2013 LETTER TO STOCKHOLDERS

SAFEWAY INC. PO Box 99 Pleasanton, CA 94566-0009 www..com

This paper has been certified to meet the environmental and social standards of the Forest Stewardship Council™ (FSC®) and comes from well-managed forests and other responsible sources. 2013 Year-End 2013 Percentage Of Stores With Specialty Departments & Fuel Stations

$36.1B SALES 99% 98% 96% 82% 77% 72% 26%

DELI FLORAL BAKERY SEAFOOD PHARMACY STARBUCKS FUEL STATIONS

1.7% EX-FUEL IDS

STORE COUNTS 85% STOCK PRICE INCREASE1

NORTHWEST 314

DENVER 133 Dear Fellow Stockholders,

125 EASTERN NORCAL 266 In March 2014, we announced that 108 TEXAS In 2013, we took significant steps SOCAL 382 toward creating stockholder value: we entered into a definitive merger agreement with AB Acquisition, a PHOENIX 115 • We completed the partial IPO of company owned by Cerberus Capital our Blackhawk gift and prepaid card and a number of partners, which is subsidiary in April 2013 selling 11.5 discussed in our definitive proxy million shares at $23 per share. statement filed on June 19, 2014.

• We sold our Canadian operations Our remaining 72% share of HAWK to Sobeys Inc. for C$5.8 billion in was distributed to Safeway shareholders November 2013 on April 14, 2014.

• We exited the Chicago market, which Following is a brief summary of our generated a significant tax benefit. operating results in 2013 and the As of December 28, 2013, the company operated 1,335 stores in the Western, initiatives we continue to pursue to serve Southwestern, Rocky Mountain and Mid-Atlantic regions of the United States. In support our customers each and every day. of its stores, Safeway has an extensive network of distribution, manufacturing and food processing facilities. Safeway also has a 49% ownership interest in , which 2013 Stock Price Summary operates 200 food and general merchandise stores in western Mexico. $40

$35 Year-End 2013 Manufacturing & Food Processing Facilities $30

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$20 6 1 4 1 2 6 MILK CAKE SOFT DRINK FRUIT & ICE BAKERY PLANTS COMMISSARY BOTTLING VEGETABLE CREAM PLANTS $15 PLANTS PROCESSING PLANTS JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC PLANT

Safeway 2013 Letter to Stockholders 1

$40

$35

$30

$25

$20

$15 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

$40

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$15 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC MEETING CONSUMER NEEDS Results From Continuing Operations We revamped our Eating Right line to include additional consumer needs such as gluten-free Based on continuing operations, and loyalty-driving initiatives such as and low-calorie. which exclude results from our former Just for U™ and Fuel Rewards. In Canadian division and Dominick’s in addition, we are focused on Center of Chicago, sales increased 0.2% in 2013 Store remodels, which make our stores to $36.1 billion. We achieved ex-fuel more shoppable. We are also growing identical store sales growth of 1.7%, sales through a new approach to shrink, Consumer Brands our highest in several years, and the putting more products on the shelves Within our private label portfolio, Health first positive volume year since 2006. for purchase. & Wellness brands continued to drive ™ The positive sales were largely offset Localization / Store Clustering sales. O Organics ended the year with by lower fuel sales. Adjusted EBITDA Center of Store Remodels Our localization strategy is predicated $450 million in sales and 1,150 items, ™ was $1.6 billion.2 Our customers told us how much they on determining the right merchandis- and Open Nature , our line of food enjoy shopping our remodeled Lifestyle ing for each store and community. We products using natural ingredients, Our continuing operations generated stores, which focus mainly on the group our stores into shopper segments achieved over $200 million in sales and $1.0 billion in cash from operating perimeter of our stores, but they viewed (“clusters”) based on demographics and now offers over 450 items. Innovation activities in 2013. We lowered debt by the Center of Store as undifferentiated tailor the merchandising accordingly. continued as we launched 774 new $1.4 billion to end the year with debt and difficult to shop. In fact, many We then personalize each store to meet items in the year. All of our efforts led of $4.2 billion. Our cash balance at shoppers navigate from the perimeter the needs of the customers the store to sales of our private label brands year-end of $4.6 billion was higher of the store and only access aisles that serves. We kicked off the “Premium” accounting for 28.1% of our total versus prior years, primarily due to the contain products on their list. Based cluster early in 2013, thereby adding grocery sales, a record for Safeway proceeds from the sale of our Canadian on this feedback, we designed and are more items our customers wanted and and one of the highest in the industry. CENTER OF STORE operations. We completed $664 million implementing a new Center of Store providing “one-stop shopping” conve- in share repurchases and announced concept to better engage with our nience for them. Approximately 200 Employees and Customers We created the Healthy Our employees and customers continue Living Zone to provide our eighth dividend increase to shoppers and ultimately drive sales stores were remerchandised in 2013, a better connection shareholders—to $0.20 per share and profits. and more are planned for 2014. We to be very involved in our corporate between the pharmacy social responsibility activities and and the adjacent health per quarter totaling $181 million paid also began implementing our Hispanic and wellness area. for the year. We also invested $767 We organized categories into clustering strategy in approximately achievements. Their dedication and million in capital expenditures. Our destination “zones” and strategically 260 stores. Asian and other clusters generosity to various causes continues PDC real estate subsidiary remained placed departments adjacent to each are planned to be rolled out in 2014. every year. I have enjoyed meeting many employees in my visits to the active in building, leasing and selling other to make shopping easier. We As we are still in the early stages, we SOCIAL shopping center assets. focused on three main areas: Meals continue to learn, and we expect the stores and introducing them at our RESPONSIBILITY and Ingredients, Healthy Living and Town Hall meetings. Their stories are concepts to evolve. Our employees Sales Initiatives Pet and Baby. We lowered shelves and inspiring to us all. and customers raised We are committed to continuing to added bright lighting and color-coded Loyalty Programs or donated over In closing, I would like to thank all $175 million in funds drive sales and operating profit signs to improve shopability. We also Our customers also benefited from and products in 2013. dollars in our core grocery business. improved accessibility by opening up our savings and loyalty programs. We of our loyal customers, hard-working Our employees also completed the rollout of our fuel part- employees and valued stockholders logged over one million To generate results, we are focused on space and adding cut-throughs that volunteer hours in better meeting shoppers’ diverse needs connect perimeter to Center of Store nership programs with Chevron and and bondholders for your support our communities. by offering a local, relevant assortment departments, and we minimized clutter, ExxonMobil to cover approximately 94% throughout the year. We made and an improved price/value proposition making the aisles more inviting and of our stores—offering our customers tremendous progress in 2013, and while providing a differentiated in-store easier to walk through. In 2013, we the ability to conveniently redeem Fuel we expect to continue to improve the experience. We are applying localization remodeled 177 stores to incorporate this Rewards. Just for U continued to gain business in 2014. at the individual store level, while new design, and we expect to complete a loyal following resulting in nearly six also offering a stronger level of person- approximately 200 more in 2014. million registered users at the end of alization both through store clustering the year. It is available to our shoppers

in all divisions. Robert Edwards President and Chief Executive Officer June 19, 2014 ADDRESSING CHANGING DEMOGRAPHICS In the fourth quarter, our Consumer Brands group introduced a new private label brand with Food Network chef Marcela Valladolid to better 1Based on calendar year 2013 meet the needs of our Hispanic shoppers and 2A reconciliation table is found on page 35 of the 2013 Form 10-K. those desiring Hispanic products. 2 Safeway 2013 Letter to Stockholders Safeway 2013 Letter to Stockholders 3 Directors and Principal Officers Investor Information Safeway Inc. and Subsidiaries Safeway Inc. and Subsidiaries

DIRECTORS EXECUTIVE OFFICERS MARKETING PRESIDENTS EXECUTIVE OFFICES ANNUAL MEETING TRUSTEES AND PAYING AGENTS Mailing address: The 2014 Annual Meeting of T. Gary Rogers Robert L. Edwards David M. Lee Stockholders will be held on 5.625% Senior Notes due 2014 Non-Executive Chairman President and Non-Perishables Safeway Inc. July 25, 2014. A notice of the 3.40% Senior Notes due 2016 Former Chairman and CEO Chief Executive Officer 5918 Stoneridge Mall Rd. meeting, together with a proxy 6.35% Senior Notes due 2017 Dreyer’s Grand Ice Cream, Inc. Pleasanton, CA 94588 Michael R. Minasi statement and a form of proxy, 5.00% Senior Notes due 2019 Former Chairman Peter J. Bocian Marketing were made available to stock- 3.95% Senior Notes due 2020 Levi Strauss & Co. Executive Vice President and Internet address: holders on or around 4.75% Senior Notes due 2021 Former Chairman Chief Financial Officer Thomas L. Schwilke Safeway’s website can be accessed June 19, 2014. 7.45% Senior Debentures due 2027 Federal Reserve Bank of Perishables at www.safeway.com. We do not 7.25% Senior Debentures due 2031 San Francisco Diane M. Dietz incorporate the information on The Bank of New York Mellon Executive Vice President and our website into this Letter to Robert L. Edwards STOCK EXCHANGE LISTING Bondholder Relations Department Chief Marketing Officer DIVISION PRESIDENTS Stockholders, and you should not President and Corporate Trust Division consider it a part of this Letter to The company’s common stock, Chief Executive Officer Fiscal Agencies Department Kelly P. Griffith Brian S. Baer Stockholders. which trades under the symbol Safeway Inc. 101 Barclay Street, 7-East Executive Vice President Eastern Division SWY, and certain debentures New York, NY 10286 Retail Operations are listed on the New York Stock Janet E. Grove 800-548-5075 Al G. Duran Exchange. Former Chair and STOCK TRANSFER AGENT Larree M. Renda Denver Division Chief Executive Officer Executive Vice President AND REGISTRAR Macy’s Merchandising Group Computershare Trust FORWARD-LOOKING Former Vice Chair Steven R. Frisby INDEPENDENT REGISTERED David F. Bond Northwest Division Company, N.A. STATEMENTS Macy’s, Inc. Senior Vice President PUBLIC ACCOUNTING FIRM P.O. Box 30170 This Letter to Stockholders contains Finance and Control Deloitte & Touche LLP Mohan Gyani Paul McTavish College Station, TX 77842-3170 forward-looking statements. For (Chief Accounting Officer) San Francisco, CA Vice Chairman Texas Division 877-498-8861 a description of the risks and Roamware, Inc. Robert A. Gordon Hearing Impaired: 800-952-9245 uncertainties that could cause Lori J. Raya Former President and Senior Vice President www.computershare.com actual results to differ from Division Chief Executive Officer Secretary and General Counsel INVESTOR INQUIRIES anticipated results, please see AT&T Wireless Mobility Services, Inc. Chief Governance Officer the “Forward-Looking Statements” Karl Schroeder Communications regarding investor records, including changes and “Risk Factors” sections of Northern California Division EEO-1 REPORT Frank C. Herringer Russell M. Jackson of address or ownership, should our Annual Report on Form Chairman and Former Senior Vice President As an equal opportunity employer, be directed to the company’s 10-K for the fiscal year ended Daniel J. Valenzuela Chief Executive Officer Human Resources Safeway values and actively transfer agent, Computershare December 31, 2013, as amended. Phoenix Division Transamerica Corporation supports diversity in the workplace. Trust Company, N.A., as listed Barry J. Libenson A copy of the company’s 2013 to the left. summary EEO-1 report, filed with George J. Morrow Senior Vice President the federal Equal Employment Consultant and Former Chief Information Officer EQUITY AFFILIATE To access or obtain financial Executive Vice President, Opportunity Commission, is reports, please visit our website at available upon request at our Global Commercial Operations Melissa C. Plaisance Juan Manuel Ley Lopez www.safeway.com/investor_rela- executive offices. tions, write to our Investor Relations Amgen, Inc. Senior Vice President Chairman of the Board Department at our executive offices Finance and Investor Relations Casa Ley, S.A. de C.V. Kenneth W. Oder (Mexico) or call 925-467-3717. Managing Member David R. Stern Sugar Hollow LLC Senior Vice President Former Executive Vice President Planning and Business Development Safeway Inc. Jerry Tidwell Arun Sarin Senior Vice President Former Chief Executive Officer Supply Operations Vodafone Group Plc. Additional Information About the Acquisition and Where to Find it Donald P. Wright This letter does not constitute a solicitation of any vote or approval in respect of the proposed merger transaction involving Safeway or William Y. Tauscher Senior Vice President otherwise. In connection with the merger, we have filed with the Securities and Exchange Commission (the “SEC”) and furnished to our Chief Executive Officer Real Estate and Engineering stockholders a proxy statement and other relevant documents. Stockholders are urged to read the proxy statement and other relevant Blackhawk Network Holdings, Inc. materials because they will contain important information about the company, and the proposed transaction. The proxy Chief Executive Officer statement and other relevant materials, and any other documents we file with the SEC, may be obtained free of charge at the SEC’s Managing Member Property Development Centers LLC The Tauscher Group website at www.sec.gov, at the company’s website at www.Safeway.com or by sending a written request to Safeway at 5918 Stoneridge Mall Road, Pleasanton, California 94588, Attention: Investor Relations.

Participants in the Solicitation Safeway and its directors, executive officers and certain other members of management and employees may be deemed to be participants in soliciting proxies from the stockholders of the company in favor of the merger. Information regarding the persons who may, under the rules of the SEC, be considered to be participants in the solicitation of the company’s stockholders in connection with the proposed transaction are set forth in the proxy statement. You can find more information about Safeway’s executive officers and directors in our Annual Report on Form 10-K for the fiscal year ended December 28, 2013, as amended, and in our definitive proxy

Design by Grapeshoot, www.grapeshoot.com Grapeshoot, by Design statement filed with the SEC on Schedule 14A on June 19, 2014.

4 Safeway 2013 Letter to Stockholders