 14% of our business and of course, you can see that wide distribution of those different players.
This is a product mix. From a percentage or pie chart standpoint, our business really is driven by gift, the closed gift being the biggest piece, the open loop and closed gift being taken together. The good news, as you'll see in a minute, it's, today, our fastest-growing category. It really is what distinguishes us as a company. Sometimes we're compared to prepaid financial companies, the couple that went public. Today, while we have a very nicely growing but a very small piece of financial services, we remain a gift card company even given the opportunity that I spoke about in telecom.
We're also a North American company. While in 2007 we opened up internationally, let's be clear, the Asia Pacific is Australia. Australia has actually begun to perform pretty nicely, but it's not the largest place on the planet. We will, however, open this year interestingly enough in both Korea and China. We have some very interesting partners in both those markets. We, frankly, don't know what to expect. There are some interesting dynamics in those markets that could make them very substantial for us, but we'll see. They're new and they're certainly different.
Europe has been a market that we're in a handful of countries, the most prominent one is the U.K. For a number of years we struggled in Europe, but in the last 18 months, there's been several large and new developments. We managed to sign Tesco as a player, who will adopt all our best practices. We're getting enormous growth out of Tesco. Most of you know anything about the U.K. know Tesco has a huge market share and we know now that, that will contribute vitally for us in Europe. We did the same thing in the Netherlands with Albert Heijn and those 2 countries, though we're in a few more, should drive our European expansion. Overall, our international business is growing about twice our Domestic business.
This is the growth of those different categories. You can see the tremendous growth in the closed loop gift program. We're going to talk a minute about where that came, but it really is a resurgence of growth. A number of things are going on in the way we've developed productivity in our grocery stores, something we believe can continue. The open loop gifts growth is a little less productive and it's largely because it doesn't have the same power of tie-in to the loyalty programs at retail that I'm going to talk about.
I talked about telecom as an opportunity. You look at this slide and you say, well, how can that be? It's a little misleading. Embedded in our telecom business is a business we're discontinuing. It’s called our ASP business. It's where we are a processor for the lowest-level stores, the bodega stores, et cetera. It's our lowest margin, lowest added-value business and there's some decisions made by Sprint. We'll be phasing that out. We're actually seeing double-digit growth now in the telecom business and have some big hopes as we move the rest of grocery into those retail destinations. The financial Service business has been accelerating. We just dropped the Green Dot in and the NetSpend in, in December of last year, and we're currently seeing growth rates that are twice that.
There we go. If you look at growth for us in a little different way, we're really not opening new destinations. As I talk to you about the Tesco expansion and the Albert Heijn expansion aside, we pretty well got the destinations that we're looking for, a small few places that we think we'll get over the coming years, but nothing that'll move the needle. We still are making some progress in the content area. Some of that comes from international as we fill out the international content, but we still have some categories where we can move the needle a bit. But the biggest 2/3 last year, and we think this will continue, if not get more important, is the productivity improvement that we've got out of our existing distribution.
Now this is a slide that's maybe the most important one in this deck. It speaks really to what we think can happen for us in the future. Let me define the categories for you. On your left side is what we call the basic group. This is to make this apples-to-apples, this is the U.S. only. This is our grocery chains only, those top 50 grocery chains. So we were looking and not trying to compare convenience stores productivity to grocery store productivity, et cetera. So it's a subset but by far the biggest subset of overall Blackhawk.
Now the basic categories, the ones that we do not, today, practice best practices. Best practices for us are those big destination, double-end locations. You saw -- or even the new prototype you saw, it's multiple locations throughout the stores to gain awareness, it's check stand locations, it's promotional advertising over the course of each of the holidays, it's a series of operational best practices. We know what those do and we know specifically now we've been able to highlight and measure what each of those things do as you move to best practices. And of course, our job is to convince, given the power financially of this category for each of our retail partners, how to get them to move to best practices.
You can see last year, we had some real progress in that in the last 2 years as we move the basic group up only about 40%, but there's still clearly a big opportunity. We won't get them all, but we will continue to progress them to the center group, which is our best practices group and has a number of our larger and better chains in that.
But the real story and the one that caused our growth to accelerate in 2011 and we think has some real promise for us in the future is over the last year or 2, we have figured out how to tie gift cards into loyalty programs for our biggest and some of our best grocery retailers, regional and otherwise. Now the loyalty programs that we're speaking about are principally almost universally gas reward programs. We all know and saw in the slides earlier what's happening to the price of gas. It's soaring. Consumers are enormously sensitive. You saw the commercial with the lines of people for gas to the price of gas. So there are reward programs that are springing up in grocery where you buy X amount of grocery, typically $50 to $100, and of those $50 to $100 you get a $0.05 or $0.10 off per gallon and you get to accumulate that up to some level, and those programs are beginning to spread.
While the big aha for us is we and the grocery retailer have now tied their gift card sales into that whole activity, and they're essentially taking a portion of the gift card margin, spending it on the promotional program but causing a consumer mindset change. Instead of thinking of them as gift cards, the consumer now looks at it as a self-use currency so when they're in the grocery store they acquire a gift card for their own use in order to get the loyalty reward points, and the loyalty reward points essentially in their mind create a discount. So if I'm going to go to the restaurant or I'm going to go to the movie or I'm going to go buy a big flat screen or do something in my house, I pick up the relevant card while I'm shopping before I make that purchase, essentially creating a currency.
That loyalty-enhanced, as we're calling it, sale has caused for us an explosion of growth as you can see over the last couple of years. We think it's something that can sustain itself for at least some time to come because the actual spend in a consumer's wallet represented by all our gift cards is much larger than that 13% spend that you've heard Steve quote for grocers. So we have a big growth possibility as we move this into more and more self-use.
For 2011, those are our operating revenues. They grew 30%. Those are the net revenues less the commissions paid to our distribution partners. They also grew 30%. Our pretax income has a little bit of an anomaly in it. We had 2 contracts that we renegotiated over the course of the year with our banks for some recognition of back-end fees and revenues that changed the pattern of how we recognize those revenues. So frankly, the adjusted EBITDA number and its growth is more predictable for our business going forward, and you can see that number, that $78 million number for the year.
Finally, in summary, we think we really have created a growth engine here. We hope and believe it's one that can sustain this kind of growth for a while to come. We are in a very large business. As I talked about already, the prepaid business is growing. The third-party prepaid business is growing even faster than that. We've got a very large range of products. So we're playing in multiple segments, several of which then can add to the basic growth of Blackhawk as we mine them. We've got this huge distribution network. And of course, our challenge is to make it as productive as possible, and I talked about that in some detail. And we've invested a fair amount of dollars in a technology platform that's all ours now that runs all this.
And finally, we've got 2 people here. I'm looking for them now. Jerry and Talbott, there they are. I want to recognize them. If you'll have them at lunch and they'll be here for questions. Talbott Roche is the President of Blackhawk. She's also a person who was one of that entrepreneurial team that founded the company a little over 10 years ago. Jerry is our Chief Financial Officer and our Chief Administrative Officer and a very key part of the management team. So hopefully you'll all get to meet them during lunch.
And with that, I'll turn it back over to Steve. Thank you, everybody.
Steven A. Burd
All right. I'm going to start with a forecast of when lunch will begin. We're running a little bit long. I think it's going to take me 30 minutes to get through the balance of this. I think if we had a vote in this room, which we don't take votes inside the company, we're going to take one here.
You would prefer that I get through this material. We'll delay lunch a bit, and allow for at least 20 minutes of Q&A and then do lunch. So 30 plus maybe 20 of Q&A. So the first thing I promised to you was a bit of color on the numbers that Bill just provided.
In 2001, when we formed this small team that later became Blackhawk, we gave them a pocket of miscellaneous income we had. It was ATMs, it's lottery tickets, it's free magazine racks. It's a bunch of nits and nats. But in 2001, it was generating about $50 million in pretax income. We said you're welcome to bring in some other products, and we'd really like you to use your skills to renegotiate some of these contracts and see if you can improve the income of the miscellaneous income.
They improved it over a 6-year period by about 50%, so that was worth about $25 million. They created this gift card business, which generated about $26 million in pretax for Safeway. And then even though the business was investing heavily, and in this business, you invest as much in operating expenses as you do capital expenditures, they produced a bit of income for themselves.
So essentially, you had, at that time, $59 million of income generated by Blackhawk, but well over $100 million. Then, we elected shortly after that to really focus Blackhawk and not have them deal with the ancillary income any longer. That ancillary income is essentially stable to what it was in 2007. The piece for Safeway has grown in excess of 13%, and then Blackhawk stand-alone contribution has grown just under 70%.
Now the thing I would remind you and this was by design, the entire investment in Blackhawk was less than a Lifestyle remodel in 2004. We invested $3.5 million in Blackhawk and Blackhawk basically funded itself from that initial $3.5 million investment. I would like to do more of those.
Let me shift on to Property Development Centers. Again, we introduced this for the first time last year. The whole idea here, much like in the -- with Blackhawk is to leverage some existing capabilities. We believe that we are particularly good at real estate, and we believe this was a nice add-on to that real estate effort. But we are focused on building retail shopping centers with Safeway as the anchor. Now sometimes, we'll do a relatively large center and we will add other anchors. Keep in mind the anchor is the draw and so the bigger that anchor's draw is, the more valuable the real estate. So the actual construction cost of those shops doesn't really change if I marry it up with a store doing $1 million a week or if I marry it up with a grocery store doing $500,000 a week. And essentially, what we were doing is we were allowing developers to get all of that upside, and we decided to take that upside for ourselves.
So investments are concentrated in core urban and suburban markets for Safeway. I think Don mentioned last year that if you look at the top 30 stores from an income standpoint developed over the last 10 years in this company, they have all been self-developments. They were not developer done deals. So we're creating a meaningful, and we believe, reliable income stream with a modest amount of ongoing capital commitment.
The keyword there is not modest, although it's important. The key is ongoing. So you're going to see we're going to put a fair amount of capital in this. But we harvest that capital on an annual basis, so we don't really leave it there. And the idea here is to build a shopping center, continue ownership of the store and actually flip the shops, and that's what makes that ongoing commitment a modest number.
So the advantage we have over a developer is we're the anchor, and we have better insight into how much volume this store will do than any developer because it's our business. And so we have the inherent ability to create this value. I don't remember what you'd call it Mike, but Mike Minasi is a biker. And he rides, let's do 100 miles today. He goes out with a bunch of friends. You've all seen these bikers, 15 in a row, and what you have is a lead biker who's creating a draft for everybody else, and it makes it easy for them. We've basically been the lead biker for the developers and we've decided to get out of that lead position and take some of those benefits for ourselves. And we explained that I think last year.
We have a lower cost of capital because we're linked up with a big company called Safeway. We have a very experienced team. They're not developing for the first time. They're not learning this as they go. Really across all of our markets, we have a very experienced team and we concentrated our development team into a unit in the Bay Area that gets help from our different regions. But I think we have a team of about 8 or 10 strong now that do nothing but this, and we have a proven track record.
So what does an investment look like? I thought I would denominate this in terms of a $20 million investment. If we invest $20 million, what we're looking for is an annual stream on that $20 million that would represent a yield of about 9%, so call that a $1.8 million sort of real estate yield. If you want to try to value that yield, this would be a conservative cap rate today. I mean, we flip properties with less than a 6% cap rate. And the way you do that is you divide the income stream by 0.07, in this case, that tells you the value of the property. So the value of that property in this example is $25.7 million. So the pretax income that results from that is $5.7 million. If you want to do a quick ROI, it's in excess of the hurdle rate that we assign to our own stores. So that's basically the business model in a sense.
So if you look at the value creation, we typically develop centers that would involve some relatively high-volume stores. The stores and centers that we've been concentrating on would typically generate a sales level at 25% or greater than the average store in Safeway. I'm going to highlight a couple of examples here in a bit.
So by definition, shopper end [ph] should be higher because there's all of this additional draw. And so we've had no difficulty finding tenants even in this market where you would see vacancies in probably almost every center in which we operate stores today, centers that we do not own, Alamo Plaza shopping center, which happens to be in my neighborhood, I counted a number of openings in that center. And that's a fairly large center, but we're being very careful about the quality of the tenants that we bring in. Shopping center investment returns as I indicated will exceed our investment returns typically for a new store, but you can't really do shopping centers without doing stores in a meaningful way. So again, we want to take -- our key advantage here is that we provide the anchor in this particular case.
So this is kind of a projection. I would consider these targets. If you look in the upper left-hand corner, I said this is kind of plus or minus 10% and -- excuse me, $10 million, plus or minus $10 million. So in 2012, we expect to harvest some of the centers that we've developed that are fully tenanted out. That have reached the level of maturity. That would give us about a $30 million, $31 million gain. That will increase in '13. It will increase again in 2014, '15 and '16. And right now, this is based on spending in this activity about $200 million a year.
Now I'm going to show you slide in a minute. That's not a permanent outstanding commitment. Because of the harvesting after about 12 years, we have no net investment in this business even though we're spending at a $200 million clip. We can accelerate that. So I think the number for 2012 is a lot more reliable than the number is up here for 2015 because a lot can change between now and 2015.
Just to kind of give you a sense for the magnitude of the gains that we would generate. I took 27 projects that are far enough along that we can be highly predictive about the kind of average profit we would generate. So I have 2 really small opportunities, hard to really call them a center, but there are some additional shops that we've created, a pad or 2. Then I've got 11 projects that will deliver between $1 million and $5 million. For the benefit of everyone here, I've suggested that, that average would be about $2 million. I have another 7 centers that will be in the range of $5 million to $10 million. And then I have another 7 centers that would be larger, and I'll show you an example of some of these that could generate a gain in well an excess of $10 million.
So here's the capital that we're committing to this business. And if you look on this slide, red would be identified capital spend. So you see the first time we have some unidentified spend would be a portion of 2013. But to spend this kind of money it doesn't take that many new stores if we are the developer to be able to fill this boat with a $200 million spend. So if you look at the cumulative CapEx over this time period, 2010 to 2016, it actually is in excess of $1 billion. That might scare some of you. On the other hand, the cumulative proceeds over that time period would be just under $900 million.
And if you look, my capital commitment of outstanding cash peaks in 2013 at just under $260 million and begins to decline thereafter. And about 3 or 4 years out, it actually turns positive. So much like Blackhawk where I had to prime the pump, in this case with a lot more money, I get to the point where the business is completely self-sustaining and capable of investing at the rate of about $200 million a year. Now we can -- if the opportunity presents itself, we can accelerate that because it is harvesting its own proceeds.
And this is just a graphic depiction of how that outstanding cash -- net cash because of all the harvesting peaks and then begins to fall off.
The sale proceeds in 2012. The sale proceeds we're expecting to be around $110 million. It'll grow slightly in 2013 and then start to become much more serious number as some of this real estate matures. You don't really want to sell the shops the day after you signed your last tenant. You want to show that you've got some stable tenants and they're not leaving and there's a good solid income stream there.
Now I'm just going to show you a couple of pictures here of some of the things that we've done. We've talked about Burnaby. This was a distribution center that we had in British Columbia. The interesting piece of the story I think that probably has not been articulated is that we operated this distribution center, I think, for 50 years or more, Don? And about 5 years ago, we owned a piece of this land, but there were 28 acres that we did not own, and the lease was expiring in 5 years. And there were some residential developers, sort of sniffing around, wanting to buy those 28 acres. We understood the proximity to downtown Vancouver. Our real estate guys appreciated the value that was there, and we reached out and paid $42 million for those 28 acres that we did not own. And, in fact, Burnaby is actually 2 parcels. You've got the large parcel of 42 acres here. Typically with a distribution center, we would operate some kind of manufacturing plant. In this case, it's a milk plant, and it's actually on a separate parcel along with that piece in the upper right hand corner. So the upper -- the piece on the right hand corner has yet to be sold. It will be sold to the same developer. But we have to subdivide this lot to -- excuse me, there's 2 parcels today. We actually have to merge it. So I wanted you to understand that we saw the opportunity. This is not at all -- it's very similar to what we did in Bellevue. You've probably forgotten about Bellevue. Bellevue was the distribution center we never owned in our Seattle operations. I'm going to go back 6, 7 years ago, Don. We had leased it for 50 years. We decided to move and go into more efficient facility in Auburn. And Don approached and said, "Look, why don't we buy this facility?" So we did. We transformed the use and the zoning and sold it for a large gain. Same thing has to happen here. It has to be converted to residential use. We're developers but we thought this was more than we wanted to tackle. And so this is essentially the plan that the developer has for this property. And so he's going to put a lot more money into this than we would have to in a small center. And you can see in the picture there the close proximity to downtown Vancouver and why this piece of real estate was so attractive.
This is one of my favorites not only because it's in Hawaii, but let me just show you. This is 3 acres of land, and if you look in the shaded portion and to the right of the shaded portion is one of our competitors who before we bought this land was doing about $325,000 a week. This is in Honolulu. It's on Beretania Avenue. So you have a very well-traveled street in front of the shaded area and then up to the left, you have an equally well-traveled street. So in the grocery or real estate business, we call this a main and main location. This is an A plus location.
Now we would normally like 4.5 acres. All we had was 3, and we actually had to buy a house in the process that had refused to move at this point. So we reached out and paid $26 million for this property. Now how are you possibly going to make a store work when the land alone cost $26 million? Well, we were replacing this store with a store that is 1/2 a block down Beretania Avenue. I want to show you what that looks like. Okay, this store.
Now this store is about 1/3 the size of the store that we built. This is the best example I can give you of why you like to own real estate. We sold this store 1/3 the size for $22 million. So you book a gain on that kind of a thing. It's why we like to own real estate. It's why when we flip these shops, we're not flipping the stores along with it. One of our best performing stores, in fact, won a whole series of awards, some of you have been in it, is in Georgetown. That's the third store we put on that site and each time we did it, the site got bigger.
So I love this story, and now you can understand why we like property gains. We use it to leverage that store, and we put up this. Now I'm going to remind you the guy next door was doing $325,000 a week and another competitor less than half a mile away was doing another $300,000. This store is now doing about twice what the store did just down the street. And then we outfitted it with a bunch of shops, got them fully leased out, and there will be an opportunity down the road here to realize that gain.
This is another great story. Anybody here have a 21-year-old? If you do, you have a 21-year-old, and it's interesting. It's actually fitting. This is one of the highest income demographics in the United States. Now you may not have heard of Burlingame, but you've heard of Hillsborough. And when the Rees’ [ph] son was born, we had already started working on this project, okay? We owned this store. We secured, in fact, we bought the ground underlying the Walgreens lease, okay? They were a little surprised at that, and we've been building this thing, and we've been working with the local authorities, which is a kind phrase to be able to get the right to do this because the town council consisted of a guy that owned a bakery, the local floral shop, and there's a little bit of politics involved. But we were finally able to get it done, and we replaced it with this store.
Once again, this store is doing twice the business the old store was doing. You're now looking on kind of a rooftop. And at this level, there are some shops, as well as some shops below this. So again, these shops can then be sold as a gain. And we've put rooftop parking here. This store was always constrained by parking. We've learned a lot. That Beretania store, I didn't mention this, but the parking is actually at ground level. And you drive in, and the store is actually elevated just like Georgetown. Georgetown also has some supplemental parking on the same level. In Hawaii where the average temperature runs about 84 degrees and the sun shines almost all the time, this is a real plus for customers, and so we're getting good at that.
This is one that some of you have seen. This is the raw land, which is about 3 miles from the office. This is a large freeway here is 680, and the road going across from the north is called Bernal. So this is the piece of land we bought. Everything south on this photograph, which actually happens to be the southern direction, those will be filled with residences. So where do you think they might shop? I think they'll shop with us.
The biggest one in here is, in fact, the Safeway store, if I can do this right, but we’ve begun to fill out the center, and also we're building a gas station right there. That's what the store looks like. It opened in November, and you can see how we're tenanting all of these different facilities, and this is about I think, Dave, about 12 acres or thereabouts, 11 or 12 acres.
And so this I would consider to be kind of a medium project as opposed to a high project. And then I'm going to show you one last one. We actually closed on this in the last 36 hours. It's about a 12.5-acre site, and I'm going to show you something that a developer would not typically do. Here, we've got an 8-foot drop here. So there's a significant grade followed by a 26-foot drop here. And if you look, our plan is to demo everything below the 26-foot drop. I think we're going to try to identify, there's where Safeway is located today, and there's our fueling station. So that piece on the left gets demoed. Remember, it's at a lower level, and what we will do is we will put the Safeway where that large rectangle is, and you will enter that store from the lower level in that parking that's been prepared. But on the rooftop of this store, which is here, we will also put parking. And we will build a series of shops around that.
And so you can park on the top, and that little red zone there is an opportunity to enter the Safeway, take an elevator down to the store. So we've consider that the Safeway store, help me out here, the Safeway store is essentially here, right? And so look at our parking. So now we will share this, and we'll basically get all of this. So we've improved the parking. This is already a high-volume store. I think when we're done, it will do over $1 million a week. That's what makes the shop so valuable and see the developer -- a pure developer doesn't understand what kind of sales we're going to generate in the store. So they can't predict what kind of customer traffic they'll draw, and we're going to harvest that for ourselves. And we throw in a stoplight to improve the access. Also get another entry point, and this is the way the store looks from the other side. So again, I think I've taken you through 4. We have 23. They all have their own stories, and we think they're all very good stories.
So now let's move on to the third piece of creating shareholder value, which is some of the logic behind the share repurchases, and the idea here as I indicated earlier is to buy the shares if they're selling well below their intrinsic value and currently, we've been using some debt financing to do that. Why do it? We got more aggressive at the end of the third quarter, call it the fourth quarter, bought in 43 million shares. I think our share count purchase is through February 22 when we did our earnings release was around 72 million shares. We did it because we have some real optimism for the business as we look forward. We think that just for U is a game changer. We think that Blackhawk has reached a new point in its growth curve. We believe we have a real opportunity with PDC, and so when you do things that you think can be game changing, they take a long time.
I've never done anything that I consider to be a game changer that I could think up on Monday and execute on Friday. So in the case of just for U, it's been building and technology never adheres to a timetable. I mean, there are so many unknowns, but we've gotten through that. Secondly, our share price hit a 5-year low in Q4, and we would it say remains undervalued. Interest rates are at a 50-year low, encouraging us to support the purchases with some borrowed money.
So I've talked about just for U. I've talked about Blackhawk. I've mentioned the PDC. I have not mentioned it, and it's really just a one-liner in here, but you would expect given all the knowledge that we have about health and I would tell you that we know more about controlling health care cost than any business that's in the game that I can think of. We know more about insurance companies who are mostly in the business of processing claims. We know more about how to control health care cost than I would say the top 10 medical centers in the United States. And so for more than 2 years now, we've been developing a wellness play that essentially takes that knowledge, productizes it and introduces it to consumers.
And so for the moment, I'm going to call that a non-core business, but sometime in the next 12 months, I think you'll see how that materializes. And a piece of it will enter the core business at that point and a piece of it will be non-core.
The share price I mentioned hit that low point in the fourth quarter. Interest rates again, I commented on this earlier. They've had a pretty wild ride although it's been inconsistently down, and basically the Fed says their goal is 0 cost of money for the next 2 or 3 years at least until the election is over with.
In terms of share repurchase, I mentioned this on the earnings call, and we haven't really debt financed $1.450 billion, but let's assume we did. You buy 72 million shares. The after-tax interest cost for the blend of our commercial paper and public debt works out to roughly 3%. You spend $27 million after tax, and your annual dividend yield at current dividend rates of $0.58 a share is $42 million, and you actually have a cash accretive share repurchase program if it were 100% debt financed, which, of course, it isn't, which makes it even better.
Having trouble getting this to move. So if you were to compare the share count at the end of the first quarter, which stood at 363 million to the share count that ended on the 22nd, you would be at 268 million as of that date.
So let me quickly move into a summary. And my summary is simple, you saw this slide a moment ago, but I'll just elaborate on it. We think the way to grow shareholder value for our shareholders is to improve the core business. I spent as much time as I did on just for U because that's really the driver of the top line. We'll continue to be good at operating expenses. It's to get some real income out of these non-core businesses that we created. It's to create some new non-core entities, and it's to take advantage of a share price that happens to be below the intrinsic value. The other thing I would tell you is that if you think about the compensation of the senior management team of this company, in my case, about 90% of my compensation comes in the form of incentives and most of that being on the equity side.
We just recently redesigned our LTIP [ph]. I hold about 1.2 million shares. So the way I win is the share price goes up with the rest of the executive team about 70% of their compensation is tied to performance with the vast majority of that coming in the form of equity. And so we think that we're completely aligned with the shareholders, and we win when the shareholders win, and we lose if the shareholders lose, and we have no intention of having the shareholders lose. So that's the essence of this strategy.
I think I have one more slide. At the first slide we laid out the guidance, and I wanted to -- the guidance is the guidance, but I wanted to give you a sense because we don't provide quarterly guidance. And I don't intend to start now. But if you look at LIFO and you try to compare the guidance of 2012 to the results of 2011, essentially we think the LIFO charge this year will be less. And when you try to find out the pattern of that, that less is going to be in the fourth quarter, okay? The weather [ph] we talked about on the earnings call that all happens in the first quarter. So if you're trying to figure out a pattern here, and then if you look at the fuel, when fuel prices are rising, if you go back to that graph, our margins get squeezed. And in order for the margins to return to normalcy, it has to flatten at some point. As that flattens, we do much better. And so based on what we're observing right now, we think that margins will be down, and basically that's going to happen in the first part of the year. On the holiday, we covered that in the earnings call. That's the notion that you had a holiday called New Year's Day, and you had very low sales, but you had very high labor cost because people were working what? Probably, Bruce, at double time on that day or some kind of elevated premium? So that really all happens in the first quarter.
And then the tax rate. While we had a low tax rate in the back half. We had a much more normal tax rate in the front half. So the tax rate hit that will affect EPS will essentially occur in the back half. So obviously, the earnings guidance is greater than sort of the adjusted earnings for 2011, sort of at that run rate of $1.78. But we are overcoming the $0.18 that are reflected here, and I only point it out to you so that if you're trying to take that guidance, overlay your own judgment and then if you're a sell sider or even a buy sider analyst, you're going to want to understand the pattern of that. Everything I just told you gives you insight into that pattern, and so hopefully that's helpful, and I think that is our last slide.
So have we pushed off lunch a little bit? Okay. Okay, when we get to lunch because there will be a mad rush here, on the back of your name tag is a table number. If there is no number, see Christiana or go to the registration table. I guess you'll be at the registration table. So on the back of your name tag is your table assignment.
So why don't we open it up for some questions? John, I'll start with you. You look like you were first up, Heinbockel. Oh, yes, let's get a microphone because of the webcast.
John Heinbockel - Guggenheim Securities, LLC, Research Division
Can you walk through a little bit the net revenue from Blackhawk down to pretax and what's in between because I would have thought maybe the cost structure was a little lower than what seems to be implied by the difference between the 2?
Steven A. Burd
Well, the net revenue, that difference is largely the distribution commission. The distributors get the lion's share of the commission.
John Heinbockel - Guggenheim Securities, LLC, Research Division
All I’m saying, the 341 and the 60, the difference between.
Steven A. Burd
Oh, what you have, that's the revenue to Blackhawk, and there are a lot of expenses associated with that. I don't think I could -- I don't think I offhand could give you details on that, but I'm sure that you could tackle Jerry, and he could give you a little info on that.
John Heinbockel - Guggenheim Securities, LLC, Research Division
All right. Then just one final thing. When you talk about, the vendor support for the just for U. Do you think that's incremental as opposed to shifting from one bucket to another or is it incremental? If it's incremental, is that give you an advantage over your peers where you're getting $1 at the table in the beginning?
Steven A. Burd
Yes, we know it's incremental, and anybody that has a vehicle like this I suppose can get some incremental money, but no one else does. Yes?
And I agree with you that just for U is a game changer and that PDC will be meaningful income in 2012. In light of that, why is your guidance not higher?
Steven A. Burd
Say that again, I missed the last part.
Why isn't guidance higher?
Steven A. Burd
I think part of the reason that guidance isn't higher is that it doesn't make a lot of sense for us to be aggressive this early in the game, and we came in higher than the consensus as a result of the information that was on the Street. Obviously, there's some new information today. If you think about what I identified in terms of our ID sales I think to the extent that results get better, they'll be driven by that factor. I'll give you a couple of facts: If you look at Northern California, where we’ve have the old version of just for U, call it 1.0, for more than a year and then you compare the registration and redemption activity of Vons, which has had the benefit of no hard marketing, but a much more robust consumer experience. We actually have more regular users in Vons in less than 30 days than we have in Northern California at this juncture. But we'll hard market this thing here very soon, and so I think the upside is really in the top line sales growth. And I think if we had suggested a higher number, than most of the people in this room wouldn't believe it, okay? And we understand that we've developed something really cool here, which frankly is the reason a lot of young people use it. Not because it saves them money, but because it's cool. But I think we have to prove to the people in this room and investors at large that this thing is going to be the game changer we suggested, and so until we get a little bit more experience behind this with the new platform fully marketed, we're just going to be a little cautious in where earnings are. Yes? And then I'm going to be fair to this side of the room.
Mark Wiltamuth - Morgan Stanley, Research Division
Mark Wiltamuth, Morgan Stanley. Just to clarify what's in the numbers for share repurchase and real estate gains, and maybe if you could just give us an idea of what do you think the operating income growth is going to be for 2012 because you just gave us the 2011 was flat to down.
Steven A. Burd
So your first question how many -- what's the magnitude of real estate gains that might...
Mark Wiltamuth - Morgan Stanley, Research Division
In earnings per share in terms of real estate gains that's baked in, so we don't have another surprise of [indiscernible].
Steven A. Burd
Yes, what I committed to memory is not the EPS effect. What I committed to memory was the contribution in terms of gain called a pretax operating income and give you a sense for that. And this number will be plus or minus 10%. Robert's going to watch me carefully here between property gains through PDC and what we call normal sort of property gains non-op, that number's going to be order of magnitude around $70 million. So that number will be north of the $66 million that we generated this year, although almost half of it's coming from PDC. Now you had a 3-part question. What was the...
Mark Wiltamuth - Morgan Stanley, Research Division
And operating income dollar growth for the year, because obviously, you've got a lot of share repurchase kind of baked in here. So...
Steven A. Burd
Yes, it's not one of the metrics that we lay out in the form of guidance. And so I'm not going to give it here, but I did give you a number that I think will be real helpful to you in terms of the property gains. Right here.
Kenneth Goldman - JP Morgan Chase & Co, Research Division
Ken Goldman, JPMorgan. Why -- I'm just hoping to get some insight as to why you break out Blackhawk now as opposed to a year ago or 2 years ago? You pushed back a bit to investors, but maybe if you could help us out with that.
Steven A. Burd
Sure. Our long-term view expressed meeting after meeting has been that it's been wonderful to be able to create this business inside the walls of a private enterprise. It doesn't have to reveal information publicly. But as we talk to people who are holding the shares, knowing that this is a much higher growth business than Safeway, they've been asking us for probably at least 3 years that if we're not willing to share the ownership with others in the public domain, could we at least provide some EBITDA or income numbers for shareholders to kind of get their arms around. And so we felt that the business was in a position that it was -- had a good growth rate ahead of it, that we had done what we needed to do to really protect that business and secure it. So we wanted to be responsive to our shareholders and give them that information. Now you heard Bill say that we've simultaneously put the business in a position that you could stand by itself, and you could share the ownership with others. But I would remind you that we built this as a growth vehicle, and as we built it increasingly with a loyalty program where people are using Blackhawk currency to drive their own grocery sales, it's nice to actually own most of that currency, puts us in a stronger competitive position. So I'm not going to try to give anybody any hope that this entity would be spun off. It's synergistic with the business, but it is today operated with a board of its own and a very independent company. Yes?
Two questions. I think they're probably related. First of all, looking -- utilizing the disclosure that you've given previously and today on real estate gains. It implies, not implies -- it indicates that the business excluding that de-leveraged in the fourth quarter, and I was hoping you could explain why that is, why that was, given the positive ID? And second of all, I think there are many people in this room who wrote about previews of the meeting and I'd be willing to guess I only read what we wrote, but one of the key topics was...
Steven A. Burd
I read what they wrote.
Okay. One of the key topics, one of the top 5 for everyone was declining volumes in the grocery industry in IRI and Nielsen, which was not addressed today, and I was hoping that you could deal with it.
Steven A. Burd
Sure. Well, we do that to spice up the Q&A. All right. We did not cover volume. We actually had a slide we were preparing, and we were going to identify for you our top 10 vendor partners and try to identify what their decline in volume had been. Just going from memory, I think there was only one that actually had positive volume in North America of those top 10 vendors. Two of them? And we didn't get that done because we didn't want to surprise any of those vendors, and we wanted to rely entirely upon publicly available information. But I said on the call that if you look in North America and you look at the CPG world, and the one that comes to mind as having positive volume is taking market share big-time from its cheap rival [ph]. And so there's basically negative volume in the sector. And if you take the lead conventional grocer in terms of ID sales, in their previous quarter, they reported that they were flat. And in the most recent quarter reported, I think they said they may have said flat. I thought they might have even said down a little bit, but flat or down a little bit. There's not much difference there. We measure market share and articulated on the earnings call in terms of our sector knowing full well that there are non-sector people we compete with. I actually like the idea that Wal-Mart is now sort of entering this scan data because they're the largest food retailer out there. So we'll be able to have quantitative category-by-category information, and we'll probably add them to our definition of share. But the reason we don't go beyond that is there's too much sort of guessing that has to go on, and the information is not particularly reliable. But you will hear us consistently report on market share, and I think the first part of your question I think if I understood it right was when you said we were de-leveraging, and I think you meant that our O&A expenses were declining. What exactly did you mean by your term de-leveraging?
The SG&A as a percentage of sales.
Steven A. Burd
Yes, it was declining.
No, if you take out...
Steven A. Burd
If you take it. Yes, it was...
Robert L. Edwards
Steven A. Burd
Yes, we gave an annual number. The quarter number was -- what was the quarter number, Robert? So what's your question?
The question is that according to our calculation, if you exclude the Blackhawk accounting change from the real estate. SG&A as a percentage of sales went up in the quarter.
Steven A. Burd
Probably, now you're looking at SG&A...
If it's too technical [indiscernible].
Steven A. Burd
Yes, well, I try to commit to about 10,000 numbers to memory, and it's not one that I committed to memory. But Robert has it here in his chart. Ask him.
Okay, just to follow-up on the volume thing. However you define market share, however -- that's either pick any, it's not like there's lots of you can define market share broadly, narrowly. But that's not really -- is that the way to look at it or isn't the fact that volumes are declining for your industry as however you define it, is that not a problem?
Steven A. Burd
I think it's a problem if you don't have a way of reversing it, and I think it's a problem for your company if all you are in is the traditional food retailing business. But I don't think it's a -- we're running a business here. There are people in the room that think that we're just a food retail business. And if that's the only way you think of us, then you're going to want to see those volumes begin to grow as just for U and other things take hold. But we develop non-core businesses because no matter how you cut it, this is a mature business that is subject to relatively modest growth, and that's simply a reality. But you can create businesses around that, that can be actually run out of your stores. They will contribute to ID sales, and then you will see that we're growing. The scan data only covers 25% of the volume. It does not cover our pharmacy business. It does not cover the random weight [ph] business, and it does not cover Blackhawk. It does not cover PDC. It does not cover the other things that we currently have planned. So we believe the name of the game is to increase operating income in both core and non-core. Right back here.
Edward J. Kelly - Crédit Suisse AG, Research Division
Ed Kelly, Crédit Suisse. I'd like to ask you questions about your free cash flow projections. It's probably in my mind one of the most important considerations in your stock today and you put a slide up walking through free cash flow over the next 5 years, they look like fairly big assumptions. And my question for you on this topic is, if we think about 2012 CapEx or free cash flow, we're talking about $900 million. You have that going up in '13 despite the fact that you've got a couple of hundred million dollars more of CapEx, there's $100-plus million in property gains in the '12 number. So can you walk us through how you get there, how you continue to grow that? And how much confidence you have in those numbers that you put up? And then the second question is related to the dividend. What are your expectations for the dividend? You brought the share count down. You spent $180 million in a dividend in 2012. If you took that up as you normally do to a couple of hundred million dollars that yield is obviously going up a lot. So I was curious how you're thinking about that.
Steven A. Burd
I'll only take these in reverse order, and I'll try to remember all 3 of them. In terms of the dividend, we typically make a decision with the board in kind of that May shareholder time frame as to how we might make an adjustment to the dividend. You know our history. The first year, we declared a dividend. I think the following year, we increased it 15%. Subsequent to that it's been in the 20% and 21% range, and so you'll find out in May what we intend to do about dividend at least for the next 12 months. In terms of free cash flow, the free cash flow, if you look at the capital spending, the capital spending steps up a little bit over time, but not a lot and yet the free cash flow steps up more. And the only conclusion you can reach is that operating income through a combination of the core and the non-core really begins to accelerate, and then your sort of related question is what is your level of confidence in those projections? It's not a forecast. It's an intent to show you how we think the business will evolve. So our confidence in the first year is much greater than it is in the second year although our confidence in the second year is still pretty strong. And as you begin to move away from that, your confidence changes a little bit, and it's not that we -- that our confidence declines in our ability to reach that number. Our confidence in the number itself just because it's further out, anybody in this room that tells you they can predict 5 years out is not being truthful. Anybody that's developed a 3-year plan, it's decent. But even the 1-year plan for us, the one thing I can absolutely assure you is that we will not achieve the plan exactly as we've choreographed it. Bill Walsh, famous coach for the San Francisco 49ers presumably scripted the first 21 plays of the game. He signed a football for me once. I never asked him this question, but I don't believe for a moment when it was third and 21 did he decide to run it up the middle, right? And so we do the same thing in business. We think that those free cash flow numbers are realistic. And if you think about the capital commitments of Blackhawk, are minor. The capital commitments of PDC are significant only until it begins to completely self-fund itself and it extinguishes, it can invest $200 million into near perpetuity while basically funding itself. And so we hope to scale up our new store program. This last year, we did 25 stores, and I think in 2012, it's a fewer number of stores, but there's no reason in normal economic conditions that we couldn't get up to that level or better. The shopping center numbers are dependent upon our developing 1/3 of those stores. So those are relatively easy numbers to hit. So where's the upside, okay, in what you look at? I think the upside both in the near term and the longer term is in the digital platform that we've put in place. There's upside in what we could do with PDC. There's potentially upside, we've got nothing in the numbers for the digital wallet. We've got no serious numbers in there for Cardpool, which we think is a big business, and so we think there's upside in these numbers. But we have, as you know, struggled with top line IDs and going back to the first question, we're not going to be aggressive on that front until we've proven to ourselves and to all of you that we can actually do that, and guess what? You don't have to wait very long. This thing is rolled out in June, and I gave you some indicators that in the case of Vons we're already at a regular user rate, higher than that of Northern California with no serious marketing. So when will you feel the real effects of just for U? I think you'll begin to see something mid to late second quarter. I think you'll begin to see more in the third quarter. You should see much more in the fourth quarter, and so the challenge for an investor is to listen to what we have to say in this kind of a forum, ask questions and challenge it if you want and then reach your own decision about our ability to execute on this stuff. We obviously think it's real, and we work very hard at this. It's taken years to do, and I’ll routinely tell our management team if it were easy, it would not be worth doing because if it were easy, everybody would do it and then we would operate with no points of difference. So anything worth doing is, by definition, difficult, and we think this is very difficult. But we think all the hard sledding is basically behind us.
What is it? Yes, Melissa tells me it's 1:00. Yes, I'm sure we could -- we're going to go to a lunch right now. I guess the webcast is going to, will, end. So thank you for coming, and I hope this has been informative.
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