SAFEWAY INC, S-3, 1996-01-03

SAFEWAY INC
S-3, 1996-01-03
GROCERY STORES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 3, 1996
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

SAFEWAY INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE SAFEWAY INC. 94-3019135
(STATE OR OTHER JURISDICTION FOURTH AND JACKSON STREETS (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) OAKLAND, CALIFORNIA 94660 IDENTIFICATION NUMBER)
(510) 891-3000
(ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA
CODE,
OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
</TABLE>

JULIAN C. DAY
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
SAFEWAY INC.
FOURTH AND JACKSON STREETS
OAKLAND, CALIFORNIA 94660
(510) 891-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------

COPIES TO:

<TABLE>
<S> <C>
SCOTT R. HABER, ESQ. PAUL C. PRINGLE, ESQ.
TRACY K. EDMONSON, ESQ. BROWN & WOOD
LATHAM & WATKINS 555 CALIFORNIA STREET
505 MONTGOMERY STREET, SUITE 1900 SAN FRANCISCO, CALIFORNIA 94104
SAN FRANCISCO, CALIFORNIA 94111 (415) 772-1200
(415) 391-0600
</TABLE>

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Common Stock ($0.01 par value)......... 20,661,700 $25.125 $519,125,213 $103,825
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>

(1) Includes 2,695,004 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.

(2) Estimated solely for the purpose of computing the amount of registration
fee, based on the average of the high and low prices for the Common Stock as
reported on the New York Stock Exchange on December 26, 1995, in accordance
with Rule 457(c) promulgated under the Securities Act of 1933.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

EXPLANATORY NOTE

This Registration Statement contains two forms of prospectus: one to be
used in connection with the public offering of the Common Stock initially in the
United States and Canada (the "U.S. Prospectus") and one to be used in
connection with the concurrent public offering of the Common Stock initially
outside the United States and Canada (the "International Prospectus"). The two
forms of prospectus are identical except that they contain a different front
cover page. The form of U.S. Prospectus is included herein and is followed by
the page (marked "Alternate Page for International Prospectus") to be used in
the International Prospectus.
<PAGE> 3

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

PROSPECTUS (Subject to Completion)
Issued January 3, 1996

17,966,696 Shares

SAFEWAY INC.
COMMON STOCK
------------------------

OF THE 17,966,696 SHARES OF COMMON STOCK OFFERED, 14,373,357 SHARES ARE BEING
OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE
U.S. UNDERWRITERS AND 3,593,339 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." ALL OF THE SHARES OF COMMON STOCK OFFERED ARE BEING SOLD
BY THE SELLING STOCKHOLDERS AS DESCRIBED HEREIN UNDER "PRINCIPAL AND
SELLING STOCKHOLDERS" AND INCLUDE 16,250,000 PRESENTLY OUTSTANDING
SHARES AND 1,716,696 SHARES TO BE ISSUED CONCURRENTLY WITH THE
CONSUMMATION OF THESE OFFERINGS UPON THE EXERCISE OF OUTSTANDING
WARRANTS. NONE OF THE PROCEEDS FROM THE SALE OF THE SHARES WILL BE
RECEIVED BY THE COMPANY OTHER THAN $1,716,696 (ASSUMING NO EXERCISE
OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION) REPRESENTING THE
EXERCISE PRICE OF THE WARRANTS. EXCEPT AS OTHERWISE NOTED, ALL
INFORMATION IN THIS PROSPECTUS HAS BEEN ADJUSTED TO GIVE EFFECT
TO A STOCK DISTRIBUTION WHEREBY EACH HOLDER OF THE COMPANY'S
COMMON STOCK WILL RECEIVE ON JANUARY 30, 1996 ONE ADDITIONAL
SHARE OF COMMON STOCK FOR EACH SHARE OWNED AS OF JANUARY 16,
1996. THE COMPANY'S COMMON STOCK IS LISTED ON THE NEW YORK AND
PACIFIC STOCK EXCHANGES. ON JANUARY 2, 1996, THE REPORTED
LAST SALE PRICE OF THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE WAS $25 5/16, AS ADJUSTED FOR THE DISTRIBUTION
(BASED ON AN UNADJUSTED PRICE OF $50 5/8).

------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------

PRICE $ A SHARE

------------------------

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDERS(2)
-------- -------------- -------------------
<S> <C> <C> <C>
Per Share.............................. $ $ $
Total(3)............................... $ $ $
</TABLE>

- ------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.

(2) Includes $1,716,696 to be paid to the Company representing the exercise
price of warrants for 1,716,696 Shares at $1.00 per share. Expenses of
the offerings, estimated at $550,000, will be paid by the Company.

(3) The Selling Stockholders have granted to the U.S. Underwriters an
option, exercisable within 30 days of the date hereof, to purchase up to
an aggregate of 2,695,004 additional Shares at the price to public, less
underwriting discounts and commissions, for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option
in full, the total price to public, underwriting discounts and
commissions and proceeds to Selling Stockholders will be $ ,
$ and $ , respectively, and the total amount to be paid to
the Company representing the exercise price of warrants will be
$1,974,200. See "Underwriters."

------------------------

The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters, and subject to approval of certain legal matters by Brown &
Wood, counsel for the Underwriters. It is expected that the delivery of the
Shares will be made on or about , 1996, at the office of Morgan
Stanley & Co. Incorporated, New York, N.Y., against payment therefor in New York
funds.
------------------------

MORGAN STANLEY & CO.
Incorporated
DILLON, READ & CO. INC.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
SMITH BARNEY INC.

, 1996
<PAGE> 4

[Map]

------------------------

IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AND THE MERGER WARRANTS TO PURCHASE COMMON STOCK AT LEVELS ABOVE
THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NEW YORK STOCK EXCHANGE, ON THE PACIFIC STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

2
<PAGE> 5

NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERINGS MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS, AND ANY INFORMATION OR REPRESENTATION NOT
CONTAINED OR INCORPORATED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY OF THE SELLING STOCKHOLDERS OR BY ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY BY
ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS AT ANY TIME
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................................................................. 3
Prospectus Summary.................................................................... 4
Price Range of Common Stock........................................................... 7
Dividend Policy....................................................................... 7
Capitalization........................................................................ 8
Selected Financial Data............................................................... 9
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 10
Business.............................................................................. 15
Principal and Selling Stockholders.................................................... 19
Description of Capital Stock.......................................................... 22
Certain United States Tax Consequences to Non-United States Holders................... 23
Underwriters.......................................................................... 26
Legal Matters......................................................................... 28
Experts............................................................................... 28
Incorporation of Certain Documents by Reference....................................... 29
</TABLE>

------------------------

AVAILABLE INFORMATION

Safeway Inc. ("Safeway" or the "Company") has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (of which this
Prospectus is a part) under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. Statements contained in the Prospectus as to
the contents of any contract or other document are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference and the exhibits and schedules
which may be obtained from the Commission at its principal office in Washington,
D.C. upon payment of the fees prescribed by the Commission.

Safeway is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. The Registration Statement, the exhibits and schedules forming a
part thereof and the reports, proxy statements and other information filed by
Safeway with the Commission in accordance with the Exchange Act can be inspected
and copied at the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, 13th Floor, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, Safeway Common Stock is listed on the New York Stock Exchange, 20
Broad Street, New York, New York 10005 and the Pacific Stock Exchange, 301 Pine
Street, San Francisco, California 94104.

3
<PAGE> 6

PROSPECTUS SUMMARY

Except as otherwise indicated, the information contained in this Prospectus
has been adjusted to give effect to a stock distribution whereby each holder of
the Company's Common Stock will receive on January 30, 1996 one additional share
of Common Stock for each share owned as of January 16, 1996. See "Selected
Financial Data," "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Description of Capital
Stock." Unless otherwise indicated, the information in this Prospectus assumes
that the Underwriters' over-allotment option will not be exercised.

COMPANY OVERVIEW

Safeway is one of the world's largest food retailers, operating 1,059
stores at the end of 1995 in the United States and Canada. U.S. retail
operations are located principally in northern California, Oregon, Washington
and the Rocky Mountain, Southwest and Mid-Atlantic regions. Canadian retail
operations are located principally in British Columbia, Alberta and
Manitoba/Saskatchewan. For each of its nine retail operating areas, Safeway
believes that it holds the number one or number two market share position for
the total area served. In support of its retail operations, Safeway has an
extensive network of distribution, manufacturing and food processing facilities.

In addition to stores operated under the Safeway name, the Company has
ownership interests in two other retailers. Safeway holds a 35% interest in The
Vons Companies, Inc. ("Vons"), which operates 329 grocery stores located mostly
in southern California, and a 49% interest in a privately-held company, Casa
Ley, S.A. de C.V. ("Casa Ley"), which operates 71 food and general merchandise
stores in western Mexico.

In early 1992, Safeway undertook a strategic review of its business and
concluded that its cost structure was one of the highest in the food retailing
industry and that there existed significant opportunities for improvement. In
late 1992, Steve Burd was appointed President of Safeway and established three
priorities for improving Safeway's operating results: (1) controlling costs, (2)
increasing sales and (3) improving capital management. These priorities are
reinforced by performance-based compensation plans that cover more than 7,000 of
the Company's management employees, from store department managers to executive
officers.

CONTROLLING COSTS

Operating and administrative expenses as a percentage of sales have
declined primarily through sales increases and by controlling costs.
Efforts to control costs have included overhead reduction in the Company's
administrative support functions, negotiation of competitive labor
agreements, store level work simplification, consolidation of the Company's
information technology operations, elimination of corporate perquisites and
the general encouragement of a "culture of thrift" among employees. As a
result, operating and administrative expenses as a percentage of sales
declined over 90 basis points from 24.19% in 1992 to 23.28% in 1994.
Operating and administrative expenses as a percentage of sales improved
from 23.31% for the first 36 weeks of 1994 to 22.76% for the same period in
1995.

BARGRAPH
entitled OPERATING AND ADMINISTRATIVE
EXPENSES AS A PERCENT OF SALES

4
<PAGE> 7

The Company also has controlled its cost of sales primarily through
better buying practices, lower advertising expenses, distribution
efficiencies and manufacturing plant closures and consolidations.

INCREASING SALES

The Company has grown sales by reinvesting cost savings into more
competitive pricing and improving store standards and customer service.
Safeway's efforts to upgrade store standards and customer service have
focused on improving store appearance, in-stock condition, employee
friendliness and speed of checkout. In addition, management believes that
the successful introduction of the "Safeway SELECT" line of premium quality
private label products in early 1993 has contributed to sales growth.

[LINE GRAPH entitled SAME-STORE SALES TRENDS]

Same-store sales growth has
exceeded 3.0% in each of the nine
consecutive quarters through the
third quarter of 1995. Same-store
sales have improved from a 1.6%
decrease in 1992 to an increase of
4.4% in 1994. Same-store sales were
4.6% in the first 36 weeks of 1995.
Safeway's same-store sales
increases since year-end 1992
through the third quarter of 1995
have been among the highest in the
industry.

IMPROVING CAPITAL MANAGEMENT

Safeway's capital management has improved in two key areas: capital
expenditures and working capital. During 1994, improved operations and
lower project costs improved the returns on capital projects, and Safeway
increased capital expenditures from $290 million in 1993 to $352 million in
1994. The Company is making greater use of standardized layouts and central
purchasing agreements for building materials, fixtures and equipment for
its new stores and remodels. As a result, the new store prototype is less
expensive to build and more efficient to operate. In 1995, the Company
opened 32 new stores and completed more than 100 remodels and estimates
that capital expenditures were approximately $500 million. Capital
expenditures for 1996 are expected to increase to approximately $550
million.

[BAR GRAPH entitled CAPITAL EXPENDITURES]

Working capital invested in the business has declined substantially
since year-end 1992 primarily through lower warehouse inventory levels and
improved payables management. Stronger operating results, combined with
improved working capital management and lower capital expenditures, have
allowed the Company to reduce its debt level from $3.0 billion at the end
of 1992 to $2.1 billion at September 9, 1995. See "Capitalization."
<PAGE> 8

Operating cash flow (FIFO earnings before interest, taxes, depreciation and
amortization) increased from $768.6 million in 1992 to $947.6 million in 1994,
and increased from $649.9 million for the first 36 weeks of 1994 to $731.6
million for the first 36 weeks of 1995. In addition, net income per share
(before extraordinary items and the cumulative effect of accounting changes)
increased from $0.41 in 1992 to $1.01 in 1994, and increased from $0.67 for the
first 36 weeks of 1994 to $0.88 for the first 36 weeks of 1995.

Management intends to continue to focus on controlling costs, increasing
sales and improving capital management in 1996. There can be no assurance that
the Company will be successful in its efforts in these areas or that past
results in these areas are indicative of results that may be achieved in the
future.

* * * *

Safeway was founded in 1926 and became one of the world's largest food
retailers. In 1986, Safeway, which was then a publicly-held corporation, was
acquired (the "Acquisition") by a corporation formed by Kohlberg Kravis Roberts
& Co. ("KKR"). Safeway was incorporated in the State of Delaware in July 1986 as
SSI Holdings Corporation, and thereafter its name was changed to Safeway Stores,
Incorporated. In February 1990, the Company changed its name to Safeway Inc.

Unless the context otherwise requires, references herein to "Safeway" or
the "Company" include Safeway Inc. and its subsidiaries and also include Safeway
Stores, Incorporated, a Maryland corporation, and its subsidiaries, the
predecessor to Safeway prior to the Acquisition. The executive offices of
Safeway are located at Fourth and Jackson Streets, Oakland, California 94660 and
its telephone number is (510) 891-3000.

6
<PAGE> 9

PRICE RANGE OF COMMON STOCK

The Company's Common Stock has been listed on the New York Stock Exchange
under the symbol SWY since its initial public offering in May 1990. The
Company's Common Stock also is listed on the Pacific Stock Exchange.

The following table sets forth the high and low closing sale prices for the
Company's Common Stock for the fiscal quarters indicated as reported by the New
York Stock Exchange Composite Tape, adjusted to give effect to a stock
distribution whereby each holder of the Company's Common Stock will receive on
January 30, 1996 one additional share of Common Stock for each share owned as of
January 16, 1996.

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C> <C> <C>
1994
First quarter................................................. $13 7/16 $ 9 3/4
Second quarter................................................ 13 1/8 10 15/16
Third quarter................................................. 13 15/16 11 11/16
Fourth quarter................................................ 15 15/16 13 5/16
1995
First quarter................................................. 17 15/16 15 3/8
Second quarter................................................ 19 1/4 15 13/16
Third quarter................................................. 20 3/16 18 1/16
Fourth quarter................................................ 25 3/4 20
1996
First quarter (through January 2, 1996)....................... 25 5/16 25 5/16
</TABLE>

The reported last sale price of the Common Stock on the New York Stock
Exchange Composite Tape as of a recent date is set forth on the cover page of
this Prospectus.

DIVIDEND POLICY

Safeway has not declared or paid any cash dividends on its Common Stock
since the Acquisition and does not currently intend to declare or pay any cash
dividends. Any determination to pay dividends in the future will be at the
discretion of the Company's Board of Directors and will be dependent upon
Safeway's results of operations, financial condition, capital expenditures,
working capital requirements, any contractual restrictions and other factors
deemed relevant by the Board of Directors. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Financial Resources" and "Description of Capital Stock -- Dividends" for a
description of certain limitations on the Company's ability to pay dividends.

7
<PAGE> 10

CAPITALIZATION

The following table sets forth the short-term debt and the capitalization
of Safeway at September 9, 1995 (in millions). None of the proceeds from the
sale of the shares of Common Stock offered hereby will be received by the
Company other than $1,716,696 representing the exercise price of certain
outstanding warrants.

<TABLE>
<S> <C>
Short-term borrowings(1)................................................... $ 165.3
========
Long-term debt and capital lease obligations............................... $1,940.3
Stockholders' equity:
Common stock, par value $0.01 per share; 300.0 shares authorized; 212.7
shares outstanding(2)(3).............................................. 2.1
Additional paid-in capital............................................... 675.0
Unexercised warrants purchased: 8.9 shares(3)(4)......................... (113.2)
Retained earnings........................................................ 172.5
Cumulative translation adjustments....................................... 22.0
--------
Total stockholders' equity............................................ 758.4
--------
Total capitalization............................................. $2,698.7
========
</TABLE>

- ---------------
(1) Consists of current portion of long-term notes, debentures and capital lease
obligations.

(2) Excludes 23.1 million shares of Common Stock underlying stock options, 1.8
million shares of Common Stock issuable upon exercise of warrants issued in
connection with the Acquisition (the "Merger Warrants") and 27,856,000
million shares of Common Stock issuable upon exercise of warrants held by
SSI Equity Associates, L.P. ("SSI Equity Associates").

(3) SSI Equity Associates is a partnership whose sole assets consist of warrants
to purchase an aggregate of 27,856,000 shares of Common Stock (the "SSI
Warrants") of which 8.9 million of such shares are attributable to limited
partnership interests in SSI Equity Associates acquired by a subsidiary of
Safeway for $113.2 million in January 1995.

(4) In October 1995, a subsidiary of Safeway acquired additional limited
partnership interests in SSI Equity Associates for $83 million using
proceeds from bank borrowings. Approximately 5.3 million of the 27,856,000
shares of Common Stock issuable upon exercise of the SSI Warrants are
attributable to the limited partnership interests purchased in October. In
connection with the offerings, it is anticipated that SSI Warrants to
purchase 1,716,696 shares of Common Stock will be exercised for an aggregate
exercise price of $1,716,696, and SSI Warrants to purchase 1,765,304 shares
of Common Stock will be cancelled. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Principal and Selling
Stockholders."

8
<PAGE> 11

SELECTED FINANCIAL DATA

SAFEWAY INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND WEEKLY SALES AMOUNTS)

The financial data below are derived from the audited Consolidated
Financial Statements of Safeway, except for the financial data for the 36 week
periods ended September 9, 1995 and September 10, 1994, which are unaudited. The
selected financial data should be read in conjunction with Safeway's
Consolidated Financial Statements and Accompanying Notes which are incorporated
herein by reference. The results of operations for the 36 weeks ended September
9, 1995 and September 10, 1994 contain all adjustments that are of a normal and
recurring nature necessary to present fairly the financial position and results
of operations for such periods. The results for the 36 weeks ended September 9,
1995 are not necessarily indicative of the results expected for the full year.

<TABLE>
<CAPTION>
36 WEEKS ENDED
-----------------------
SEPT. 9, SEPT. 10, 52 WEEKS 52 WEEKS 53 WEEKS 52 WEEKS 52 WEEKS
1995 1994 1994 1993 1992 1991 1990
---------- ---------- --------- --------- --------- --------- ---------
RESULTS OF OPERATIONS:
<S> <C> <C> <C> <C> <C> <C> <C>
Sales................................. $ 11,231.2 $ 10,736.3 $15,626.6 $15,214.5 $15,151.9 $15,119.2 $14,873.6
========= ========= ========= ========= ========= ========= =========
Gross profit.......................... $ 3,052.1 $ 2,914.8 $ 4,250.0 $ 4,083.4 $ 4,106.4 $ 4,059.1 $ 3,903.0
Operating and administrative
expenses............................ (2,556.6) (2,502.2) (3,637.9) (3,641.9) (3,664.8) (3,510.8) (3,367.7)
AppleTree charge...................... -- -- -- -- -- (115.0) --
--------- --------- --------- --------- --------- --------- ---------
Operating profit...................... 495.5 412.6 612.1 441.5 441.6 433.3 535.3
Interest expense...................... (141.3) (156.6) (221.7) (265.5) (290.4) (355.4) (384.1)
Equity in earnings of unconsolidated
affiliates.......................... 17.2 22.8 27.3 33.5 39.1 45.8 25.5
Gain on common stock offering by
unconsolidated affiliate............ -- -- -- -- -- 27.4 --
Other income, net..................... 1.5 4.9 6.4 6.8 7.1 15.1 18.0
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes,
extraordinary loss and cumulative
effect of accounting changes........ 372.9 283.7 424.1 216.3 197.4 166.2 194.7
Income taxes.......................... (158.5) (119.2) (173.9) (93.0) (99.0) (87.2) (107.6)
--------- --------- --------- --------- --------- --------- ---------
Income before extraordinary loss and
cumulative effect of accounting
changes............................. 214.4 164.5 250.2 123.3 98.4 79.0 87.1
Extraordinary loss, net of tax benefit
of $6.5, $6.7, $17.1 and $14.9...... -- (10.1) (10.5) -- (27.8) (24.1) --
Cumulative effect of accounting
changes, net of tax benefit of
$12.0............................... -- -- -- -- (27.1) -- --
--------- --------- --------- --------- --------- --------- ---------
Net income............................ $ 214.4 $ 154.4 $ 239.7 $ 123.3 $ 43.5 $ 54.9 $ 87.1
========= ========= ========= ========= ========= ========= =========
Earnings per common share and common
share equivalent (fully diluted):
Income before extraordinary loss and
cumulative effect of accounting
changes........................... $ 0.88 $ 0.67 $ 1.01 $ 0.50 $ 0.41 $ 0.34 $ 0.45
Extraordinary loss.................. -- (0.04) (0.04) -- (0.12) (0.10) --
Cumulative effect of accounting
changes........................... -- -- -- -- (0.11) -- --
--------- --------- --------- --------- --------- --------- ---------
Net income.......................... $ 0.88 $ 0.63 $ 0.97 $ 0.50 $ 0.18 $ 0.24 $ 0.45
========= ========= ========= ========= ========= ========= =========
FINANCIAL STATISTICS:
Same-store sales*..................... 4.6% 4.0% 4.4% 2.1% (1.6)% (0.3)% 2.5%
Average weekly sales per store per
week (in thousands)................. $ 285 $ 267 $ 270 $ 256 $ 247 $ 250 $ 246
Average weekly sales per square
foot................................ 7.64 7.29 7.36 7.07 7.01 7.21 7.25
Gross profit margin................... 27.2% 27.1% 27.2% 26.8% 27.1% 26.8% 26.2%
Operating and administrative expenses
as a percent of sales............... 22.76% 23.31% 23.28% 23.94% 24.19% 23.22% 23.64%
Operating profit margin............... 4.4% 3.8% 3.9% 2.9% 2.9% 2.9% 3.6%
Capital expenditures.................. $ 279.3 $ 185.6 $ 352.2 $ 290.2 $ 553.4 $ 635.0 $ 489.6
Depreciation and amortization......... 227.7 225.5 326.4 330.2 320.3 295.9 276.2
Total assets.......................... 5,032.7 4,887.3 5,022.1 5,074.7 5,225.8 5,170.7 4,739.1
Total debt............................ 2,105.6 2,247.8 2,196.1 2,689.2 3,048.6 3,066.0 3,083.6
Stockholders' equity (deficit)........ 758.4 549.7 643.8 382.9 243.1 214.4 (183.4)
Weighted average common shares and
common share equivalents (fully
diluted) (in millions).............. 242.4 245.0 247.2 246.8 238.0 230.4 192.0
OTHER STATISTICS:
Stores opened during the period....... 16 11 20 14 35 33 30
Stores closed or sold during the
period.............................. 21 21 36 39 49 37 26
Total stores at period-end............ 1,057 1,068 1,062 1,078 1,103 1,117 1,121
Remodels**............................ n/a n/a 71 45 63 77 90
Total retail square footage (in
millions)........................... 39.7 39.3 39.5 39.4 39.7 38.9 38.2
</TABLE>

- ---------------
* Reflects sales increases (decreases) for stores operating the entire
measurement period in both the current and prior periods and does not include
replacement stores.
** Defined as store projects (other than maintenance) generally requiring
expenditures in excess of $200,000.

9
<PAGE> 12

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

36 WEEKS ENDED SEPTEMBER 9, 1995 COMPARED TO 36 WEEKS ENDED SEPTEMBER 10, 1994

Net income for the first 36 weeks of 1995 was $214.4 million ($0.88 per
share) compared to income before extraordinary loss of $164.5 million ($0.67 per
share) for the same period of 1994. A nine-day strike during the second quarter
of 1995 affected 208 stores in Northern California and reduced earnings per
share for the first 36 weeks of 1995 by an estimated $0.025 per share. Net
income for the 36 weeks ended September 10, 1994, which included an
extraordinary loss of $10.1 million ($0.04 per share) for the early retirement
of debt, was $154.4 million ($0.63 per share).

For the first 36 weeks of 1995, sales were $11.2 billion compared to $10.7
billion for the same period of 1994. Same-store sales for the first 36 weeks of
1995 increased 4.6%. Safeway's commitment to reinvest the cost savings achieved
throughout the Company has resulted in sales growth despite very low food price
inflation.

For the first 36 weeks of 1995, gross profit was 27.2% of sales compared to
27.1% in 1994. Gross profit represents the portion of sales revenue remaining
after deducting the costs of inventory sold during the period, including
purchase, advertising and distribution costs. LIFO expense was $6.9 million for
the first 36 weeks of both 1995 and 1994, reflecting the Company's expectation
of low inflation for the year.

For the first three quarters of 1995, operating and administrative expense
decreased as a percent of sales to 22.76% from 23.31% for the same period of
1994. Higher overall Company sales and ongoing efforts to reduce or control
expenses contributed to the lower operating and administrative expense ratio.

For the first 36 weeks of 1995, interest expense fell to $141.3 million
compared to $156.6 million for the same period of 1994. Interest expense
decreased in 1995 primarily due to reduced debt levels.

For the first three quarters of 1995, equity in earnings of unconsolidated
affiliates, recorded on a one-quarter delay basis, fell to $17.2 million
compared to $22.8 million in 1994. For the first 36 weeks of 1995, Safeway's
share of Vons' earnings increased to $12.2 million from $10.4 million in 1994.
For the first 36 weeks of 1995, Safeway's share of Casa Ley's earnings was $5.0
million compared to $12.4 million in 1994. Since the December 1994 devaluation
of the peso, Mexico has experienced economic difficulties, including very high
interest rates. Interest rates and inflation have moderated in recent months,
and Casa Ley's financial results have gradually improved. While the economic
situation in Mexico will continue to affect Casa Ley's financial results, the
impact is not expected to be material to the consolidated operating results of
Safeway.

1994 COMPARED TO 1993 AND 1992

Safeway's net income was $239.7 million ($0.97 per share) in 1994, $123.3
million ($0.50 per share) in 1993, and $43.5 million ($0.18 per share) in 1992.
In 1994 and 1992, income before extraordinary items and the cumulative effect of
accounting changes was $250.2 million ($1.01 per share) and $98.4 million ($0.41
per share). In 1993, severance paid for a voluntary employee buyout in Alberta,
Canada reduced 1993 operating profit by $54.9 million and net income by $30.2
million ($0.12 per share).

SALES

Sales were $15.6 billion in 1994 (a 52-week year), and $15.2 billion in
both 1993 (a 52-week year) and 1992 (a 53-week year). Safeway's same-store sales
increased 4.4% in 1994 and 2.1% in 1993. In spite of low food price inflation,
Safeway achieved sales growth in 1994 and 1993. The Company simplified work
methods in the stores, streamlined backstage operations, improved inventory
management and achieved labor cost parity through a competitive labor contract
signed in Alberta. Safeway reinvested these fundamental cost savings into more
competitive pricing and improved store standards and customer service.

10
<PAGE> 13

GROSS PROFIT

In 1994, Safeway began classifying advertising expenses as part of cost of
goods sold. Previously, advertising expenses were included in operating and
administrative expenses. All prior periods have been reclassified to conform to
the 1994 presentation.

After reclassifying advertising expenses, gross profit was 27.2% of sales
in 1994, compared to 26.8% in 1993 and 27.1% in 1992. The improvement in 1994
was primarily due to decreased advertising expense, the price recovery in
Alberta following a 1993 price war, the disposal of stores with low gross
margins in Richmond, Virginia, and company-wide improvements to bakery
operations. The decline in 1993 primarily reflects the effect of the price war
in Alberta.

OPERATING AND ADMINISTRATIVE EXPENSES

After reclassifying advertising expenses, operating and administrative
expenses were 23.28% of sales in 1994, compared to 23.94% in 1993 (23.58%
excluding the Alberta buyout) and 24.19% in 1992 (24.04% excluding a
restructuring charge). Operating and administrative expenses as a percentage of
sales declined since 1992 as a result of increased sales and efforts to reduce
or control expenses. The principal efforts included reorganizing the
administrative support functions, centralizing information technology
operations, improving labor costs in Alberta, Canada, and simplifying work
methods in stores.

During the first half of 1993, Safeway recorded a charge for the Alberta
buyout, reducing operating profit by $54.9 million and net income by $30.2
million ($0.12 per share). The new contract approved by retail employees in
Alberta reduced wages, established a gain-sharing plan, and provided for a
voluntary buyout program, while significantly reducing a competitive wage
disparity in that area. Safeway began realizing savings from the new contract
during the second quarter of 1993, which were offset through the third quarter
of 1993 by the increased training costs and reduced productivity associated with
new employees. Productivity improved during the fourth quarter of 1993 and
returned to normal levels in 1994.

In 1992, the Company recorded a restructuring charge for the anticipated
costs associated with downsizing its corporate administrative staff and closing
its distribution center in Sacramento, California. The Sacramento facility,
which was leased following the 1988 fire that destroyed the Richmond, California
distribution center, was consolidated into the Company's distribution center in
Tracy, California. The charge reduced 1992 operating profit by $22.3 million and
net income by $13.8 million ($0.06 per share). Approximately one-half of this
charge was for severance payments. All employee terminations associated with
this restructuring were completed in 1993. Annual savings from these
restructurings have been between $15 million and $20 million.

INTEREST EXPENSE

Interest expense fell to $221.7 million in 1994 from $265.5 million in 1993
and $290.4 million in 1992. The decrease in 1994 was primarily due to overall
debt reductions resulting from Safeway's strong cash flow from operations, and
the replacement of high interest rate long-term debt with short-term floating
rate debt. The decrease in 1993 reflects reduced borrowings, lower short-term
interest rates, and the refinancing of high interest rate debt during 1992.

EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES

Equity in earnings of unconsolidated affiliates, recorded on a one-quarter
delay basis, fell to $27.3 million in 1994, compared to $33.5 million in 1993
and $39.1 million in 1992. Safeway holds a 35% interest in Vons and a 49%
interest in Casa Ley.

Income from Safeway's equity investment in Vons was $11.6 million in 1994,
compared to $12.9 million in 1993 and $18.6 million in 1992. According to Vons'
financial reports to the Commission, Vons' same store

11
<PAGE> 14

sales declined 1.6% and 3.2% for the 16 and 40 weeks ended October 9, 1994. In
addition to lower operating income, Vons reported restructuring charges which
decreased Safeway's equity in Vons' earnings by $3.9 million in 1994 and $11.7
million in 1993. According to Vons, these restructuring charges included
anticipated expenses associated with a program to close under-performing stores
and reduce its work force.

In 1992, Vons adopted Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," and SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." Safeway's share of Vons'
accounting charges is included in the 1992 cumulative effect of accounting
changes in the Company's Consolidated Statements of Income.

Income from Safeway's equity investment in Casa Ley fell to $15.7 million
in 1994 from $20.6 million in 1993 and $20.5 million in 1992 due to changes in
the competitive environment in Mexico.

INCOME TAXES

Income taxes declined to 41.0% of pre-tax income in 1994 from 43.0% in 1993
and 50.2% in 1992. In August 1993, the maximum statutory federal income tax rate
increased from 34% to 35%. Despite the increased federal income tax rate,
Safeway's effective rate declined in 1993 primarily due to the tax benefit of a
loss in Canada, where the statutory rate is higher than in the United States.
The loss in Canada resulted principally from the employee buyout charge and the
price war in Alberta. The tax effect of permanently investing certain foreign
earnings which were previously not permanently invested also contributed to the
tax rate decline in 1993.

EXTRAORDINARY LOSS

Safeway's net income was reduced by extraordinary losses of $10.5 million
($0.04 per share) in 1994 and $27.8 million ($0.12 per share) in 1992 for the
early retirement of debt. The extraordinary losses represent the payment of
premiums on retired debt and the write-off of deferred finance costs, net of the
related tax benefits.

ACCOUNTING CHANGES

In 1992, the Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which requires accrual of the
expected cost of such benefits during employee service periods, and SFAS No.
112, "Employers' Accounting for Postemployment Benefits," which requires accrual
of the expected cost of benefits provided to former or inactive employees after
employment but before retirement. Prior to 1992, the Company recognized the cost
of providing these benefits as claims were paid. In addition, during 1992 Vons
adopted SFAS No. 109, "Accounting for Income Taxes," and SFAS No. 106. The
cumulative effect of accounting changes recognized on Safeway's Consolidated
Statement of Income in 1992 was as follows (in millions):

<TABLE>
<S> <C>
Postretirement benefits, net of tax benefit of $6.4.................. $10.5
Postemployment benefits, net of tax benefit of $1.1.................. 1.8
Vons' income taxes, net of tax benefit of $3.2....................... 10.6
Vons' postretirement benefits, net of tax benefit of $1.3............ 4.2
-----
$27.1
=====
</TABLE>

Except for the cumulative effect of adoption, the impact of these
accounting changes on Safeway's 1992 net income was not material.

LIQUIDITY AND FINANCIAL RESOURCES

Operating cash flow, as presented below, provides a measure of the
Company's ability to generate cash to pay interest and fixed charges, and
facilitates the comparison of Safeway's results of operations with those of

12
<PAGE> 15

companies having different capital structures. Safeway's computation of
operating cash flow is as follows (dollars in millions):

<TABLE>
<CAPTION>
36 WEEKS ENDED
---------------------------
SEPT. 9, SEPT. 10, 52 WEEKS 52 WEEKS 53 WEEKS
1995 1994 1994 1993 1992
----------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income before income taxes,
extraordinary loss and cumulative
effect of accounting changes.......... $ 372.9 $ 283.7 $424.1 $216.3 $197.4
LIFO expense (income)................... 6.9 6.9 2.7 (1.5) (0.4)
Interest expense........................ 141.3 156.6 221.7 265.5 290.4
Depreciation and amortization........... 227.7 225.5 326.4 330.2 320.3
Equity in earnings of unconsolidated
affiliates............................ (17.2) (22.8) (27.3) (33.5) (39.1)
------ ------ ------ ------ ------
Operating cash flow..................... $ 731.6 $ 649.9 $947.6 $777.0 $768.6
------ ------ ------ ------ ------
As a percent of sales................... 6.51% 6.05% 6.06% 5.11% 5.07%
------ ------ ------ ------ ------
As a multiple of interest expense....... 5.18x 4.15x 4.27x 2.93x 2.65x
====== ====== ====== ====== ======
</TABLE>

Management expects operating cash flow, supplemented by credit available
under the Credit Agreement (as defined below), to be Safeway's primary sources
of long-term liquidity. Management believes that these sources will be adequate
to meet the Company's requirements. At September 9, 1995, the Company had
available unused borrowing capacity of $763.5 million under the Credit
Agreement.

During 1994, Safeway retired $44.2 million of senior debt and $247.9
million of senior subordinated debt. Safeway purchased the long-term debt
primarily with proceeds from floating rate bank borrowings. These redemptions
resulted in annual interest expense savings of approximately $8.0 million.
Depending on market conditions, Safeway may continue to purchase and retire
long-term debt.

CAPITAL EXPENDITURE PROGRAM

The Company's capital expenditure program funds new stores, remodels,
expenditures for information technology and the Company's other facilities,
including its plant and distribution facilities and its corporate headquarters.
In 1995, the Company opened 32 new stores and completed more than 100 remodels
and estimates capital expenditures were approximately $500 million. Capital
expenditures for 1996 are expected to increase to approximately $550 million.

ACQUISITION OF INTEREST IN WARRANTS TO PURCHASE SAFEWAY STOCK

In January 1995, a subsidiary of the Company acquired 31.8% of the
partnership interests in SSI Equity Associates for $113 million with proceeds
from bank borrowings. SSI Equity Associates is a limited partnership whose sole
assets consist of SSI Warrants to purchase 27,856,000 shares of Common Stock.
See "Principal and Selling Stockholders." In October 1995, a subsidiary of the
Company acquired an additional 18.9% of the partnership interests of SSI Equity
Associates for $83 million using proceeds from bank borrowings. Safeway
estimates that, as of December 30, 1995, the combined effect of these
transactions would reduce common stock equivalents by about 13.6 million shares.
The favorable effect on earnings per share from reducing common stock
equivalents is being partially offset by interest expense on the bank
borrowings.

In connection with the offerings, SSI Equity Associates will sell to the
Underwriters SSI Warrants to purchase 1,716,696 shares of Common Stock which
will be exercised and sold in the offerings. SSI Equity Associates will also
transfer to Safeway for cancellation SSI Warrants to purchase 1,765,304 shares
of Common Stock, such SSI Warrants representing the pro rata portion of the SSI
Warrants that are attributable to the limited partnership interests held by a
subsidiary of Safeway. Following the offerings, SSI Equity Associates will hold
SSI Warrants to purchase 24,374,000 shares of Common Stock (of which 12,357,130
shares will be attributable to limited partnership interests held by a
subsidiary of Safeway).

13
<PAGE> 16

NEW CREDIT AGREEMENT AND INDENTURES

On May 24, 1995, Safeway entered into a new unsecured bank credit agreement
(the "Credit Agreement") that is less restrictive than Safeway's previous bank
agreement, extends the maturity date and provides lower borrowing costs. The
Credit Agreement matures in 2000 and has two one-year extension options. Safeway
may borrow up to $1.15 billion under the Credit Agreement, including up to $400
million in Canada. In connection with obtaining the new Credit Agreement, all
collateral securing the Company's senior subordinated notes and debentures was
released.

U.S. borrowings under the Credit Agreement carry interest at one of the
following rates selected by the Company: (i) the prime rate; (ii) the rate at
which Eurodollar deposits are offered to first-class banks by the lenders in the
Credit Agreement plus a pricing margin based on the Company's debt rating or
interest coverage ratio (the "Pricing Margin"); or (iii) rates quoted at the
discretion of the lenders. Canadian borrowings denominated in U.S. dollars carry
interest at one of the following rates selected by the Company: (x) the Canadian
base rate; or (y) the Canadian Eurodollar rate plus the Pricing Margin. Canadian
borrowings denominated in Canadian dollars carry interest at the Canadian prime
rate.

The Credit Agreement and the indentures related to Safeway's 9.30% Senior
Secured Debentures due 2007 (the "9.30% Debentures"), certain of its medium-term
notes and its 10% Senior Subordinated Notes due 2001 (the "10% Notes"), 9.875%
Senior Subordinated Debentures due 2007 (the "9.875% Debentures"), 9.65% Senior
Subordinated Debentures due 2004 (the "9.65% Debentures") and 9.35% Senior
Subordinated Notes due 1999 (the "9.35% Notes," and together with the 10% Notes,
the 9.875% Debentures and the 9.65% Debentures, the "Subordinated Securities")
contain certain covenants which limit Safeway with respect to, among other
things: (i) paying cash dividends on its capital stock; (ii) incurring
additional indebtedness; (iii) creating liens upon its assets; (iv) repurchasing
shares of its capital stock or certain indebtedness; (v) acquiring any
outstanding warrants, options or other rights to acquire shares of any class of
stock of Safeway; and (vi) disposing of material amounts of assets other than in
the ordinary course of business.

Other provisions of the Credit Agreement limit certain acts of the Company
and require the Company to meet certain financial tests which pertain to its
ability to generate adequate cash to meet required payments.

14
<PAGE> 17

BUSINESS

Safeway was founded in 1926 and is one of the world's largest food
retailers, operating 1,059 stores at the end of 1995 in the United States and
Canada. U.S. retail operations are located principally in northern California,
Oregon, Washington and the Rocky Mountain, Southwest, and Mid-Atlantic regions.
Canadian retail operations are located principally in British Columbia, Alberta
and Manitoba/Saskatchewan. For each of its nine retail operating areas, Safeway
believes that it holds the number one or number two market share position for
the total area served. In support of its retail operations, Safeway has an
extensive network of distribution, manufacturing and food processing facilities.

In addition to stores operated under the Safeway name, the Company has
ownership interests in two other retailers. Safeway holds a 35% interest in
Vons, which operates 329 grocery stores located mostly in southern California,
and a 49% interest in Casa Ley, which operates 71 food and general merchandise
stores in western Mexico.

RETAIL OPERATIONS

STORES

Safeway operates stores ranging in size from approximately 7,200 square
feet to over 60,000 square feet. Safeway determines the size of a new store
based on a number of considerations, including the needs of the community the
store serves, the location and site plan, and the estimated returns on capital
invested. Most stores offer a wide selection of both food and general
merchandise and feature a variety of specialty departments which historically
have enhanced operating margins. In most of Safeway's larger stores, specialty
departments are showcased in each corner and along the perimeter walls of the
store to create a pleasant shopping atmosphere. Safeway's primary new store
prototype is 55,000 square feet in size and is designed to accommodate changing
consumer needs and to obtain certain operating efficiencies.

Safeway continues to operate a number of smaller stores which offer an
extensive selection of food and general merchandise, and generally include one
or more specialty departments. These stores remain an important part of the
Company's store network in smaller communities and certain other locations where
larger stores may not be feasible because of space limitations and/or community
needs or restrictions.

Stores opened in the first three quarters of 1995 averaged 52,000 square
feet. The following table summarizes the size of Safeway's stores at September
9, 1995:

<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
STORES TOTAL
--------- ----------
<S> <C> <C>
Less than 30,000 square feet........................... 313 30%
30,000 to 50,000....................................... 582 55
More than 50,000....................................... 162 15
----- ---
Total stores................................. 1,057 100%
===== ===
</TABLE>

STORE OWNERSHIP

At September 9, 1995, Safeway owned one-third and leased two-thirds of its
stores. In recent years, the Company has preferred ownership because it provides
control and flexibility with respect to financing terms, remodeling, expansions
and closures.

15
<PAGE> 18

MERCHANDISING

Safeway's merchandising strategy is to provide maximum value to its
customers by maintaining high store standards and offering high quality products
at competitive prices.

- The Company has intensified its efforts to elevate store standards and
provide friendly, helpful customer service. Safeway has reallocated time
and resources to improve in-stock conditions, enhance the presentation of
perishable merchandise, and provide faster, more efficient checkout.
Debit/credit card and check authorization systems have been installed for
customer convenience and to speed up checkout. Specialty departments and
special services provided in many stores, including video tape rentals,
photo processing counters, in-store automatic teller machines and bank
branches, are designed to provide one-stop shopping for today's busy
shopper.

- During the last two years, Safeway introduced a line of over 400 premium
private label products under the banner "Safeway SELECT." These products
include soft drinks, pastas and pasta sauces, salsa, whole bean coffee,
cookies, ice cream, yogurt, pet foods and laundry detergent. In addition,
the line includes Safeway SELECT "Enlighten" items such as no-fat salad
dressings and low sodium, single-serving, quick lunches. Safeway SELECT
products are designed to offer value-conscious consumers premium quality
products at prices lower than comparable national brands. The Company
plans to continue introducing more Safeway SELECT items over the next few
years. Safeway also offers a wide selection of private label products
under well-known and respected brand names such as Safeway, Lucerne and
Mrs. Wright's.

- Safeway offers high quality perishables in the produce, meat, dairy,
seafood, bakery and delicatessen departments. The Company continually
refines its merchandising strategies to identify and accommodate changing
demographics, lifestyles, and product preferences of its customers.

Percentage of Stores with Specialty Departments

<TABLE>
<CAPTION>
AT SEPTEMBER 9, 1995
--------------------
<S> <C>
Bakery............................................. 75%
Deli............................................... 90
Pharmacy........................................... 54
Seafood............................................ 44
Floral............................................. 92
</TABLE>

- The Company offers competitive prices for today's value-conscious
consumers, and features a line of Valu Pack merchandise which includes
more than 100 of the large-size products most frequently purchased at
membership club stores.

MANUFACTURING AND WHOLESALE OPERATIONS

The principal function of manufacturing operations is to manufacture and
process private label merchandise sold in Safeway stores under brand names such
as Safeway, Lucerne, Mrs. Wright's and Safeway SELECT. As measured by sales,
approximately two-thirds of Safeway SELECT merchandise, and approximately half
of its other private label merchandise, is manufactured in company-owned plants.
The remainder of such private label merchandise is procured from third parties.

During 1994, Safeway began a review to identify manufacturing operations in
the U.S. that do not provide acceptable returns. This review resulted in the
closure of six plants and a reorganization of the manufacturing division
administrative office during 1994 and the closure of five plants during 1995.
The ongoing review of all remaining manufacturing operations, including Canadian
facilities, may result in additional plant closures.

16
<PAGE> 19

Safeway's Canadian subsidiary has a wholesale operation that distributes
both national brands and private label products to independent grocery stores
and institutional customers.

Safeway operated the following manufacturing and processing facilities at
September 9, 1995:

<TABLE>
<CAPTION>
U.S. CANADA
---- ------
<S> <C> <C>
Milk plants........................................ 6 3
Bread baking plants................................ 5 2
Ice cream plants................................... 4 3
Cheese packaging plants............................ 1 1
Soft drink bottling plants......................... 4 0
Fruit and vegetable processing plants.............. 2 4
Other food processing plants....................... 3 4
Pet food plant..................................... 1 0
-- --
Total plants............................. 26 17
== ==
</TABLE>

In addition, the Company operates laboratory facilities for quality
assurance and research and development in certain of its plants and at its U.S.
manufacturing headquarters in Walnut Creek, California.

DISTRIBUTION

Each of Safeway's retail operating areas is served by a regional
distribution center consisting of one or more facilities. Safeway owns 11
distribution/warehousing centers (seven in the United States and four in
Canada), which collectively provide the majority of all products to Safeway
stores. Safeway's northern California distribution center is operated by a third
party.

Management regularly reviews distribution operations to ensure that these
operations support their respective operating areas in a cost-effective manner.
The Company is currently exploring ways to reduce the high costs associated with
the physical condition and layout of the distribution center in Landover,
Maryland, which serves the Company's stores in the Mid-Atlantic region. The
Company is exploring the feasibility of replacing the current distribution
center with a new facility or contracting with a third party to provide
distribution services. Management does not expect to be able to determine the
impact on the Company's operations of these alternatives until it has completed
its review. However, management expects that there would be potentially
significant one-time expenses associated with either alternative.

CAPITAL EXPENDITURE PROGRAM

A key component of the Company's long-term strategy is its capital
expenditure program. The Company's capital expenditure program funds new stores,
remodels, expenditures for information technology and the Company's other
facilities, including its plant and distribution facilities and its corporate
headquarters. In the last several years, Safeway management has significantly
strengthened its program to select and approve new capital investments.

17
<PAGE> 20

The table below reconciles cash paid for property additions reflected in
the Consolidated Statements of Cash Flows to a broader definition of capital
expenditures (dollars in millions):

<TABLE>
<CAPTION>
36 WEEKS ENDED
-------------------------
SEPT. 9, SEPT. 10, 52 WEEKS 52 WEEKS 53 WEEKS
1995 1994 1994 1993 1992
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash paid for property additions......... $253.2 $181.6 $339.9 $245.3 $483.6
Less: Purchase of previously leased
properties............................. (6.6) (25.1) (54.5) (21.4) (9.9)
Plus: Present value of all lease
obligations incurred................... 32.7 29.1 55.5 58.8 79.3
Mortgage notes assumed in property
acquisitions........................ -- -- 11.3 7.5 0.4
------ ------ ------ ------ ------
Total capital expenditures..... $279.3 $185.6 $352.2 $290.2 $553.4
====== ====== ====== ====== ======
Capital expenditures as a percent of
sales.................................. 2.5% 1.7% 2.3% 1.9% 3.7%
New stores opened........................ 16 11 20 14 35
Stores closed or sold.................... 21 21 36 39 49
Remodels................................. n/a n/a 71 45 63
Total retail square footage (in
millions).............................. 39.7 39.3 39.5 39.4 39.7
</TABLE>

During 1994, improved operations and lower project costs improved the
return on capital projects, and Safeway increased capital expenditures to $352
million from $290 million in 1993. During 1994, Safeway opened 20 new stores and
completed 71 remodels. In 1995, the Company opened 32 new stores and completed
more than 100 remodels and estimates capital expenditures were approximately
$500 million. Capital expenditures for 1996 are expected to increase to
approximately $550 million.

Management regularly reviews the performance of individual stores and other
facilities on the basis of a variety of economic factors. Upon the decision to
close a store or a facility, the Company accrues estimated future losses, if
any, which may include lease payments or other costs of holding the facility,
net of estimated future income. As of September 9, 1995, Safeway had an accrued
liability of $26.1 million for the anticipated future closure of 44 stores and
$37.3 million for the anticipated future closure of other facilities.

EMPLOYEES

At year-end 1994, Safeway had approximately 110,000 full and part-time
employees. Approximately 90% of Safeway's employees in the United States and
Canada are covered by collective bargaining agreements negotiated with local
unions affiliated with one of 12 different international unions. There are
approximately 400 such agreements, typically having three-year terms, with some
contracts having terms up to five years. Accordingly, Safeway renegotiates a
significant number of the these agreements every year. In the last three years,
despite the large number of negotiations, there have only been two significant
work stoppages, which were in Portland, Oregon and northern California. These
work stoppages were resolved in a manner that management considered generally
satisfactory, and did not individually or in the aggregate have a material
adverse effect on the Company. Both work stoppages involved all of the major
food retailers in those markets. The strike in northern California lasted nine
days during the second quarter of 1995, affected 18,000 employees at 208 stores
and adversely impacted sales and earnings during that quarter.

Of Safeway's approximately 100,000 unionized employees, approximately
37,000 are covered by labor contracts in four operating areas which are
scheduled to expire at various times in 1996. While Safeway believes that its
relationship with its employees is good, there can be no assurance that
contracts covering such 37,000 employees, or that labor contracts which come up
for renewal after 1996, will be renewed. Failure to renew contracts covering a
significant number of employees leading to work stoppages could have an adverse
effect on Safeway's results of operations.

The Company has performance-based compensation plans which cover
approximately 7,000 management employees. Performance-based compensation plans
set overall bonus levels based upon both operating results and working capital
management. Individual bonuses are based on job performance. Certain employees
are covered by capital investment bonus plans which measure the performance of
capital projects based on operating performance over several years.

18
<PAGE> 21

PRINCIPAL AND SELLING STOCKHOLDERS

All of the shares of Common Stock being offered hereby are being sold by
the Selling Stockholders.

The following table sets forth information regarding the beneficial
ownership of Safeway's outstanding Common Stock as of December 15, 1995,
assuming the exercise of all options exercisable on, or within 60 days of, such
date, and as adjusted to give effect to the offerings, for (i) each of Safeway's
directors who is a stockholder, (ii) each of the Selling Stockholders, (iii) the
Company's Chief Executive Officer, (iv) each of the Company's four other most
highly compensated executive officers who were serving as executive officers at
the end of fiscal 1994, (v) all executive officers and directors of Safeway as a
group and (vi) each person believed by Safeway to own beneficially more than 5%
of its outstanding shares of Common Stock. Except as indicated by the notes to
the following table, the holders listed below have sole voting power and
investment power over the shares beneficially held by them. The address of KKR
Associates, a New York limited partnership ("KKR Associates"), SSI Equity
Associates and SSI Partners, L.P. is 9 West 57th Street, New York, New York
10019.

<TABLE>
<CAPTION>
BEFORE OFFERINGS AFTER OFFERINGS
--------------------------- ---------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES(1) PERCENTAGE(1) SHARES OFFERED SHARES(1) PERCENTAGE(1)
----------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
KKR Associates(2)............... 130,000,000 61.0% 16,250,000 113,750,000 53.4%
James H. Greene, Jr.(3)....... 24,000 * 24,000 *
Henry R. Kravis(4)............ -- --
Robert I. MacDonnell(5)....... -- --
George R. Roberts(6).......... -- --
Michael T. Tokarz............. 10,000 * 10,000 *
SSI Equity Associates(7)........ 27,856,000 11.6 1,716,696 24,374,000 10.3
Sam Ginn(8)..................... 68,748 * 68,748 *
Paul Hazen(8)................... 68,748 * 68,748 *
Peter A. Magowan(9)............. 2,731,940 1.3 2,731,940 1.3
Steven A. Burd(9)............... 927,610 * 927,610 *
Kenneth W. Oder(9).............. 605,560 * 605,560 *
E. Richard Jones(9)(10)......... 1,050,372 * 1,050,372 *
Julian C. Day(9)................ 177,732 * 177,732 *
Frithjof J. Dale(9)............. 473,444 * 473,444 *
All executive officers and
directors as a group (17
persons, excluding Messrs.
Greene, Kravis, Roberts,
MacDonnell and Tokarz)(9)..... 7,010,922 3.2 7,010,922 3.2
</TABLE>

- ---------------
* Less than 1%

(1) For purposes of this table, a person or a group of persons is deemed to
have "beneficial ownership" as of a given date of any shares which such
person has the right to acquire within 60 days after such date. For
purposes of computing the percentage of outstanding shares held by each
person or group of persons named above on a given date, any shares which
such person or persons has the right to acquire within 60 days after such
date are deemed to be outstanding, but are not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person.

(2) The 130,000,000 shares are owned of record by two limited partnerships (the
"Common Stock Partnerships"), the sole general partner of each of which is
KKR Associates. KKR Associates, in its capacity as general partner, may be
deemed to beneficially own such shares. Messrs. Greene, Kravis, MacDonnell,
Roberts, Tokarz, Saul A. Fox, Edward A. Gihuly, Perry Golkin, Michael W.
Michelson, Paul E. Raether, Clifton S. Robbins and Scott Stuart, as general
partners of KKR Associates, may be deemed to share beneficial ownership of
any shares beneficially owned by KKR Associates, but disclaim any such
beneficial ownership. Messrs. Greene, Kravis, MacDonnell, Roberts and
Tokarz are members of Safeway's Board of Directors.

19
<PAGE> 22

(3) Represents shares owned jointly by Mr. Greene and his wife. Does not
include 10,000 shares owned by Mrs. Greene, as to which Mr. Greene
disclaims any beneficial ownership. Does not include 6,000 shares held in
trust by Mrs. Greene for the benefit of their children, as to which Mr.
Greene disclaims any beneficial ownership.

(4) Does not include 400,000 shares held by Mr. Kravis as a trustee of an
irrevocable trust created by Mr. Roberts for the benefit of his children
(the "Roberts Trust"). As co-trustee, Mr. Kravis shares the authority to
vote and dispose of the shares, but has no economic interest in such
shares.

(5) Does not include 60,000 shares held in an irrevocable trust created by Mr.
MacDonnell for the benefit of his children (the "MacDonnell Trust") with
respect to which Mr. MacDonnell disclaims any beneficial ownership.

(6) Does not include 60,000 shares held by Mr. Roberts as a trustee of the
MacDonnell Trust. As co-trustee, Mr. Roberts shares the authority to vote
and to dispose of the shares, but has no economic interest in such shares.
Does not include 400,000 shares held in the Roberts Trust with respect to
which Mr. Roberts disclaims any beneficial ownership.

(7) SSI Equity Associates is a Delaware limited partnership, the sole general
partner of which is SSI Partners, L.P., a Delaware limited partnership. SSI
Partners, L.P., in its capacity as general partner, may be deemed to own
any shares beneficially owned by SSI Equity Associates. Messrs. Kravis,
MacDonnell, Raether and Roberts, as general partners of SSI Partners, L.P.,
may be deemed to share beneficial ownership of any shares beneficially
owned by SSI Partners, L.P., but disclaim any such beneficial ownership.
Messrs. Kravis, MacDonnell and Roberts are members of Safeway's Board of
Directors. All 27,856,000 shares shown as beneficially owned before the
offerings represent shares of Common Stock issuable upon exercise of SSI
Warrants. In connection with the offerings, the Underwriters will acquire
1,716,696 shares of Common Stock upon the purchase of a portion of the SSI
Warrants and exercise thereof, resulting in proceeds to the Company of
$1,716,696. SSI Equity Associates also will transfer to Safeway for
cancellation SSI Warrants to purchase 1,765,304 shares of Common Stock,
such SSI Warrants representing the pro rata portion of the SSI Warrants
that are attributable to the limited partnership interests held by a
subsidiary of Safeway. These 3,482,000 shares to be sold or cancelled in
connection with the offerings represent 12.5% of the shares issuable upon
exercise of the SSI Warrants.

(8) Includes 47,914 shares issuable upon exercise of stock options.

(9) Includes shares issuable upon exercise of stock options as follows: Mr.
Magowan, 1,346,156; Mr. Burd, 790,000; Mr. Oder, 555,000; Mr. Jones,
650,000; Mr. Day, 145,000; Mr. Dale, 294,800; and all executive officers
and directors as a group, 4,571,904. Does not include shares issuable upon
exercise of warrants as follows: Mr. Dale, 30; Mr. Jones, 188; and all
executive officers and directors as a group, 776.

(10) Does not include 12,000 shares owned by Mr. Jones' children to which Mr.
Jones disclaims any beneficial ownership.

Shares sold by the Common Stock Partnerships in the offerings, including
shares sold pursuant to any exercise of the over-allotment option, will be sold
by each of the Common Stock Partnerships in proportion to the amount of Common
Stock owned by them. Following the offerings, the Common Stock Partnerships will
hold 113,750,000 shares of Common Stock, which will represent approximately
53.4% of the outstanding Common Stock and 43.1% on a fully diluted basis. As a
result of the Common Stock Partnerships' stock ownership of the Company, the
Common Stock Partnerships, KKR Associates, and their general partners will
continue to be able to exercise effective control over the Company, through
their representation on the Board of Directors and by reason of their
substantial voting power with respect to the election of directors and actions
requiring stockholder approval.

20
<PAGE> 23

Associates also will transfer to Safeway for cancellation SSI Warrants to
purchase 1,765,304 shares of Common Stock, such SSI Warrants representing the
pro rata portion of the SSI Warrants that are attributable to the limited
partnership interests held by a subsidiary of Safeway. See "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Financial Resources." Following the offerings, SSI
Equity Associates will hold SSI Warrants to purchase 24,374,000 shares of Common
Stock (of which 12,357,130 shares will be attributable to limited partnership
interests held by a subsidiary of Safeway).

The Company, the Selling Stockholders and certain directors and executive
officers of the Company have agreed, with certain exceptions, not to offer,
sell, contract to sell or otherwise dispose of, directly or indirectly, any
shares of capital stock of the Company, or any securities convertible into or
exercisable or exchangeable for capital stock of the Company, except for the
shares to be sold in the offerings and the SSI Warrants to be cancelled, for a
period of at least 90 days from the date of this Prospectus without the prior
written consent of Morgan Stanley & Co. Incorporated, on behalf of the several
Underwriters. If any such consent is given it would not necessarily be preceded
or followed by a public announcement thereof.

The Company and the Selling Stockholders entered into an agreement dated as
of November 25, 1986 (the "Registration Agreement"), a copy of which is
incorporated by reference as an exhibit to the Registration Statement of which
this Prospectus is a part, pursuant to which the Company agreed to register the
offer and sale of shares of Common Stock held by the Selling Stockholders,
including the shares of Common Stock offered hereby, under the Securities Act,
and the Selling Stockholders and the Company agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act in
connection with the sale of the shares pursuant to the Registration Agreement.
Pursuant to the Registration Agreement, the Selling Stockholders are required to
pay the underwriting discounts and commissions and transfer taxes, if any,
associated with the offerings, and the Company is required to pay substantially
all expenses directly associated with the offerings, including, without
limitation, the cost of registering the shares offered hereby, including
applicable registration and filing fees, printing expenses, certain underwriting
expenses and applicable expenses for legal counsel and accountants incurred by
the Company or the Selling Stockholders.

In addition, from December 1986 through December 1989, certain other
investors, consisting primarily of members of management, purchased and/or
acquired options to purchase, an aggregate of 19,272,000 shares of Common Stock.
Such investors paid, and stock options held by such investors are exercisable
primarily at, $1.00 per share. Each such investor entered into a subscription
agreement with Safeway, pursuant to which all shares of Common Stock held by
such investor are subject to certain restrictions on transfer and certain
repurchase rights and obligations under certain circumstances, primarily
relating to such investor's termination of employment. The investors have
registration rights with respect to shares of Common Stock owned by such
investors. In connection with these offerings, these registration rights
generally will permit the investors to require the Company to register up to
12.5% of the shares of Common Stock (including shares subject to options) owned
by such investors. Concurrently with the filing of this Prospectus, the Company
has requested each such investor to notify the Company if he or she desires to
exercise such registration rights in connection with the offerings.

No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sales, will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock (including shares issued upon the exercise of stock
options or warrants), or the perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock.

21
<PAGE> 24

DESCRIPTION OF CAPITAL STOCK

GENERAL

Pursuant to Safeway's Restated Certificate of Incorporation (the "Restated
Certificate"), the authorized capital stock of Safeway consists of 300,000,000
shares of Common Stock, par value $0.01 per share, and 10,000,000 shares of
preferred stock, par value $0.01 per share. At October 13, 1995, Safeway had
outstanding 213,185,948 shares of Common Stock and no outstanding shares of
preferred stock. All shares of Common Stock are fully paid and nonassessable. As
of October 13, 1995, there were approximately 4,700 holders of record of Common
Stock. At the Company's next annual stockholders meeting, the Company intends to
submit a proposal to its stockholders to increase its authorized capital stock
to 750,000,000 shares of Common Stock and 10,000,000 shares of preferred stock.

COMMON STOCK

On January 30, 1996, the Company will effect a distribution of its Common
Stock whereby each holder thereof will receive one additional share of Common
Stock for each share owned as of January 16, 1996.

Each holder of Common Stock is entitled to one vote for each share owned of
record on all matters voted upon by stockholders, and a majority vote is
required for all action to be taken by stockholders. In the event of a
liquidation, dissolution or winding-up of Safeway, the holders of Common Stock
are entitled to share equally and ratably in the assets of Safeway, if any,
remaining after the payment of all debts and liabilities of Safeway and the
liquidation preference of any outstanding preferred stock. The Common Stock has
no preemptive rights, no cumulative voting rights and no redemption, sinking
fund or conversion provisions.

The Restated Certificate provides for a classified Board of Directors
consisting of three classes as nearly equal in size as practicable. Each class
will hold office until the third annual meeting for election of directors
following the election of such class.

Safeway's By-laws provide for additional notice requirements for
stockholder nominations and proposals at annual or special meetings of Safeway.
At annual meetings, stockholders may submit nominations for directors or other
proposals only upon written notice to Safeway at least 50 days prior to the
annual meeting.

The Common Stock is listed on the New York Stock Exchange and the Pacific
Stock Exchange. The transfer agent and registrar for the Common Stock is The
First National Bank of Boston.

PREFERRED STOCK

The Board of Directors of Safeway is authorized without further stockholder
action, to divide any or all shares of the authorized preferred stock into
series and to fix and determine the designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereon, of any series so established, including voting powers,
dividend rights, liquidation preferences, redemption rights and conversion
privileges. As of the date of this Prospectus, the Board of Directors has not
authorized any series of preferred stock and there are no plans, agreements or
understandings for the issuance of any shares of preferred stock.

DIVIDENDS

Holders of Common Stock are entitled to receive dividends if, as and when
declared by the Board of Directors out of funds legally available therefor,
subject to the dividend and liquidation rights of any preferred stock that may
be issued and subject to the dividend restrictions in the Credit Agreement and
the indentures relating to the Company's senior and senior subordinated debt
securities. See "Dividend Policy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Financial
Resources."

22
<PAGE> 25

CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS

GENERAL

The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a holder who is not a United States person or entity (a "Non-U.S.
Holder"). For purposes of this discussion, a "Non-U.S. Holder" is any person or
entity that is, as to the United States, a foreign corporation, a non-resident
alien individual, a non-resident fiduciary of a foreign estate or trust, or a
foreign partnership. An individual may, subject to certain exceptions, be deemed
to be a resident alien (as opposed to a non-resident alien) by virtue of being
present in the United States on at least 31 days in the calendar year and for an
aggregate of at least 183 days during a three-year period ending in the current
calendar year (counting for such purposes all of the days present in the current
year, one-third of the days present in the immediately preceding year, and
one-sixth of the days present in the second preceding year). Resident aliens are
subject to United States federal tax as if they were United States citizens and
residents.

This discussion does not address all aspects of United States federal
income and estate taxes or consider any specific facts or circumstances that may
apply to a particular Non-U.S. Holder. Nor does it deal with foreign, state and
local consequences that may be relevant to Non-U.S. Holders. Furthermore, this
discussion is based on current provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), existing and proposed regulations promulgated
thereunder and public administrative and judicial interpretations thereof, all
of which are subject to changes which could be applied retroactively. Each
prospective purchaser of Common Stock is advised to consult a tax advisor with
respect to current and possible future tax consequences of acquiring, holding
and disposing of Common Stock.

DIVIDENDS

The Company does not currently intend to pay cash dividends on shares of
Common Stock. See "Dividend Policy." In the event that such dividends are paid
on shares of Common Stock, except as described below, dividends paid to a
Non-U.S. Holder of Common Stock will be subject to withholding of United States
federal income tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are effectively connected
with the conduct of a trade or business by the Non-U.S. Holder within the United
States. If the dividend is effectively connected with the conduct of a trade or
business of the Non-U.S. Holder within the United States, the dividend will be
subject to United States federal income tax on a net income basis at applicable
graduated individual or corporate rates and will be exempt from the 30%
withholding tax described above (assuming the necessary certification and
disclosure requirements are met). Any such effectively connected dividends
received by a foreign corporation may, under certain circumstances, be subject
to an additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.

Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country for purposes of the withholding discussed above (unless the payor has
knowledge to the contrary), and, under the current interpretation of United
States Treasury regulations, for purposes of determining the applicability of a
tax treaty rate. Under proposed United States Treasury regulations not currently
in effect, however, a Non-U.S. Holder of Common Stock who wishes to claim the
benefit of an applicable treaty rate would be required to file certain forms and
meet other certification requirements.

A Non-U.S. Holder of Common Stock who is eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts currently withheld by filing an appropriate, timely claim for
refund with the United States Internal Revenue Service (the "Service").

23
<PAGE> 26

GAIN ON DISPOSITION OF COMMON STOCK

A Non-U.S. Holder generally will not be subject to United States federal
income tax on any gain recognized on a disposition of a share of Common Stock
unless (i) subject to the exception discussed below, the Company is or has been
a "United States real property holding corporation" (a "USRPHC") within the
meaning of section 897(c)(2) of the Code at any time within the shorter of the
five-year period preceding such disposition or such Non-U.S. Holder's holding
period (the "Required Holding Period"), (ii) the gain is effectively connected
with the conduct of a trade or business within the United States of the Non-U.S.
Holder and, if a tax treaty applies, attributable to a permanent establishment
maintained by the Non-U.S. Holder, (iii) the Non-U.S. Holder is an individual
who holds the share of Common Stock as a capital asset and is present in the
United States for 183 days or more in the taxable year of the disposition and
either (a) such individual has a "tax home" (as defined for United States
federal income tax purposes) in the United States or (b) the gain is
attributable to an office or other fixed place of business maintained in the
United States by such individual, or (iv) the Non-U.S. Holder is subject to tax
pursuant to the Code provisions applicable to certain United States expatriates.
If an individual Non-U.S. Holder falls under clause (ii) or (iv) above, he or
she will be taxed on his or her net gain derived from the sale under regular
United States federal income tax rates. If the individual Non-U.S. Holder falls
under clause (iii) above, he or she will be subject to a flat 30% tax on the
gain derived from the sale which may be offset by United States capital losses
(notwithstanding the fact that he or she is not considered a resident of the
United States). If a Non-U.S. Holder that is a foreign corporation falls under
clause (ii) above, it will be taxed on its gain under regular graduated United
States federal income tax rates and, in addition, will under certain
circumstances be subject to the branch profits tax equal to 30% of its
"effectively connected earnings and profits" within the meaning of the Code for
the taxable year, as adjusted for certain items, unless it qualifies for a lower
rate under an applicable income tax treaty.

A corporation is generally a USRPHC if the fair market value of its United
States real property interests equals or exceeds 50% of the sum of the fair
market value of its worldwide real property interests plus its other assets used
or held for use in a trade or business. The Company believes that it is not
currently a USRPHC; however, even if the Company met the test for a USRPHC, a
Non-U.S. Holder would generally not be subject to tax, or withholding in respect
of such tax, on gain from a sale or other disposition of Common Stock by reason
of the Company's USRPHC status if the Common Stock is regularly traded on an
established securities market ("regularly traded") during the calendar year in
which such sale or disposition occurs, provided that such holder does not own,
actually or constructively, Common Stock with a fair market value in excess of
5% of the fair market value of all Common Stock outstanding at any time during
the Required Holding Period. The Company believes that the Common Stock will be
treated as regularly traded.

If the Company is or has been a USRPHC within the Required Holding Period,
and if a Non-U.S. Holder owns in excess of 5% of the fair market value of Common
Stock (as described in the preceding paragraph), such Non-U.S. Holder of Common
Stock will be subject to United States federal income tax at regular graduated
rates under certain rules ("FIRPTA tax") on gain recognized on a sale or other
disposition of such Common Stock. In addition, if the Company is or has been a
USRPHC within the Required Holding Period and if the Common Stock were not
treated as regularly traded, a Non-U.S. Holder (without regard to its ownership
percentage) would be subject to withholding in respect to FIRPTA tax at a rate
of 10% of the amount realized on a sale or other disposition of Common Stock in
USRPHCs and would be further subject to FIRPTA tax in excess of the amounts
withheld. Any amount withheld pursuant to such withholding tax would be
creditable against such Non-U.S. Holder's United States federal income tax
liability. Non-U.S. Holders are urged to consult their tax advisors concerning
the potential applicability of these provisions.

FEDERAL ESTATE TAXES

Common Stock owned, or treated as owned, by an individual Non-U.S. Holder
at the time of his or her death will be included in such holder's gross estate
for United States federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise.

24
<PAGE> 27

UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

The Company must report annually to the Service and to each Non-U.S. Holder
the amount of dividends paid to such holder and the tax withheld with respect to
such dividends. These information reporting requirements apply regardless of
whether withholding is required. Copies of the information returns reporting
such dividends and withholding may also be made available to the tax authorities
in the country in which the Non-U.S. Holder resides under the provisions of an
applicable income tax treaty or other agreement with the tax authorities in that
country.

Backup withholding of United States federal income tax (which, in general,
is a withholding tax imposed at the rate of 31% on certain payments to persons
that fail to furnish certain information under the United States information
reporting requirements) generally will not apply to (a) the payment of dividends
paid on Common Stock to a Non-U.S. Holder at an address outside the United
States or (b) the payment of the proceeds of the sale of Common Stock to or
through the foreign office of a broker. In the case of the payment of proceeds
from such a sale of Common Stock through a foreign office of a broker that is a
United States person or a "U.S. related person," however, information reporting
(but not backup withholding) is required with respect to the payment unless the
broker has documentary evidence in its files that the owner is a Non-U.S. Holder
(and has no actual knowledge to the contrary) and certain other requirements are
met or the holder otherwise establishes an exemption. For this purpose, a "U.S.
related person" is (i) a "controlled foreign corporation" for United States
federal income tax purposes, or (ii) a foreign person 50% or more of whose gross
income from all sources for the three-year period ending with the close of its
taxable year preceding the payment (or for such part of the period that the
broker has been in existence) is derived from activities that are effectively
connected with the conduct of a United States trade or business. The payment of
the proceeds of a sale of shares of Common Stock to or through a United States
office of a broker is subject to information reporting and possible backup
withholding unless the owner certifies its non-United States status under
penalties of perjury or otherwise establishes an exemption. Any amounts withheld
under the backup withholding rules from a payment to a Non-U.S. Holder will be
allowed as a refund or a credit against such Non-U.S. Holder's United States
federal income tax liability, provided that the required information is
furnished to the Service.

These information reporting and backup withholding rules are under review
by the United States Treasury, and their application to the Common Stock could
be changed prospectively by future regulations.

25
<PAGE> 28

UNDERWRITERS

Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof, the U.S. Underwriters named below have severally agreed
to purchase, and the Selling Stockholders have agreed to sell to them, and the
International Underwriters named below have severally agreed to purchase, and
the Selling Stockholders have agreed to sell to them, the respective number of
shares of the Company's Common Stock set forth opposite the names of such
Underwriters below:

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
------------------------------------------------------------------------- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated......................................
Dillon, Read & Co. Inc. ...............................................
Goldman, Sachs & Co. ..................................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated.....................
Salomon Brothers Inc ..................................................
Smith Barney Inc. .....................................................
---------
Subtotal....................................................... 14,373,357
---------
International Underwriters:
Morgan Stanley & Co. International Limited.............................
Dillon, Read & Co. Inc. ...............................................
Goldman, Sachs International Limited...................................
Merrill Lynch International Limited....................................
Salomon Brothers International Limited.................................
Smith Barney Inc. .....................................................
---------
Subtotal....................................................... 3,593,339
---------
Total.......................................................... 17,966,696
=========
</TABLE>

The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of Common Stock offered hereby are subject to the approval of certain
legal matters by their counsel and to certain other conditions. The Underwriters
are obligated to take and pay for all of the shares of Common Stock (directly or
through the purchase and exercise of SSI Warrants) offered hereby (other than
those covered by the over-allotment option described below) if any such shares
are taken. With respect to shares of Common Stock obtained upon the purchase and
exercise of SSI Warrants, the Underwriters will remit the exercise price of the
SSI Warrants to the Company.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions, (i)
it is not purchasing any U.S. Shares (as defined below) for the account of
anyone other than a United States or Canadian Person (as defined below) and (ii)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside
the United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement Between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions, (i) it is not purchasing any International Shares (as defined below)
for the account of any United States or Canadian Person and (ii) it has not
offered or sold, and will not offer or sell, directly or indirectly, any
International Shares or distribute any prospectus relating to the International
Shares within the United States or Canada or to any United States or Canadian
Person. The foregoing limitations do not apply to stabilization transactions or
to certain other transactions specified in the Agreement between U.S. and
International Underwriters. As used herein, "United States or Canadian Person"
means any national or resident of the United States or Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States or Canada of any political subdivision
thereof (other than a branch located outside the United States

26
<PAGE> 29

and Canada of any United States or Canadian Person) and includes any United
States or Canadian branch of a person who is otherwise not a United States or
Canadian Person. All shares of Common Stock to be purchased by the U.S.
Underwriters and the International Underwriters are referred to herein as the
U.S. Shares and the International Shares, respectively.

Pursuant to the Agreement Between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and the International
Underwriters of any number of shares of Common Stock to be purchased pursuant to
the Underwriting Agreement as may be mutually agreed. The per share price and
currency of any shares sold shall be the Price to Public set forth on the cover
page hereof, in United States dollars, less an amount not greater than the per
share amount of the concession to dealers set forth below.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Common Stock, directly or indirectly, in
Canada in contravention of the securities laws of Canada or any province or
territory thereof and has represented that any offer of Common Stock in Canada
will be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer is made.
Each U.S. Underwriter has further agreed to send to any dealer who purchases
from it any shares of Common Stock a notice stating in substance that, by
purchasing such Common Stock, such dealer represents and agrees that it has not
offered or sold, and will not offer or sell, directly or indirectly, any of such
Common Stock in Canada or to, or for the benefit of, any resident of Canada in
contravention of the securities laws of Canada or any province or territory
thereof and that any offer of Common Stock in Canada will be made only pursuant
to an exemption from the requirement to file a prospectus in the province of
Canada in which such offer is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Common Stock a notice to the foregoing
effect.

Each International Underwriter has agreed that: (i) it has not offered or
sold and will not offer or sell any shares of Common Stock to persons in the
United Kingdom (the "U.K.") except to persons whose ordinary activities involve
them in acquiring, holding, managing or disposing of investments (as principal
or agent) for the purposes of their businesses or otherwise in circumstances
which have not resulted and will not result in an offer to the public in the
U.K. within the meaning of the Public Offers of Securities Regulation 1995; (ii)
it has complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the Common
Stock in, from or otherwise involving the U.K.; and (iii) it has only issued or
passed on, and will only issue or pass on, in the U.K. any document received by
it in connection with the issue of the Common Stock, to a person who is of a
kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisement) (Exemptions) Order 1995 or is a person to whom the document may
otherwise lawfully be issued or passed on.

The Underwriters propose to offer part of the Common Stock directly to the
public at the Price to Public set forth on the cover page hereof and part to
certain dealers at a price which represents a concession not in excess of
$ per share under the public offering price. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ a
share to other Underwriters or to certain dealers.

Pursuant to the Underwriting Agreement, the Selling Stockholders have
granted to the U.S. Underwriters an option, exercisable for 30 days from the
date of this Prospectus, to purchase up to 2,695,004 additional shares of Common
Stock at the Price to Public set forth on the cover page hereof, less
underwriting discounts and commissions. The U.S. Underwriters may exercise such
option to purchase solely for the purpose of covering over-allotments, if any,
made in connection with the offering of the shares of Common Stock offered
hereby. To the extent such option is exercised, each U.S. Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number set forth next to such
U.S. Underwriter's name in the preceding table bears to the total number of U.S.
Shares offered hereby.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.

27
<PAGE> 30

The Company, the Selling Stockholders and certain directors and executive
officers of the Company have agreed in the Underwriting Agreement, with certain
exceptions, not to offer, sell, contract to sell or otherwise dispose of,
directly or indirectly, any shares of capital stock of the Company or any
securities convertible into or exercisable or exchangeable for any capital stock
of the Company, except for the shares to be sold in the offerings and the SSI
Warrants to be cancelled, for a period of at least 90 days from the date of this
Prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated, on behalf of the several Underwriters. If any such consent is
given it would not necessarily be preceded or followed by a public announcement
thereof.

LEGAL MATTERS

Certain legal matters in connection with the sale of the shares of Common
Stock offered hereby will be passed upon for Safeway and the Selling
Stockholders by Latham & Watkins, San Francisco, California. Certain partners of
Latham & Watkins, members of their families, related persons and others own, or
through limited partnerships have an indirect interest in, less than 1% of the
Common Stock. Such persons do not have the power to vote or dispose of shares
which are indirectly held, some of which shares will be sold in the offerings.
Certain legal matters in connection with the offerings will be passed upon for
the U.S. Underwriters and the International Underwriters by Brown & Wood, San
Francisco, California.

EXPERTS

Safeway's consolidated financial statements as of December 31, 1994 and
January 1, 1994 and for each of the three fiscal years in the period ended
December 31, 1994, incorporated herein by reference from Safeway's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
incorporated herein by reference (which report expressed an unqualified opinion
and includes an explanatory paragraph relating to changes in Safeway's methods
of accounting during the fiscal year ended January 2, 1993), and have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.

28
<PAGE> 31

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents which have been filed with the Commission by the
Company are hereby incorporated by reference in this Prospectus:

(1) Annual Report on Form 10-K for the fiscal year ended December 31, 1994.

(2) Quarterly Report on Form 10-Q for the fiscal quarter ended March 25,
1995.

(3) Quarterly Report on Form 10-Q for the fiscal quarter ended June 17,
1995.

(4) Quarterly Report on Form 10-Q for the fiscal quarter ended September 9,
1995.

(5) 1995 Proxy Statement.

(6) Current Reports on Form 8-K dated March 29, 1995 and May 22, 1995.

(7) Description of Safeway's Common Stock contained in Safeway's
Registration Statement on Form 8-A filed with the Commission on
February 20, 1990, including the amendment on Form 8 dated March 26,
1990.

All documents filed by Safeway pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act, subsequent to the date of this Prospectus and prior
to the termination of the offerings made hereby, shall be deemed incorporated by
reference herein and to be a part hereof from the date of filing such reports
and documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of the Prospectus.

Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered, upon written or oral request. Copies of this
Prospectus, as amended or supplemented from time to time, and any other
documents (or parts of documents) that constitute part of the Prospectus under
Section 10(a) of the Securities Act will also be provided without charge to each
such person, upon written or oral request. Requests should be directed to
Safeway Inc., Attention: Investor Relations Department, Safeway Inc., Fourth and
Jackson Streets, Oakland, California 94660, telephone number (510) 891-3790.

29
<PAGE> 32
[Alternate Page for International Prospectus]

PROSPECTUS (Subject to Completion)
Issued January 3, 1996

17,966,696 Shares

SAFEWAY INC.
COMMON STOCK
------------------------

OF THE 17,966,696 SHARES OF COMMON STOCK OFFERED, 3,593,339 SHARES ARE BEING
OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY
THE INTERNATIONAL UNDERWRITERS AND 14,373,357 SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE
"UNDERWRITERS." ALL OF THE SHARES OF COMMON STOCK OFFERED ARE BEING SOLD
BY THE SELLING STOCKHOLDERS AS DESCRIBED HEREIN UNDER "PRINCIPAL AND
SELLING STOCKHOLDERS" AND INCLUDE 16,250,000 PRESENTLY OUTSTANDING
SHARES AND 1,716,696 SHARES TO BE ISSUED CONCURRENTLY WITH THE
CONSUMMATION OF THESE OFFERINGS UPON THE EXERCISE OF OUTSTANDING
WARRANTS. NONE OF THE PROCEEDS FROM THE SALE OF THE SHARES WILL BE
RECEIVED BY THE COMPANY OTHER THAN $1,716,696 (ASSUMING NO EXERCISE
OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION) REPRESENTING THE
EXERCISE PRICE OF THE WARRANTS. EXCEPT AS OTHERWISE NOTED, ALL
INFORMATION IN THIS PROSPECTUS HAS BEEN ADJUSTED TO GIVE EFFECT
TO A STOCK DISTRIBUTION WHEREBY EACH HOLDER OF THE COMPANY'S
COMMON STOCK WILL RECEIVE ON JANUARY 30, 1996 ONE ADDITIONAL
SHARE OF COMMON STOCK FOR EACH SHARE OWNED AS OF JANUARY 16,
1996. THE COMPANY'S COMMON STOCK IS LISTED ON THE NEW YORK AND
PACIFIC STOCK EXCHANGES. ON JANUARY 2, 1996, THE REPORTED
LAST SALE PRICE OF THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE WAS $25 5/16, AS ADJUSTED FOR THE DISTRIBUTION
(BASED ON AN UNADJUSTED PRICE OF $50 5/8).

------------------------

PRICE $ A SHARE

------------------------

- ------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.

------------------------

MORGAN STANLEY & CO.
International
DILLON, READ & CO. INC.
GOLDMAN, SACHS INTERNATIONAL LIMITED
MERRILL LYNCH INTERNATIONAL LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
SMITH BARNEY INC.

, 1996
<PAGE> 33

APPENDIX A

CHART DESCRIPTIONS

PAGE 4

A bar graph entitled "Operating and Administrative Expenses as a Percent of
Sales" which shows operating and administrative expenses as a percentage of
sales as follows:

<TABLE>
<S> <C>
1992............................................ 24.19%
1993............................................ 23.94%
1994 23.28%
36 weeks 1994........................................ 23.31%
36 weeks 1995........................................ 22.76%
</TABLE>

The graph has an initial value of 20%.

PAGE 5

A line graph entitled "Annual Same-Store Sales Trends" which shows
same-store sales trends as follows:

<TABLE>
<S> <C>
1990............................................ 2.5%
1991............................................ -0.3%
1992............................................ -1.6%
1993............................................ 2.1%
1994............................................ 4.4%
36 weeks 1995................................... 4.6%
</TABLE>

The graph has an initial value of -4%.

PAGE 5

A bar graph entitled "Capital Expenditures" which shows capital
expenditures as follows:

- ---------------
* Forecasted.

The graph has an initial value of $0.
<PAGE> 34

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fee.

<TABLE>
<CAPTION>
AMOUNT
TO BE
PAID
--------
<S> <C>
SEC Registration Fee...................................................... $103,825
NASD Filing Fee........................................................... 37,500
Printing Costs............................................................ 50,000
Legal Fees and Expenses (other than Blue Sky)............................. 250,000
Accounting Fees and Expenses.............................................. 50,000
Blue Sky Fees and Expenses................................................ 20,000
Transfer Agent and Registrar Fees and Expenses............................ 10,000
Miscellaneous............................................................. 28,675
--------
TOTAL........................................................... $550,000
========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

As permitted by Delaware General Corporation Law, the Company's Restated
Certificate of Incorporation provides that a director of the Company will not be
personally liable to the Company or the stockholders for monetary damages for
any breach of fiduciary duty as a director, except for liability (i) for breach
of the duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law (governing distributions to stockholders), or (iv) for any transaction for
which a director derives an improper personal benefit. In addition, Section 145
of the Delaware General Corporation Law and Article III, Section 13 of the
Company's By-laws, under certain circumstances, provide for the indemnification
of the Company's officers, directors, employees and agents against liabilities
which they may incur in such capacities. A summary of the circumstances in which
such indemnification is provided for is contained herein, but that description
is qualified in its entirety by reference to Article III, Section 13 of the
Company's By-laws.

In general, any officer, director, employee or agent will be indemnified
against expenses including attorneys' fees, fines, settlements or judgments
which were actually and reasonably incurred in connection with a legal
proceeding, other than one brought by or on behalf of the Company, to which he
was a party as result of such relationship, if he acted in good faith, and in
the manner he believed to be in or not opposed to the Company's best interest
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. If the action is brought by or on behalf of
the Company, the person to be indemnified must have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the Company's best
interest, but no indemnification will be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Company unless and only to the extent that the Court of Chancery of Delaware, or
the court in which such action was brought, determines upon application that,
despite adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which such Court of Chancery or such other court shall deem proper.

Any indemnification under the previous paragraphs (unless ordered by a
court) will be made by the Company only as authorized in the specific case upon
a determination that indemnification of the director, officer, employee or agent
is proper under the circumstances because he has met the applicable standard of

II-1
<PAGE> 35

conduct set forth above. Such determination will be made (i) by the Board of
Directors by a majority vote of a quorum of disinterested directors who were not
parties to such action, (ii) if such quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (iii) by the stockholders. To the extent that a
director, officer, employee or agent of the Company is successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in the
previous paragraph, he will be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.

Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding may be paid by the Company in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it is ultimately determined that he is not entitled to be indemnified by the
Company as authorized by the By-laws. Such expenses incurred by other employees
and agents may be so paid upon such terms and conditions, if any, as the Board
of Directors deems appropriate.

The indemnification and advancement of expenses provided by, or granted
pursuant to, Section 13 of the By-laws is not deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office. If a claim for
indemnification or payment of expenses under Section 13 of the By-laws is not
paid in full within ninety (90) days after a written claim therefor has been
received by the Company the claimant may file suit to recover the unpaid amount
of such claim and, if successful in whole or in part, shall be entitled to be
paid the expense of prosecuting such claim. In any such action, the Company has
the burden of proving that the claimant was not entitled to the requested
indemnification or payment of expenses under applicable law.

The Board of Directors may authorize, by a vote of a majority of a quorum
of the Board of Directors, the Company to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Company would have the power to indemnify him against such
liability under the provisions of Section 13 of the By-laws. The Board of
Directors may authorize the Company to enter into a contract with any person who
is or was a director, officer, employee or agent of the Company or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
providing for indemnification rights equivalent to or, if the Board of Directors
so determines, greater than those provided for in Section 13 of the By-laws.

Safeway has also purchased insurance for its directors and officers for
certain losses arising from claims or charges made against them in their
capacities as directors and officers of Safeway.

ITEM 16. EXHIBITS.

The following documents are filed as part of this Registration Statement:

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
4(i).1 Restated Certificate of Incorporation of the Company as filed with the Secretary of
State of Delaware on February 23, 1990 (incorporated by reference to Exhibit 3.1 to
the Registration Statement No. 33-33388 filed on February 12, 1990).
4(i).2 Form of By-laws of the Company as amended (incorporated by reference to Exhibit 3.2
to Registration Statement No. 33-33388), and Amendment to the Company's By-laws
effective March 8, 1993 (incorporated by reference to Exhibit 3.2 to the Company's
Form 10-K for the fiscal year ended January 2, 1993).
4(i).3 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4(i).1 to
Registration Statement No. 33-33388).
</TABLE>

II-2
<PAGE> 36

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
4(i).4 Registration Rights Agreement dated as of November 25, 1986 by and between Safeway
Stores Holdings Corporation (predecessor to the Company) and certain limited
partnerships (incorporated by reference to Exhibit 4(i).4 to Registration Statement
No. 33-33388).
5.1* Opinion of Latham & Watkins.
23.1 Consent of Deloitte & Touche LLP.
23.2* Consent of Latham & Watkins (included in its opinion filed as Exhibit 5.1).
24.1 Power of Attorney (included on Page II-4 of this Registration Statement).
</TABLE>

- ---------------
* To be filed by amendment.

ITEM 17. UNDERTAKINGS.

(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1993 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the provisions described in Item 15, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a director, officer, or controlling person of
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered hereunder, Registrant will, unless in the opinion of
its counsel the matter has been settled by controlled precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.

(b) The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1993, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

II-3
<PAGE> 37

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF OAKLAND, STATE OF CALIFORNIA, ON THIS 2ND DAY OF
JANUARY, 1996.

SAFEWAY INC.

By /s/ STEVEN A. BURD

------------------------------------
Steven A. Burd
President and Chief Executive
Officer

POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and appoints
Messrs. Julian C. Day and Michael C. Ross as his attorneys-in-fact and agents,
with full power of substitution and resubstitution for him in any and all
capacities, to sign any or all amendments or post-effective amendments to this
Registration Statement, or any Registration Statement for the same offering that
is to be effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933, and to file the same, with exhibits thereto and other documents in
connection therewith or in connection with the registration of the Common Stock
under the Securities Exchange Act of 1934, as amended, with the Securities and
Exchange Commission, granting unto each of such attorneys-in-fact and agents
full power and authority to do and perform each and every act and thing
requisite and necessary in connection with such matters and hereby ratifying and
confirming all that each of such attorneys-in-fact and agents or his substitutes
may do or cause to be done by virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY EACH OF THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON JANUARY 2, 1996.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ ----------------------------------------------
<S> <C>
/s/ STEVEN A. BURD President, Chief Executive Officer and
- ------------------------------------------ Director (Principal Executive Officer)
Steven A. Burd

/s/ JULIAN C. DAY Executive Vice President and Chief Financial
- ------------------------------------------ Officer (Principal Financial Officer)
Julian C. Day

/s/ PETER A. MAGOWAN Chairman of the Board
- ------------------------------------------
Peter A. Magowan

/s/ SAM GINN Director
- ------------------------------------------
Sam Ginn

/s/ JAMES H. GREENE, JR. Director
- ------------------------------------------
James H. Greene, Jr.

/s/ PAUL HAZEN Director
- ------------------------------------------
Paul Hazen

/s/ HENRY R. KRAVIS Director
- ------------------------------------------
Henry R. Kravis

/s/ ROBERT I. MACDONNELL Director
- ------------------------------------------
Robert I. MacDonnell

/s/ GEORGE R. ROBERTS Director
- ------------------------------------------
George R. Roberts

/s/ MICHAEL T. TOKARZ Director
- ------------------------------------------
Michael T. Tokarz

</TABLE>

II-4
<PAGE> 38

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
1.1* Form of Underwriting Agreement.
4(i).1 Restated Certificate of Incorporation of the Company as filed with the
Secretary of State of Delaware on February 23, 1990 (incorporated by reference
to Exhibit 3.1 to the Registration Statement No. 33-33388 filed on February
12, 1990).
4(i).2 Form of By-laws of the Company as amended (incorporated by reference to
Exhibit 3.2 to Registration Statement No. 33-33388), and Amendment to the
Company's By-laws effective March 8, 1993 (incorporated by reference to
Exhibit 3.2 to the Company's Form 10-K for the year ended January 2, 1993).
4(i).3 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4(i).1
to Registration Statement No. 33-33388).
4(i).4 Registration Rights Agreement dated as of November 25, 1986 by and between
Safeway Stores Holdings Corporation (predecessor to the Company) and certain
limited partnerships (incorporated by reference to Exhibit 4(i).4 to
Registration Statement No. 33-33388).
5.1* Opinion of Latham & Watkins.
23.1 Consent of Deloitte & Touche LLP.
23.2* Consent of Latham & Watkins (included in its opinion filed as Exhibit 5.1).
24.1 Power of Attorney (included on Page II-4 of this Registration Statement).
</TABLE>

- ---------------
* To be filed by amendment.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in this Registration Statement
of Safeway Inc. on Form S-3 of our report dated February 20, 1995 (which
expresses an unqualified opinion and includes an explanatory paragraph relating
to changes in Safeway Inc.'s methods of accounting during the fiscal year ended
January 2, 1993) incorporated by reference in the Annual Report on Form 10-K of
Safeway Inc. for the fiscal year ended December 31, 1994, and to the reference
to us under the heading "Experts" in the Prospectuses, which are part of this
Registration Statement.

Deloitte & Touche LLP

Oakland, California
January 2, 1996