10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 19, 2004

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 1-41

SAFEWAY INC.

(Exact name of registrant as specified in its charter)

Delaware	94-3019135
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

5918 Stoneridge Mall Rd. Pleasanton, California	94588-3229
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (925) 467-3000

Not Applicable

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  x    No  ¨

As of July 23, 2004 there were issued and outstanding 446.9 million shares of the registrant’s common stock.

SAFEWAY INC. AND SUBSIDIARIES

INDEX

		Page
PART I	FINANCIAL INFORMATION (Unaudited)
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 19, 2004 and January 3, 2004	3
	Condensed Consolidated Statements of Income for the 12 and 24 weeks ended June 19, 2004 and June 14, 2003	5
	Condensed Consolidated Statements of Cash Flows for the 24 weeks ended June 19, 2004 and June 14, 2003	6
	Notes to the Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
Item 4.	Controls and Procedures	15
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	16
Item 4.	Submission of Matters to a Vote of Security Holders	16
Item 6.	Exhibits and Reports on Form 8-K	17

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SAFEWAY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

	June 19, 2004			January 3, 2004
ASSETS
Current assets:
Cash and equivalents	$	206.4		$	174.8
Receivables		323.5			383.2
Merchandise inventories		2,629.5			2,642.2
Prepaid expenses and other current assets		185.6			307.5
Total current assets		3,345.0			3,507.7
Property		14,255.1			14,024.8
Less accumulated depreciation and amortization		(5,850.2	)		(5,619.0	)
Property, net		8,404.9			8,405.8
Goodwill		2,399.4			2,404.9
Prepaid pension costs		373.9			418.7
Investment in unconsolidated affiliates		192.3			191.8
Other assets		171.5			167.8
Total assets	$	14,887.0		$	15,096.7

(Continued)

3

SAFEWAY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

(In millions, except per-share amounts)

(Unaudited)

	June 19, 2004			January 3, 2004
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of notes and debentures	$	608.5		$	699.5
Current obligations under capital leases		48.0			50.5
Accounts payable		1,638.5			1,509.6
Accrued salaries and wages		372.3			406.0
Other accrued liabilities		782.2			798.7
Total current liabilities		3,449.5			3,464.3
Long-term debt:
Notes and debentures		5,930.8			6,404.0
Obligations under capital leases		650.9			668.3
Total long-term debt		6,581.7			7,072.3
Deferred income taxes		421.8			421.9
Accrued claims and other liabilities		626.7			493.9
Total liabilities		11,079.7			11,452.4
Commitments and contingencies
Stockholders’ equity:
Common stock: par value $0.01 per share; 1,500 shares authorized; 577.6 and 575.4 shares outstanding		5.8			5.8
Additional paid-in capital		3,364.1			3,334.6
Deferred stock compensation		(17.6	)		(14.0	)
Accumulated other comprehensive income		20.7			87.5
Retained earnings		4,316.1			4,117.8
		7,689.1			7,531.7
Less: Treasury stock at cost; 130.9 and 131.2 shares		(3,881.8	)		(3,887.4	)
Total stockholders’ equity		3,807.3			3,644.3
Total liabilities and stockholders’ equity	$	14,887.0		$	15,096.7

See accompanying notes to condensed consolidated financial statements.

4

SAFEWAY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per-share amounts)

(Unaudited)

	12 Weeks Ended						24 Weeks Ended
	June 19, 2004			June 14, 2003			June 19, 2004			June 14, 2003
Sales	$	8,361.1		$	8,248.1		$	15,999.9		$	16,291.4
Cost of goods sold		(5,957.4	)		(5,764.3	)		(11,319.6	)		(11,419.3	)
Gross profit		2,403.7			2,483.8			4,680.3			4,872.1
Operating and administrative expense		(2,086.7	)		(2,126.4	)		(4,208.1	)		(4,146.1	)
Goodwill impairment charges		—			—			—			(256.5	)
Operating profit		317.0			357.4			472.2			469.5
Interest expense		(95.5	)		(102.0	)		(191.7	)		(205.7	)
Other income, net		4.7			2.7			7.8			5.2
Income before income taxes		226.2			258.1			288.3			269.0
Income taxes (expense) benefit		(71.0	)		(97.1	)		(90.0	)		54.6
Net income	$	155.2		$	161.0		$	198.3		$	323.6
Earnings per share:
Basic	$	0.35		$	0.36		$	0.45		$	0.73
Diluted	$	0.35		$	0.36		$	0.44		$	0.73
Weighted average shares outstanding:
Basic		445.6			441.4			444.8			441.3
Diluted		449.4			445.8			448.8			445.9

See accompanying notes to condensed consolidated financial statements.

5

SAFEWAY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

	24 Weeks Ended
	June 19, 2004			June 14, 2003
OPERATING ACTIVITIES:
Net income	$	198.3		$	323.6
Reconciliation to net cash flow from operating activities:
Goodwill impairment charges		—			256.5
Property impairment charges		14.6			120.1
Depreciation expense		406.2			392.4
LIFO expense		4.6			4.6
Equity in (earnings) losses of unconsolidated affiliates, net		(0.5	)		3.1
Net pension expense		51.7			59.1
Loss on property retirements and lease exit costs		34.6			2.5
Other		72.4			(1.0	)
Change in working capital items:
Receivables and prepaid expenses		172.0			107.4
Inventories at FIFO cost		(13.5	)		107.3
Income taxes		34.9			(118.8	)
Payables and accruals		72.4			(233.0	)
Net cash flow from operating activities		1,047.7			1,023.8
INVESTING ACTIVITIES:
Cash paid for property additions		(479.4	)		(376.0	)
Proceeds from sale of property		80.3			68.8
Other		(33.0	)		(31.4	)
Net cash flow used by investing activities		(432.1	)		(338.6	)
FINANCING ACTIVITIES:
Additions to short-term borrowings		—			1.9
Payments on short-term borrowings		(1.0	)		(1.7	)
Additions to long-term borrowings		28.5			90.8
Payments on long-term borrowings		(621.2	)		(773.3	)
Net proceeds from exercise of stock options		17.2			5.4
Other		0.1			—
Net cash flow used by financing activities		(576.4	)		(676.9	)
Effect of changes in exchange rates on cash		(7.6	)		2.3
Increase in cash and equivalents		31.6			10.6
CASH AND EQUIVALENTS:
Beginning of period		174.8			76.0
End of period	$	206.4		$	86.6

See accompanying notes to condensed consolidated financial statements.

6

SAFEWAY INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE A - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements of Safeway Inc. and subsidiaries (“Safeway” or the “Company”) for the 12 and 24 weeks ended June 19, 2004 and June 14, 2003 are unaudited and, in the opinion of management, 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 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s 2003 Annual Report to Stockholders. The results of operations for the 12 and 24 weeks ended June 19, 2004 are not necessarily indicative of the results expected for the full year.

During the fourth quarter of 2002, Safeway decided to sell Dominick’s and exit the Chicago market. After the winning bidder and the unions representing Dominick’s could not reach an agreement on a labor contract, Safeway announced that it was taking Dominick’s off the market in November 2003. Accordingly, Dominick’s is classified in continuing operations. Prior year amounts have been reclassified to include Dominick’s in continuing operations to conform to the current year’s presentation.

Inventory

Net income reflects the application of the LIFO method of valuing certain domestic inventories, based upon estimated annual inflation (“LIFO Indices”). Safeway recorded estimated LIFO expense of $4.6 million during the first 24 weeks of 2004 and 2003. Actual LIFO Indices are calculated during the fourth quarter of the year based upon a statistical sampling of inventories.

Vendor Allowances

Vendor allowances totaled $527.9 million for the second quarter of 2004 and $492.3 million for the second quarter of 2003. Vendor allowances totaled $1.0 billion for the first 24 weeks of 2004 and 2003. Vendor allowances can be grouped into the following broad categories: promotional allowances, slotting allowances, and contract allowances. All vendor allowances are classified as an element of cost of goods sold.

Promotional allowances make up nearly three-quarters of all allowances. With promotional allowances, vendors pay Safeway to promote their product. The promotion may be any combination of a temporary price reduction, a feature in print ads, a feature in a Safeway circular, or a preferred location in a store. The promotions are typically one to two weeks long.

Slotting allowances are a small portion of total allowances (typically less than 5% of all allowances). With slotting allowances, the vendor reimburses Safeway for the cost of placing new product on the shelf. Safeway has no obligation or commitment to keep the product on the shelf for a minimum period.

Contract allowances make up the remainder of all allowances. Under the typical contract allowance, a vendor pays Safeway to keep product on the shelf for a minimum period of time or until volume thresholds are achieved.

Slotting and promotional allowances are accounted for as a reduction in the cost of purchased inventory and recognized when the related inventory is sold. Contract allowances are recognized as a reduction in the cost of goods sold as volume thresholds are achieved or through the passage of time.

7

SAFEWAY INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Comprehensive Income

For the first 24 weeks of 2004, total comprehensive income was $131.5 million which primarily consisted of $198.3 million of net income offset by $67.1 million of foreign currency translation adjustments.

For the first 24 weeks of 2003, total comprehensive income was $456.4 million which primarily consisted of $323.6 million of net income and $132.5 million of foreign currency translation adjustments.

NOTE B - NEW ACCOUNTING STANDARDS

In June 2004, the FASB issued Staff Position SFAS No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” SFAS No. 106-2 provides guidance on the accounting, disclosure, effective date and transition related to the Prescription Drug Act. SFAS No. 106-2 is expected to be effective for the first interim period beginning after June 15, 2004. Safeway is continuing to evaluate the impact of SFAS 106-2’s recognition, measurement and disclosure provisions on its financial statements.

NOTE C - STOCK-BASED EMPLOYEE COMPENSATION

Safeway accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148 (in millions, except per-share amounts):

	12 weeks ended, June 19, 2004			12 weeks ended, June 14, 2003			24 weeks ended, June 19, 2004			24 weeks ended, June 14, 2003
Net income – as reported	$	155.2		$	161.0		$	198.3		$	323.6
Add:
Stock based employee compensation expense included in reported net income, net of related tax effects		0.7			—			1.2			—
Less:
Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(13.2	)		(11.8	)		(24.9	)		(23.6	)
Net income – pro forma	$	142.7		$	149.2		$	174.6		$	300.0
Basic earnings per share:
As reported	$	0.35		$	0.36		$	0.45		$	0.73
Pro forma		0.32			0.34			0.39			0.68
Diluted earnings per share:
As reported	$	0.35		$	0.36		$	0.44		$	0.73
Pro forma		0.32			0.33			0.39			0.67

8

SAFEWAY INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE D - GOODWILL

A summary of changes in Safeway’s goodwill during the first 24 weeks of 2004 by geographic area is as follows (in millions):

	2004
	U.S.			Canada			Total
Balance – beginning of year	$	2,328.3		$	76.6		$	2,404.9
Adjustments		(1.0	)		(4.5	)(1)		(5.5	)(1)
Balance – end of period	$	2,327.3		$	72.1		$	2,399.4

(1) Represents foreign currency translation adjustments in Canada.

NOTE E - FINANCING

Notes and debentures were composed of the following at June 19, 2004 and January 3, 2004 (in millions):

	June 19, 2004				January 3, 2004
	Long-term		Current		Long-term		Current
Commercial paper	$	735.1			$	1,210.6
9.30% Senior Secured Debentures due 2007		24.3				24.3
6.85% Senior Notes due 2004, unsecured		—	$	200.0		—	$	200.0
7.00% Senior Notes due 2007, unsecured		250.0				250.0
7.45% Senior Debentures due 2027, unsecured		150.0				150.0
6.50% Senior Notes due 2008, unsecured		250.0				250.0
7.25% Senior Notes due 2004, unsecured		—		400.0		—		400.0
7.50% Senior Notes due 2009, unsecured		500.0				500.0
6.15% Senior Notes due 2006, unsecured		700.0				700.0
6.50% Senior Notes due 2011, unsecured		500.0				500.0
7.25% Senior Debentures due 2031, unsecured		600.0				600.0
3.80% Senior Notes due 2005, unsecured		225.0				225.0
4.80% Senior Notes due 2007, unsecured		480.0				480.0
5.80% Senior Notes due 2012, unsecured		800.0				800.0
Floating Rate Senior Notes due 2005, unsecured		150.0				150.0
2.5% Senior Notes Due 2005, unsecured		200.0				200.0
4.125% Senior Notes due 2008, unsecured		300.0				300.0
9.875% Senior Subordinated Debentures due 2007, unsecured		24.2				24.2
9.65% Senior Subordinated Debentures due 2004, unsecured		—		—		—		81.2
Mortgage notes payable, secured		24.3		4.6		20.2		13.5
Other notes payable, unsecured		11.7		2.9		13.8		2.7
Other bank borrowings, unsecured		6.2		1.0		5.9		2.1
	$	5,930.8	$	608.5	$	6,404.0	$	699.5

9

SAFEWAY INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE F – PENSION PLAN

The following table provides the components of net pension expense for U.S. retirement plans for the 12 and 24 weeks ended June 19, 2004 and June 14, 2003 (in millions):

	12 weeks ended, June 19, 2004			12 weeks ended, June 14, 2003			24 weeks ended, June 19, 2004			24 weeks ended, June 14, 2003
Estimated return on assets	$	30.5		$	25.6		$	60.9		$	51.3
Service cost		(21.5	)		(19.1	)		(42.9	)		(38.1	)
Interest cost		(19.6	)		(18.5	)		(39.2	)		(37.0	)
Amortization of prior service cost		(3.8	)		(3.5	)		(7.6	)		(7.1	)
Amortization of unrecognized losses		(7.2	)		(10.9	)		(14.5	)		(21.9	)
Net pension expense	$	(21.6	)	$	(26.4	)	$	(43.3	)	$	(52.8	)

The Company made $0.4 million of contributions to its U.S. defined benefit pension plan trusts in the first 24 weeks of 2004. For the remainder of 2004, Safeway currently anticipates contributing an additional $0.3 million to these trusts.

NOTE G - CONTINGENCIES

Legal Matters

Note L to the Company’s consolidated financial statements, under the caption “Legal Matters” on pages 48 and 49 of the 2003 Annual Report to Stockholders, provides information on certain litigation in which the Company is involved. There have been no material developments to these matters, except as noted in subsequent filings.

Guarantees

Note L to the Company’s consolidated financial statements, under the caption “Furrs and Homeland Charge” on page 49 of the 2003 Annual Report to Stockholders provides information on contingent liabilities for the Company’s former El Paso, Texas and Oklahoma City, Oklahoma divisions. With respect to other divested operations, Safeway is unable to determine its maximum potential obligation, should there be any defaults, because information about the total number of leases from these divested operations that are still outstanding is not available. Based on an internal assessment by the Company, performed by taking the original inventory of assigned leases at the time of the divestitures and accounting for the passage of time, Safeway expects that any potential losses, beyond those recorded, would not be material to Safeway’s operating results, cash flow or financial position.

Note P to the Company’s consolidated financial statements, under the caption “Guarantees” on page 50 of the 2003 Annual Report to Stockholders provides information on guarantees required under FIN No. 45.

NOTE H – STORE CLOSING AND OTHER CHARGES

Operating and administrative expense in the 24 weeks of 2004 included charges of $45.7 million of store lease exit costs related to the previously announced closure of 12 under-performing Dominick’s stores. Also included in the 24 weeks of 2004 were charges related to the settlement of the Southern California strike: $36.5 million for the contribution to the Southern California union health and welfare trust fund and $9.3 million for a contract ratification bonus.

Operating and administrative expense in the 24 weeks of 2003 included $256.5 million for the Dominick’s goodwill impairment charge and $116.0 million of impairment charges for Dominick’s long-lived assets.

10

SAFEWAY INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

12 WEEKS ENDED JUNE 19, 2004 COMPARED WITH 12 WEEKS ENDED JUNE 14, 2003

Net income was $155.2 million ($0.35 per diluted share) for the second quarter ended June 19, 2004. This result includes the estimated impact of approximately $50 million, after tax ($0.11 per share) as the Company recovers from the strike in Southern California.

Net income was $161.0 million ($0.36 per diluted share) for the second quarter of 2003. Included in these results were an impairment charge for Dominick’s of $41.6 million, after tax ($0.10 per share) and restructuring and other expenses totaling $9.9 million, after tax ($0.02 per share).

STRIKE IMPACT On October 11, 2003 seven UFCW local unions struck the Company’s 289 stores in Southern California. An agreement ending the strike was reached on February 26, 2004. As expected, promotional pricing, direct marketing and the introduction of new proprietary products, such as Ranchers Reserve Beef, have improved sales in Southern California, but not yet to pre-strike levels. The overall cost of the strike reduced second quarter 2004 earnings by approximately $50 million, after tax ($0.11 per share). Safeway estimated the impact of the strike by comparing internal forecasts immediately before the strike with actual results during and after the strike at strike-affected stores. There can be no assurance that the strike-affected stores would have performed to these internal forecasts.

SALES Total sales increased to $8.4 billion in the second quarter of 2004 from $8.2 billion in 2003, primarily due to additional fuel sales and new store openings. Additional fuel sales were due to higher fuel prices, increases in the number of gallons per station and an increased number of fuel stations. Excluding sales at strike-affected stores, comparable store sales increased 2.3% and identical store (which exclude replacement stores) sales increased 1.9%. Further, excluding the effect of fuel sales, comparable store sales were flat and identical store sales declined 0.4%.

GROSS PROFIT Gross profit represents the portion of sales revenue remaining after deducting the cost of goods sold during the period, including purchase and distribution costs. These costs include inbound freight charges, purchasing and receiving costs, warehouse inspection costs, warehousing costs and other costs of Safeway’s distribution network. Advertising and promotional expenses are also a component of cost of goods sold. Additionally, all vendor allowances are classified as an element of cost of goods sold.

Gross profit decreased 136 basis points to 28.75% of sales in the second quarter of 2004 from 30.11% in the second quarter of 2003. The estimated impact of the strike reduced gross profit by 63 basis points. Higher fuel sales (which have a lower gross margin) reduced gross profit by 80 basis points. Higher advertising expense reduced gross profit by 23 basis points. The remaining 30 basis point increase in non-fuel gross profit was primarily attributable to improved shrink and lower cost of goods from centralized procurement.

Vendor allowances totaled $527.9 million for the second quarter of 2004 and $492.3 million for the second quarter of 2003. Vendor allowances did not materially impact the Company’s gross profit during the second quarter of 2004 or 2003 because Safeway spends the allowances received on pricing promotions, advertising expenses and slotting expenses. Vendor allowances can be grouped into the following broad categories: promotional allowances, slotting allowances, and contract allowances.

Promotional allowances make up nearly three-quarters of all allowances. With promotional allowances, vendors pay Safeway to promote their product. The promotion may be any combination of a temporary price reduction, a feature in print ads, a feature in a Safeway circular, or a preferred location in the store. The promotions are typically one to two weeks long.

11

SAFEWAY INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Slotting allowances are a small portion of total allowances (typically less than 5% of all allowances). With slotting allowances, the vendor reimburses Safeway for the cost of placing new product on the shelf. Safeway has no obligation or commitment to keep the product on the shelf for a minimum period.

Contract allowances make up the remainder of all allowances. Under the typical contract allowance, a vendor pays Safeway to keep product on the shelf for a minimum period of time or until volume thresholds are achieved.

To reduce the complexity and administrative expense of managing vendor allowances, the Company intends to emphasize lower net pricing from its vendors instead of allowances.

OPERATING AND ADMINISTRATIVE EXPENSE Operating and administrative expense declined 82 basis points to 24.96% of sales in the second quarter of 2004 from 25.78% in the second quarter of 2003. The Dominick’s impairment charge, restructuring charges and other expenses in 2003 increased operating and administrative expense as a percentage of sales by 104 basis points. The strike in 2004 increased operating and administrative expense as a percentage of sales by an estimated 23 basis points.

Safeway was recently notified that it will be required to contribute an additional $30 million to two Northern California UFCW multi-employer health and welfare plans for its share of funding deficits in the second half of 2004.

For most of the 2003 fiscal year, Dominick’s was classified as an asset held for sale. In the fourth quarter of 2003, Safeway announced that Dominick’s was no longer held for sale. As a result, the second quarter 2003 estimated loss on disposal has been reclassified as a 2003 operating and administrative expense.

INTEREST EXPENSE Interest expense declined to $95.5 million in the second quarter of 2004 compared to $102.0 million in the second quarter of 2003 primarily because the Company reduced debt by $584 million from $7.8 billion at year-end 2003 to $7.2 billion at June 19, 2004.

INCOME TAX EXPENSE Income tax expense was $71.0 million, or 31.4% of pretax income, in the second quarter of 2004, compared to $97.1 million, or 37.6%, in the second quarter of 2003. Safeway’s effective tax rate declined in the second quarter of 2004 due to a tax benefit of $12.5 million arising from the resolution of various tax issues.

24-WEEKS ENDED JUNE 19, 2004 COMPARED WITH 24-WEEKS ENDED JUNE 14, 2003

Net income for the first 24 weeks of 2004 was $198.3 million ($0.44 per diluted share) compared to $323.6 million ($0.73 per diluted share) for the first 24 weeks of 2003. The strike in Southern California reduced net income for the first 24 weeks of 2004 by an estimated $0.38 per share. Primarily as a result of the strike, sales declined 1.8% to $16.0 billion in the first 24 weeks of 2004 from $16.3 billion in 2003. The gross profit margin decreased 66 basis points to 29.25% in 2004 from 29.91% in 2003. Operating and administrative expense increased 85 basis points to 26.30% of sales from 25.45% in 2003.

Critical Accounting Policies

Critical accounting policies are those accounting policies that management believes are important to the portrayal of Safeway’s financial condition and results and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company’s 2003 Annual Report to Stockholders includes a description of certain critical accounting policies, including those with respect to workers’ compensation, store closing and impairment charges, employee benefit plans, and goodwill.

12

SAFEWAY INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

New Accounting Pronouncements

In June 2004, the FASB issued Staff Position SFAS No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” SFAS No. 106-2 provides guidance on the accounting, disclosure, effective date and transition related to the Prescription Drug Act. SFAS No. 106-2 is expected to be effective for the first interim period beginning after June 15, 2004. Safeway is continuing to evaluate the impact of SFAS 106-2’s recognition, measurement and disclosure provisions on its financial statements.

Liquidity and Financial Resources

Net cash flow from operating activities was $1,047.7 million for the first 24 weeks of 2004 compared to $1,023.8 million for the first 24 weeks of 2003. Continued strong cash flow from operating activities was the result of net income before depreciation and favorable changes in certain working capital items.

Net cash flow used by investing activities, which consists principally of cash paid for property additions, increased to $432.1 million for the first 24 weeks of 2004 compared to $338.6 million in 2003.

Net cash flow used by financing activities, which consists principally of cash used to pay down debt, was $576.4 million for the first 24 weeks of 2004 and $676.9 million in 2003.

Based upon the current level of operations, Safeway believes that net cash flow from operating activities and other sources of liquidity, including borrowing under Safeway’s commercial paper program, bank credit agreement and issuances of public debt, will be adequate to meet anticipated requirements for working capital, capital expenditures, interest payments and scheduled principal payments for the foreseeable future. There can be no assurance, however, that Safeway’s business will continue to generate cash flow at or above current levels or that the Company will maintain its ability to borrow under the commercial paper program, bank credit agreement, or to issue public debt.

If the Company’s credit rating were to decline below its current level of Baa2/BBB, the ability to borrow under the commercial paper program would be adversely affected. Safeway’s ability to borrow under the bank credit agreement is unaffected by Safeway’s credit rating. However, Safeway is required under a material covenant in its bank credit agreement to maintain certain interest coverage and debt coverage ratios. On May 20, 2004, the bank credit agreement was amended, in conjunction with its annual renewal, to change the maximum leverage ratio to 4:00:1:00. As of June 19, 2004, the Company was in compliance with the covenant requirements. If Safeway does not maintain these ratios, its ability to borrow under the bank credit agreement would be impaired.

On July 27, 2004, the Company filed a shelf registration statement covering the issuance from time to time of up to $2.0 billion of debt securities and/or common stock. The Company may issue debt or equity securities in the future depending on market conditions, the need to refinance existing debt and capital expenditure plans.

Capital Expenditure Program

During the first 24 weeks of 2004, Safeway invested $479.4 million in cash capital expenditures. For the year, the Company expects to spend between $1.2 billion and $1.4 billion in cash capital expenditures and open approximately 40 new stores and complete 120 remodels.

13

SAFEWAY INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward -Looking Statements

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements relate to, among other things, estimates of sales, identical store sales, earnings, pension plan contributions, capital expenditures, performance of acquired companies, the valuation of Safeway’s investments, operating improvements, cost reductions, financial and other effects of the Southern California labor strike and obligations with respect to divested operations and are indicated by words or phrases such as “continuing,” “on-going,” “expects,” and similar words or phrases. These statements are based on our current plans and expectations and involve risks and uncertainties. The following are among the principal factors that could cause actual results to differ materially from the forward-looking statements: general business and economic conditions in our operating regions, including the rate of inflation, currency valuations, consumer spending levels, population, employment and job growth in our markets; pricing pressures and competitive factors, which could include pricing strategies, store openings and remodels by our competitors; results of our programs to control or reduce costs, improve buying practices and control shrink; results of our programs to increase sales, including private-label sales, improvements in our perishable departments and our pricing and promotional programs; results of our programs to improve capital management; the ability to integrate any companies we acquire and achieve operating improvements at those companies, including Dominick’s and Randall’s; changes in financial performance of our equity investments; increases in labor costs and relations with union bargaining units representing our employees or employees of third-party operators of our distribution centers; the effects on operating performance at stores affected by the Southern California labor strike, including the time it takes to return to pre-strike operating performance and the resolution of lawsuits challenging certain provisions of the agreement with Kroger and Albertson’s that arise out of the multi-employer bargaining process in Southern California; work stoppages that could occur in areas where certain collective bargaining agreements have expired or are on indefinite extensions (such as Chicago) or are scheduled to expire in the near future (such as Seattle, Northern California, Denver and Las Vegas); changes in state or federal legislation, regulation or judicial developments, including with respect to taxes; the cost and stability of power sources; opportunities or acquisitions that we pursue; the availability and timely delivery of perishables and other products; market valuation assumptions and internal projections of future operating results which affect the valuation of goodwill; the rate of return on our pension assets; unanticipated events or changes in real estate matters; and the availability and terms of financing. Consequently, actual events and results may vary significantly from those included in or contemplated or implied by such statements. The Company undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof and disclaims any obligation to do so.

14

SAFEWAY INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes regarding the Company’s market risk position from the information provided under the caption “Market Risk from Financial Instruments” on page 15 of the Company’s 2003 Annual Report to Stockholders.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures which, by their nature, can provide only reasonable assurance regarding management’s control objectives. Management, including the Company’s President and Chief Executive Officer along with the Company’s Chief Financial Officer, concluded that the Company’s disclosure controls and procedures are effective in reaching the level of reasonable assurance regarding management’s control objectives. The Company also has investments in certain unconsolidated entities, including Casa Ley. As the Company does not control or manage these entities, its disclosure controls and procedures with respect to such entities are necessarily more limited than those it maintains with respect to its consolidated subsidiaries.

The Company has carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s President and Chief Executive Officer along with the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon the foregoing, as of June 19, 2004, the Company’s President and Chief Executive Officer along with the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s Exchange Act reports. There has been no change during the Company’s fiscal quarter ended June 19, 2004 in the Company’s internal control over financial reporting that was identified in connection with the foregoing evaluation which has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

15

SAFEWAY INC. AND SUBSIDIARIES

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Note L to the Company’s consolidated financial statements, under the caption “Legal Matters” on pages 48 and 49 of the 2003 Annual Report to Stockholders, provides information on certain litigation in which the Company is involved. There have been no material developments to these matters, except as noted in subsequent filings.

Item 4. Submission of Matters to a Vote of Security Holders

The Annual Meeting of Stockholders was held on May 20, 2004, at which the stockholders voted on proposals as follows:

	Votes For	Votes Against or Withheld	Votes Abstained	Broker Non-Votes
Proposal 1. Election of Directors
Steven A. Burd	318,844,928	65,227,444	N/A	N/A
Robert I. MacDonnell	327,493,549	56,578,823	N/A	N/A
William Y. Tauscher	328,293,616	55,778,756	N/A	N/A
Proposal 2. Ratification of Appointment of Independent Auditors for Fiscal 2004	371,572,344	10,279,388	2,220,640	N/A
Proposal 3. Approval of Amendment to Restated Certificate of Incorporation	376,225,197	5,382,234	2,464,941	N/A
Proposal 4. Approval of the Stock Option Exchange Program for Employees	236,082,972	107,968,826	2,340,985	37,679,589
Proposal 5. Stockholder Proposal Regarding Independent Director as Chairman of the Board	114,922,605	228,875,308	2,594,870	37,679,589
Proposal 6. Stockholder Proposal Regarding Cumulative Voting	84,482,962	197,215,509	64,694,312	37,679,589
Proposal 7. Stockholder Proposal Regarding Report on Impact of Genetically Engineered Food	17,597,901	301,035,680	27,759,202	37,679,589
Proposal 8. Stockholder Proposal Regarding Sustainability Report	62,500,552	252,599,566	31,292,665	37,679,589
Proposal 9. Stockholder Proposal Regarding Political Contribution & Participation Report	23,491,177	302,567,141	20,334,465	37,679,589
Proposal 10. Stockholder Proposal Regarding Expensing Stock Options	175,558,809	165,800,904	5,033,070	37,679,589

16

Item 6(a). Exhibits

Exhibit 3.1	Restated Certificate of Incorporation of Safeway Inc., as amended June 17, 2004, May 12, 1998 and May 14, 1996 (incorporated by reference to Exhibit 3.1 to Registrant’s Form S-3 Registration filed on July 27, 2004).
Exhibit 4(i).1	Form of First Amendment dated May 22, 2003 to Credit Agreement dated as of May 24, 2001 among Safeway Inc. and Canada Safeway Limited as Borrowers; Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc. as Co-Arrangers; Deutsche Bank AG New York Branch as Administrative Agent; JPMorgan Chase Bank, Bank of America, NA and US Bank National Association as Co-Syndication Agents; and the lenders listed therein as Lenders.
Exhibit 4(i).2	Form of Second Amendment dated May 20, 2004 to Credit Agreement dated as of May 24, 2001 among Safeway Inc. and Canada Safeway Limited as Borrowers; Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc. as Co-Arrangers; Deutsche Bank AG New York Branch as Administrative Agent; JPMorgan Chase Bank, Bank of America, NA and US Bank National Association as Co-Syndication Agents; and the lenders listed therein as Lenders.
Exhibit 10(iii).27*	Amendment dated February 26, 2004 to the Amended and Restated 1999 Equity Participation Plan of Safeway Inc.
Exhibit 10(iii).28*	Amendment dated May 2, 2004 to the Amended and Restated 1999 Equity Participation Plan of Safeway Inc.
Exhibit 10(iii).29*	Amendment dated June 2, 2004 to the Amended and Restated 1999 Equity Participation Plan of Safeway Inc.
Exhibit 10(iii).30*	Form of Non-Qualified Stock Option Agreement for U.S. Employees for the Amended and Restated 1999 Equity Participation Plan.
Exhibit 10(iii).31*	Amendment dated May 2, 2004 to the 2002 Equity Incentive Plan of Safeway Inc.
Exhibit 10(iii).32*	Deferred Compensation Plan for Safeway Non-Employee Directors, Amended and Restated June 2, 2004.
Exhibit 10(iii).33*	The 2001 Amended and Restated Share Appreciation Rights Plan of Canada Safeway Limited.
Exhibit 10(iii).34*	Form of Stock Rights Agreement for the Amended and Restated 1999 Equity Participation Plan of Safeway Inc. and the 2001 Amended and Restated Share Appreciation Rights Plan of Canada Safeway Limited.
Exhibit 11.1	Computation of Earnings Per Common Share.
Exhibit 31	Rule 13(a)-14(a)/15d-14(a) Certifications.
Exhibit 32	Section 1350 Certifications.

* Management contract, or compensatory plan or arrangement.

17

Item 6(b). Reports on Form 8-K

On July 27, 2004, the Company furnished to the SEC a current report on Form 8-K under “Item 7. Financial Statements and Exhibits” and “Item 12. Results of Operations and Financial Condition.”

On June 21, 2004, the Company filed a current report on Form 8-K under “Item 11. Temporary Suspension of Trading Under Registrant’s Employee Benefit Plans.”

On May 26, 2004, the Company furnished to the SEC a current report on Form 8-K under “Item 7. Financial Statements and Exhibits” and “Item 12. Results of Operations and Financial Condition.”

On May 4, 2004, the Company furnished to the SEC a current report on Form 8-K under “Item 7. Financial Statements and Exhibits” and “Item 12. Results of Operations and Financial Condition.”

On April 16, 2004, the Company furnished to the SEC a current report on Form 8-K under “Item 7. Financial Statements and Exhibits” and “Item 12. Results of Operations and Financial Condition.”

18

SAFEWAY INC. AND SUBSIDIARIES

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: July 29, 2004	/s/ Steven A. Burd
	Steven A. Burd
	Chairman, President and Chief Executive Officer
Date: July 29, 2004	/s/ Robert L. Edwards
	Robert L. Edwards
	Executive Vice President and Chief Financial Officer

19

SAFEWAY INC. AND SUBSIDIARIES

Exhibit Index

LIST OF EXHIBITS FILED WITH FORM 10-Q FOR THE PERIOD

ENDED June 19, 2004

Exhibit 3.1	Restated Certificate of Incorporation of Safeway Inc., as amended June 17, 2004, May 12, 1998 and May 14, 1996 (incorporated by reference to Exhibit 3.1 to Registrant’s Form S-3 Registration filed on July 27, 2004).
Exhibit 4(i).1	Form of First Amendment dated May 22, 2003 to Credit Agreement dated as of May 24, 2001 among Safeway Inc. and Canada Safeway Limited as Borrowers; Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc. as Co-Arrangers; Deutsche Bank AG New York Branch as Administrative Agent; JPMorgan Chase Bank, Bank of America, NA and US Bank National Association as Co-Syndication Agents; and the lenders listed therein as Lenders.
Exhibit 4(i).2	Form of Second Amendment dated May 20, 2004 to Credit Agreement dated as of May 24, 2001 among Safeway Inc. and Canada Safeway Limited as Borrowers; Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc. as Co-Arrangers; Deutsche Bank AG New York Branch as Administrative Agent; JPMorgan Chase Bank, Bank of America, NA and US Bank National Association as Co-Syndication Agents; and the lenders listed therein as Lenders.
Exhibit 10(iii).27*	Amendment dated February 26, 2004 to the Amended and Restated 1999 Equity Participation Plan of Safeway Inc.
Exhibit 10(iii).28*	Amendment dated May 2, 2004 to the Amended and Restated 1999 Equity Participation Plan of Safeway Inc.
Exhibit 10(iii).29*	Amendment dated June 2, 2004 to the Amended and Restated 1999 Equity Participation Plan of Safeway Inc.
Exhibit 10(iii).30*	Form of Non-Qualified Stock Option Agreement for U.S. Employees for the Amended and Restated 1999 Equity Participation Plan.
Exhibit 10(iii).31*	Amendment dated May 2, 2004 to the 2002 Equity Incentive Plan of Safeway Inc.
Exhibit 10(iii).32*	Deferred Compensation Plan for Safeway Non-Employee Directors, Amended and Restated June 2, 2004.
Exhibit 10(iii).33*	The 2001 Amended and Restated Share Appreciation Rights Plan of Canada Safeway Limited.
Exhibit 10(iii).34*	Form of Stock Rights Agreement for the Amended and Restated 1999 Equity Participation Plan of Safeway Inc. and the 2001 Amended and Restated Share Appreciation Rights Plan of Canada Safeway Limited.
Exhibit 11.1	Computation of Earnings Per Common Share.
Exhibit 31	Rule 13(a)-14(a)/15d-14(a) Certifications.
Exhibit 32	Section 1350 Certifications.

* Management contract, or compensatory plan or arrangement.

20

EX-4.(I)1

Exhibit 4(i).1

SAFEWAY INC.

FIRST AMENDMENT TO CREDIT AGREEMENT

DATED AS OF MAY 22, 2003

This FIRST AMENDMENT TO CREDIT AGREEMENT dated as of May 22, 2003 (this “First Amendment”), is by and among Safeway Inc. (“Safeway”) and Canada Safeway Limited (“Canada Safeway” and together with Safeway, the “Borrowers”), the financial institutions named on the signature pages hereof (the “Lenders”), Deutsche Bank Securities Inc. (formerly, Deutsche Banc Alex. Brown Inc.) (“DBSI”) and J.P. Morgan Securities Inc. (“JPMSI”, and together with DBSI, as Joint Lead Arrangers and Joint Bookrunners, the “Arrangers”), Deutsche Bank AG New York Branch (“Deutsche Bank”), as Administrative Agent (the “Administrative Agent”), and JPMorgan Chase Bank (formerly, The Chase Manhattan Bank), Bank of America, NA and US Bank National Association, as Co-Syndication Agents. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement dated as of May 24, 2001 (as amended, the “Credit Agreement), by and among the Borrowers, the financial institutions named on the signature pages thereof (the “Lenders”), DBSI and JPMSI, as Co-Arrangers, The Bank of Nova Scotia (succeeded by Deutsche Bank in such capacity), as Administrative Agent, Deutsche Bank, JPMorgan Chase Bank (formerly, The Chase Manhattan Bank), Bank of America, NA and Citicorp USA, Inc., as Co-Syndication Agents, US Bank National Association, as the Documentation Agent and the Agents listed therein.

WHEREAS, the existing Tranche B Revolving Termination Date is May 22, 2003;

WHEREAS, pursuant to Section 2.8 of the Credit Agreement, the Borrowers and the Tranche B Domestic Lenders and Tranche B Canadian Lenders party hereto desire to extend the Tranche B Revolving Termination Date for an additional 364 days to May 20, 2004;

WHEREAS, the Consenting Tranche B Lenders and New Tranche B Lenders have agreed to make the Tranche B Domestic Loans and/or Tranche B Canadian Loans, as the case may be, equal to their respective Tranche B Domestic Commitments and/or Tranche B Canadian Commitments, as the case may be, reflected on Schedule 2.1 attached hereto; and

WHEREAS, the Borrowers and the Requisite Lenders desire to amend the mechanics for borrowing Tranche A Domestic Base Rate Loans, Tranche A Canadian Base Rate Loans, Tranche B Domestic Base Rate Loans, Tranche B Canadian Base Rate Loans, Tranche A Canadian Prime Rate Loans and Tranche B Canadian Prime Rate Loans and to make certain other modifications as set forth herein.

AGREEMENT

NOW, THEREFORE, in consideration of the terms and conditions herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1.

DEFINITIONS.

A. First Amendment Defined Terms. As used herein, the following terms shall have the following meanings:

“Consenting Tranche B Lender” means Tranche B Domestic Lender and/or Tranche B Canadian Lender party to the Credit Agreement prior to the date hereof that consents to make the Tranche B Domestic Commitment and/or the Tranche B Canadian Commitment listed across from its name on Schedule 2.1 attached hereto.

“Declining Tranche B Lender” means Tranche B Domestic Lender and/or Tranche B Canadian Lender party to the Credit Agreement prior to the date hereof that does not appear as either a Tranche B Domestic Lender or Tranche B Canadian Lender on Schedule 2.1 attached hereto.

“First Amendment Effective Date” has the meaning set forth in Section 9 hereof.

“New Tranche B Lender” means a Tranche B Domestic Lender and Tranche B Canadian Lender that was not party to the Credit Agreement prior to the date hereof that agrees to make the Tranche B Domestic Commitments and/or the Tranche B Canadian Commitments listed across from its name on Schedule 2.1 attached hereto.

“Reducing Tranche B Lender” means a Consenting Tranche B Lender in respect of which its Tranche B Domestic Commitments and/or Tranche B Canadian Commitments shall be reduced by the transactions contemplated hereby.

B. Amended Definitions. The definitions of the following defined terms in Section 1.1 of the Credit Agreement are hereby amended by deleting such definitions in their entirety and substituting the following definitions therefor:

“Canadian Base Rate” means as at any date, with respect to any Canadian Loan denominated in Dollars that is to be or has been advanced to Canada Safeway in Canada, the variable rate of interest per annum equal to the greater of (a) the rate which Bank of Montreal announces from time to time as its base lending rate per annum with respect to loans denominated in Dollars advanced to Canadian customers in Canada, as in effect from time to time and (b) the aggregate of (i) the Federal Funds Effective Rate per annum for such day and (ii)  ³/8 of 1% per annum. As to any loan, the Canadian Base Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer for loans denominated in Dollars. Bank of Montreal may make commercial loans or other loans denominated in Dollars at rates of interest at, above or below the Canadian Base Rate.

“Canadian Funding and Payment Office” means the office of the Administrative Agent located at Deutsche Bank AG, Canada Branch, 222 Bay Street, Suite 1100, P.O. Box 64, Toronto, Ontario M5K 1E7, Canada, or such other location in Canada as may from time to time be designated in writing by Administrative Agent.

“Canadian Loan Pricing Reference Banks” means Scotiabank, CIBC and Bank of Montreal.

“Canadian Prime Rate” means with respect to any Canadian Loan denominated in Canadian Dollars that is to be or has been advanced to Canada Safeway in Canada as of any date, the greater of (a) the variable rate announced by Bank of Montreal from time to time as its prime lending rate per annum for Canadian Dollar loans made by Bank of Montreal, as in effect on such date and (b) the sum of (i) the rate per annum for Canadian Dollar bankers’ acceptances having a term of 30 days for Bank of Montreal as of 10:00 A.M. (Toronto time) on such date, and (ii)  ³/8 of 1% per annum. As to any loan, the Canadian Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Bank of Montreal may make commercial loans or other loans at rates of interest at, above or below the Canadian Prime Rate.

“Domestic Funding and Payment Office” means the office of the Administrative Agent located at Deutsche Bank AG, New York Branch, 31 West 52^nd Street, New York, NY 10019-6160, or such other location in the United States of America as may from time to time be designated in writing by the Administrative Agent.

“Schedule I Reference Banks” means Scotiabank, CIBC and Bank of Montreal.

SECTION 2.

EXTENSION OF TRANCHE B REVOLVING TERMINATION DATE.

Pursuant to subsection 2.8 of the Credit Agreement and this First Amendment, each Tranche B Domestic Lender and Tranche B Canadian Lender by execution of a counterpart hereof agrees that the Tranche B Revolving Termination Date (which date is currently May 22, 2003) is hereby extended for an additional 364 days to May 20, 2004.

SECTION 3.

COMMITMENTS.

A. Amendment of Tranche B Domestic Lenders and Tranche B Canadian Lenders. Subject to the terms and conditions of the Credit Agreement (including, without limitation subsection 2.1A(iii) and 2.1A(iv) thereof, as the case may be), each Consenting Tranche B Lender and New Tranche B Lender listed on Schedule 2.1 annexed hereto severally agrees to lend the relevant Borrower or Borrowers from time to time during the period from the First Amendment Effective Date to the Tranche B Revolving Termination Date as

extended hereby an aggregate amount, not exceeding such Consenting Tranche B Lender’s and New Tranche B Lender’s Tranche B Domestic Pro Rata Share and/or Tranche B Canadian Pro Rata Share, as applicable, of the aggregate amount of the Tranche B Domestic Commitments of $1,112,500,000 and/or Tranche B Canadian Commitments of $75,000,000. The portion of Schedule 2.1 of the Credit Agreement relating to the Tranche B Domestic Commitments of Domestic Lenders and the Tranche B Canadian Commitments of Canadian Lenders is hereby amended and restated in the form attached hereto as Schedule 2.1.

In addition, each New Tranche B Lender further agrees to assume the obligations of a Tranche B Domestic Lender and/or a Tranche B Canadian Lender, as applicable, pursuant to the terms of the Credit Agreement as amended by this First Amendment, together with all of the rights and obligations of a Tranche B Domestic Lender and/or Tranche B Canadian Lender, as applicable, under the Loan Documents.

B. Adjustment of Outstanding Loans and Acceptance. To the extent that any Tranche B Domestic Loans and/or Tranche B Canadian Loans are or will be outstanding as of the current Tranche B Revolving Termination Date before giving effect to this First Amendment (the “Termination Date”), Deutsche Bank, as Administrative Agent, will notify each Tranche B Domestic Lender and Tranche B Canadian Lender, as the case may be, not later than the Business Day prior to the Termination Date of the amount, if any, that it will be required to advance, such that after giving effect to such advances and disbursements, the outstanding Tranche B Domestic Loans and Tranche B Canadian Loans of each Consenting Tranche B Lender and New Tranche B Lender will correspond with its respective Tranche B Domestic Pro Rata Share and/or Tranche B Canadian Pro Rata Share, as the case may be. Each such Lender shall make the amount of its advance available to the Administrative Agent in same day funds and the applicable currency (whether Dollars or Canadian Dollars), at the Domestic Funding and Payment Office and/or the Canadian Funding and Payment Office, as applicable, in either case not later than 1:00 p.m. (Toronto time) on the Termination Date. The proceeds of such advances shall be immediately delivered to the Declining Tranche B Lenders and the Reducing Tranche B Lenders (and not to any Borrower) and applied to repay any outstanding Loans of the Declining Tranche B Lenders and such portion of any outstanding Loans of the Reducing Tranche B Lenders such that its outstanding Tranche B Domestic Loans and/or Tranche B Canadian Loans, as the case may be, correspond with its Tranche B Domestic Pro Rata Share and/or Tranche B Canadian Pro Rata Share, as the case may be, after giving effect to this First Amendment.

The Borrowers authorize the Administrative Agent to charge their respective accounts with the Administrative Agent (in each case up to the amount available in each such account) in order to immediately pay the Declining Tranche B Lenders and Reducing Tranche B Lenders, as the case may be, to the extent amounts received from the Consenting Tranche B Lenders and New Tranche B Lenders are not sufficient to repay in full the amount of any outstanding Tranche B Domestic Loans and/or Tranche B Canadian Loans of a Declining Tranche B Lender and/or Reducing Tranche B Lender.

The Borrowers shall pay any amounts due under subsection 2.6 and subsection 4.10 of the Credit Agreement as a result of any adjustment pursuant to this Section 3.B.

SECTION 4.

BASE RATE LOAN AND PRIME RATE LOAN

BORROWING MECHANICS.

A. Amendment to Section 2.1B(i) of Credit Agreement. Section 2.1B(i) of the Credit Agreement is hereby amended by deleting the third sentence thereof in its entirety and substituting the following therefor:

“Whenever Company desires that Domestic Lenders make Tranche A Domestic Loans or that Swing Line Lender make Tranche A Domestic Swing Line Loans, it shall deliver to Administrative Agent a Notice of Borrowing no later than 12:00 noon (New York time) at least three Business Days in advance of the proposed Funding Date in the case of a Tranche A Domestic Eurodollar Rate Loan, on the proposed Funding Date in the case of a Tranche A Domestic Base Rate Loan or a Swing Line Loan or such advance notice, including same day notice, as may be agreed between Company and Domestic Lender in the case of a Negotiated Rate Loan.”

B. Amendment to Section 2.1B(ii) of Credit Agreement. Section 2.1B(ii) of the Credit Agreement is hereby amended by deleting the third sentence thereof in its entirety and substituting the following therefor:

“Whenever Company or Canada Safeway desires that Canadian Lenders make Tranche A Canadian Loans or that Swing Line Lenders make Tranche A Canadian Swing Line Loans, it shall deliver to Administrative Agent a Notice of Borrowing no later than 12:00 noon (New York time) at least ten Business Days in advance of the proposed Funding Date in the case of any Canadian/U.S. Loan, at least three Business Days in advance of the proposed Funding Date in the case of a Tranche A Canadian Eurodollar Rate Loan, or on the proposed Funding Date in the case of a Tranche A Canadian Base Rate Loan, Tranche A Canadian Prime Rate Loan or Tranche A Canadian Swing Line Loan.”

C. Amendment to Section 2.1B(iii) of Credit Agreement. Section 2.1B(iii) of the Credit Agreement is hereby amended by deleting the second sentence thereof in its entirety and substituting the following therefor:

“Whenever Company desires that Domestic Lenders make Tranche B Domestic Loans, it shall deliver to Administrative Agent a Notice of Borrowing no later than 12:00 noon (New York time) at least three Business Days in advance of the proposed Funding Date in the case of a Tranche B Domestic Eurodollar Rate Loan or on the proposed Funding Date in the case of a Tranche B Domestic Base Rate Loan.”

D. Amendment to Section 2.1B(iv) of Credit Agreement. Section 2.1B(iv) of the Credit Agreement is hereby amended by deleting the second sentence thereof in its entirety and substituting the following therefor:

“Whenever Company or Canada Safeway desires that Canadian Lenders make Tranche B Canadian Loans, it shall deliver to Administrative Agent a Notice of Borrowing no later

than 12:00 noon (New York time) at least ten Business Days in advance of the proposed Funding Date in the case of any Canadian/U.S. Loan, at least three Business Days in advance of the proposed Funding Date in the case of a Tranche B Canadian Eurodollar Rate Loan, or on the proposed Funding Date in the case of a Tranche B Canadian Base Rate Loan or a Tranche B Canadian Prime Rate Loan.”

E. Amendment to Section 2.1C(i) of Credit Agreement. Section 2.1C(i) of the Credit Agreement is hereby amended by deleting the final sentence thereof in its entirety and substituting the following therefor:

“Each Domestic Lender shall make the amount of its Loan available to Administrative Agent, in Dollars and same day funds, at the Domestic Funding and Payment Office not later than 12:00 noon (or in the case of Tranche A Domestic Base Rate Loans, Tranche A Canadian Base Rate Loans, Tranche B Domestic Base Rate Loans, Tranche B Canadian Base Rate Loans, Tranche A Canadian Prime Rate Loans or Tranche B Canadian Prime Rate Loans, 2:00 p.m.) (New York time) on the applicable Funding Date.”

SECTION 5.

AVERAGE EFFECTIVE DISCOUNT RATE DETERMINATION.

A. Amendment to Section 4.6 of Credit Agreement. Section 4.6 of the Credit Agreement is hereby amended by deleting the second paragraph thereof in its entirety and substituting the following therefor:

“Administrative Agent shall give prompt notice to Borrowers and Canadian Lenders of each Average Effective Discount Rate determined by Administrative Agent for an applicable Drawing Date and the applicable discount rates, if any, furnished by each Schedule I Reference Bank or each Schedule II Reference Bank, as applicable, for determining any applicable Average Effective Discount Rate.”

SECTION 6.

ASSIGNMENTS.

A. Amendment to Section 13.1B(i) of Credit Agreement. Section 13.1B(i) of the Credit Agreement is hereby amended by deleting “$3,000” from the initial clause of the first sentence of the third paragraph thereof and substituting “$3,500” therefor.

SECTION 7.

CONFIDENTIALITY.

A. Amendment to Section 13.19 of the Credit Agreement. Section 13.19 of the Credit Agreement is hereby amended by adding after the last sentence thereof the following:

“Notwithstanding anything herein or elsewhere to the contrary, any party hereto (and any employee, representative or other agent of such party) may disclose to any and all

persons, without limitation of any kind, the U.S. tax treatment and U.S. tax structure (as defined in Treasury Regulations §§ 1.6011-4(c)(8) and (9)) of the transactions contemplated by this Agreement and all materials of any kind (including opinions or other tax analyses) that are provided to such party relating to such U.S. tax treatment and U.S. tax structure.”

SECTION 8.

REPRESENTATIONS AND WARRANTIES.

In order to induce Lenders to enter into this First Amendment and to amend the Credit Agreement in the manner provided herein, Borrowers represent and warrant to each Lender as of the date hereof, as of the First Amendment Effective Date that the following statements are true, correct and complete:

A. Corporate Power and Authority. Borrowers have all requisite corporate power and authority to enter into this First Amendment and to carry out the transactions contemplated by the Credit Agreement.

B. Authorization of Agreements. The execution and delivery of this First Amendment and the performance of the Credit Agreement have been duly authorized by all necessary corporate action on the part of the Borrowers.

C. No Conflict. The execution and delivery by Borrowers of this First Amendment and the performance by Borrowers of the Credit Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Borrowers, the Certificate or Articles of Incorporation or Bylaws of Borrowers or any order, judgment or decree of any court or other agency of government binding on Borrowers, (ii) conflict with, result in a material breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Borrowers, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Borrowers (other than Liens created under any of the Loan Documents in favor of Administrative Agent on behalf of Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Borrowers, except for such approvals or consents which will be obtained on or before the First Amendment Effective Date and disclosed in writing to Lenders.

D. Governmental Consents. The execution and delivery by Borrowers of this First Amendment and the performance by Borrowers of the Credit Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any United States or Canadian federal, state or other governmental authority or regulatory body.

E. Binding Obligation. This First Amendment has been duly executed and delivered by Borrowers and, when executed and delivered, this First Amendment and the Credit Agreement will be the legally valid and binding obligations of Borrowers, enforceable against Borrowers in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability.

F. Incorporation of Representations and Warranties From Credit Agreement. The representations and warranties contained in Section 7 of the Credit Agreement are and will be true, correct and complete in all material respects to the same extent as though made on and as of the First Amendment Effective Date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date.

G. Absence of Default. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this First Amendment that would constitute an Event of Default or a Potential Event of Default.

SECTION 9.

CONDITIONS TO EFFECTIVENESS.

This First Amendment shall become effective as of May 22, 2003, and only upon the satisfaction of all of the following conditions precedent, in form and substance satisfactory to the Arrangers (the “First Amendment Effective Date”):

(i) On or before the First Amendment Effective Date, the Borrowers shall have delivered to the Arrangers resolutions of the Board of Directors of each Borrower authorizing and approving the execution, delivery and performance of this First Amendment, in each case certified by the corporate secretary or an assistant secretary of such Borrower, as the case may be, as of the First Amendment Effective Date;

(ii) On or before the First Amendment Effective Date, the Borrowers shall have delivered to the Arrangers a certificate of the corporate secretary or an assistant secretary of each Borrower which shall certify, as of the First Amendment Effective Date, the names and offices of the officers of each Borrower authorized to sign this First Amendment;

(iii) On or before the First Amendment Effective Date, the Borrowers shall have delivered to the Arrangers a counterpart hereof executed by a duly authorized officer of each Borrower, Requisite Lenders, each Tranche B Domestic Lender party hereto and each Tranche B Canadian Lender party hereto;

(iv) On or before the First Amendment Effective Date, each of Safeway and Canada Safeway shall have paid to the Administrative Agent for distribution to each Consenting Tranche B Lender and New Tranche B Lender an upfront fee in respect of its allocated share of Tranche B Domestic Commitments and/or Tranche B Canadian Commitments, as applicable, in an amount that has been separately agreed to by the parties.

SECTION 10.

LIMITATION OF AMENDMENTS.

Without limiting the generality of the provisions of subsection 13.6 of the Credit Agreement, the consent and the amendments set forth above shall be limited precisely by their terms, shall not have any force or effect with respect to any other matter except as expressly provided above, and nothing in this First Amendment shall be deemed to:

(i) constitute a waiver or modification of any other term, provision or condition of the Credit Agreement or any other instrument or agreement referred to therein; or

(ii) prejudice any right or remedy that Administrative Agent or any Lender may now have (except to the extent such right or remedy was based upon existing defaults that will not exist after giving effect to this First Amendment) or may have in the future under or in connection with the Credit Agreement or any other instrument or agreement referred to therein;

provided, however, that this First Amendment shall be deemed to amend, modify and waive any provision of Section 2.8 of the Credit Agreement setting forth the procedures for extending the Tranche B Revolving Termination Date to the extent that this First Amendment is inconsistent therewith.

Except as expressly set forth herein, the terms, provisions and conditions of the Credit Agreement and the other Loan Documents shall remain in full force and effect and in all other respects are hereby ratified and confirmed.

SECTION 11.

MISCELLANEOUS.

A. Reference To and Effect on the Credit Agreement and the Loan Documents.

(i) On and after the First Amendment Effective Date, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the “Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement, as amended by this First Amendment.

(ii) Except as specifically amended by this First Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed.

(iii) The execution, delivery and performance of this First Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Agent or any Lender under, the Credit Agreement or any of the other Loan Documents.

B. Fees and Expenses. Borrowers acknowledge that all costs, fees and expenses as described in subsection 13.2 of the Credit Agreement incurred by the Administrative Agent and its counsel with respect to this First Amendment and the documents and transactions contemplated hereby shall be for the account of Borrowers.

C. Headings. Section and subsection headings in this First Amendment are included herein for convenience of reference only and shall not constitute a part of this First Amendment for any other purpose or be given any substantive effect.

D. Applicable Law. THIS FIRST AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

E. Counterparts; Effectiveness. This First Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This First Amendment shall become effective upon the execution of a counterpart hereof by Borrowers, Tranche B Domestic Lenders, Tranche B Canadian Lenders, Requisite Lenders and receipt by Company and Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof.

[Remainder of page left intentionally blank.]

IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed as of the date first written above.

EX-4.(I)2

Exhibit 4(i).2

SAFEWAY INC.

SECOND AMENDMENT TO CREDIT AGREEMENT

DATED AS OF MAY 20, 2004

This SECOND AMENDMENT TO CREDIT AGREEMENT dated as of May 20, 2004 (this “Second Amendment”), is by and among Safeway Inc. (“Safeway”) and Canada Safeway Limited (“Canada Safeway” and together with Safeway, the “Borrowers”), the financial institutions named on the signature pages hereof (the “Lenders”), Deutsche Bank Securities Inc. (formerly, Deutsche Banc Alex. Brown Inc.) (“DBSI”) and J.P. Morgan Securities Inc. (“JPMSI”, and together with DBSI, as Joint Lead Arrangers and Joint Bookrunners, the “Arrangers”), Deutsche Bank AG New York Branch (“Deutsche Bank”), as Administrative Agent (the “Administrative Agent”), and JPMorgan Chase Bank (formerly, The Chase Manhattan Bank), Bank of America, NA and US Bank National Association, as Co-Syndication Agents. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement dated as of May 24, 2001 (as amended, the “Credit Agreement), by and among the Borrowers, the financial institutions named on the signature pages thereof (the “Lenders”), DBSI and JPMSI, as Co-Arrangers, The Bank of Nova Scotia (succeeded by Deutsche Bank in such capacity), as Administrative Agent, Deutsche Bank, JPMorgan Chase Bank (formerly, The Chase Manhattan Bank), Bank of America, NA and Citicorp USA, Inc., as Co-Syndication Agents, US Bank National Association, as the Documentation Agent and the Agents listed therein.

WHEREAS, the existing Tranche B Revolving Termination Date is May 20, 2004;

WHEREAS, pursuant to Section 2.8 of the Credit Agreement, the Borrowers and the Tranche B Domestic Lenders and Tranche B Canadian Lenders party hereto desire to extend the Tranche B Revolving Termination Date for an additional 364 days to May 19, 2005;

WHEREAS, the Consenting Tranche B Lenders and New Tranche B Lenders have agreed to make the Tranche B Domestic Loans and/or Tranche B Canadian Loans, as the case may be, equal to their respective Tranche B Domestic Commitments and/or Tranche B Canadian Commitments, as the case may be, reflected on Schedule 2.1 attached hereto; and

WHEREAS, the Borrowers and the Requisite Lenders desire to amend the maximum leverage ratio as provided in Section 9.2B of the Credit Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the terms and conditions herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1.

DEFINITIONS.

As used herein, the following terms shall have the following meanings:

“Consenting Tranche B Lender” means Tranche B Domestic Lender and/or Tranche B Canadian Lender party to the Credit Agreement prior to the date hereof that consents to make the Tranche B Domestic Commitment and/or the Tranche B Canadian Commitment listed across from its name on Schedule 2.1 attached hereto.

“Declining Tranche B Lender” means Tranche B Domestic Lender and/or Tranche B Canadian Lender party to the Credit Agreement prior to the date hereof that does not appear as either a Tranche B Domestic Lender or Tranche B Canadian Lender on Schedule 2.1 attached hereto.

“New Tranche B Lender” means a Tranche B Domestic Lender and Tranche B Canadian Lender that was not a Tranche B Domestic Lender or a Tranche B Canadian Lender prior to the date hereof that agrees to make the Tranche B Domestic Commitments and/or the Tranche B Canadian Commitments listed across from its name on Schedule 2.1 attached hereto.

“Reducing Tranche B Lender” means a Consenting Tranche B Lender in respect of which its Tranche B Domestic Commitments and/or Tranche B Canadian Commitments shall be reduced by the transactions contemplated hereby.

“Second Amendment Effective Date” has the meaning set forth in Section 6 hereof.

SECTION 2.

EXTENSION OF TRANCHE B REVOLVING TERMINATION DATE.

Pursuant to subsection 2.8 of the Credit Agreement and this Second Amendment, each Tranche B Domestic Lender and Tranche B Canadian Lender by execution of a counterpart hereof agrees that the Tranche B Revolving Termination Date (which date is currently May 20, 2004) is hereby extended for an additional 364 days to May 19, 2005.

SECTION 3.

COMMITMENTS.

A. Amendment of Tranche B Domestic Lenders and Tranche B Canadian Lenders. Subject to the terms and conditions of the Credit Agreement (including, without limitation subsection 2.1A(iii) and 2.1A(iv) thereof, as the case may be), each Consenting Tranche B Lender and New Tranche B Lender listed on Schedule 2.1 annexed hereto severally agrees to lend the relevant Borrower or Borrowers from time to time during the period from the Second Amendment Effective Date to the Tranche B Revolving Termination Date as extended hereby an aggregate amount, not exceeding such Consenting Tranche B Lender’s and New Tranche B Lender’s Tranche B Domestic Pro Rata Share and/or Tranche B Canadian Pro

Rata Share, as applicable, of the aggregate amount of the Tranche B Domestic Commitments of $1,050,000,000 and/or Tranche B Canadian Commitments of $100,000,000. The portion of Schedule 2.1 of the Credit Agreement relating to the Tranche B Domestic Commitments of Domestic Lenders and the Tranche B Canadian Commitments of Canadian Lenders is hereby amended and restated in the form attached hereto as Schedule 2.1.

In addition, each New Tranche B Lender further agrees to assume the obligations of a Tranche B Domestic Lender and/or a Tranche B Canadian Lender, as applicable, pursuant to the terms of the Credit Agreement as amended by this Second Amendment, together with all of the rights and obligations of a Tranche B Domestic Lender and/or Tranche B Canadian Lender, as applicable, under the Loan Documents.

B. Adjustment of Outstanding Loans and Acceptance. To the extent that any Tranche B Domestic Loans and/or Tranche B Canadian Loans are or will be outstanding as of the current Tranche B Revolving Termination Date before giving effect to this Second Amendment (the “Termination Date”), Deutsche Bank, as Administrative Agent, will notify each Tranche B Domestic Lender and Tranche B Canadian Lender, as the case may be, not later than the Business Day prior to the Termination Date of the amount, if any, that it will be required to advance, such that after giving effect to such advances and disbursements, the outstanding Tranche B Domestic Loans and Tranche B Canadian Loans of each Consenting Tranche B Lender and New Tranche B Lender will correspond with its respective Tranche B Domestic Pro Rata Share and/or Tranche B Canadian Pro Rata Share, as the case may be. Each such Lender shall make the amount of its advance available to the Administrative Agent in same day funds and the applicable currency (whether Dollars or Canadian Dollars), at the Domestic Funding and Payment Office and/or the Canadian Funding and Payment Office, as applicable, in either case not later than 1:00 p.m. (Toronto time) on the Termination Date. The proceeds of such advances shall be immediately delivered to the Declining Tranche B Lenders and the Reducing Tranche B Lenders (and not to any Borrower) and applied to repay any outstanding Loans of the Declining Tranche B Lenders and such portion of any outstanding Loans of the Reducing Tranche B Lenders such that such Lender’s outstanding Tranche B Domestic Loans and/or Tranche B Canadian Loans, as the case may be, correspond with its Tranche B Domestic Pro Rata Share and/or Tranche B Canadian Pro Rata Share, as the case may be, after giving effect to this Second Amendment.

The Borrowers authorize the Administrative Agent to charge their respective accounts with the Administrative Agent (in each case up to the amount available in each such account) in order to immediately pay the Declining Tranche B Lenders and Reducing Tranche B Lenders, as the case may be, to the extent amounts received from the Consenting Tranche B Lenders and New Tranche B Lenders are not sufficient to repay in full the amount of any outstanding Tranche B Domestic Loans and/or Tranche B Canadian Loans of a Declining Tranche B Lender and/or Reducing Tranche B Lender.

The Borrowers shall pay any amounts due under subsection 2.6 and subsection 4.10 of the Credit Agreement as a result of any adjustment pursuant to this Section 3.B.

SECTION 4.

MAXIMUM LEVERAGE RATIO.

A. Amendment to Section 9.2B of Credit Agreement. Section 9.2B of the Credit Agreement is hereby amended by deleting it in its entirety and substituting the following therefor:

“B. Maximum Leverage Ratio. Borrowers shall not permit the ratio of (i) Consolidated Total Debt as of the last day of any fiscal quarter of Company to (ii) Consolidated Adjusted EBITDA for the four-fiscal quarter period ending as of the last day of any such fiscal quarter to exceed, (x) for such fiscal quarter ending on or before June 30, 2005, 4.00:1.00, and (y) for such fiscal quarter ending after June 30, 2005, 3.50:1.00.”

SECTION 5.

REPRESENTATIONS AND WARRANTIES.

In order to induce Lenders to enter into this Second Amendment and to amend the Credit Agreement in the manner provided herein, Borrowers represent and warrant to each Lender as of the date hereof, as of the Second Amendment Effective Date that the following statements are true, correct and complete:

A. Corporate Power and Authority. Borrowers have all requisite corporate power and authority to enter into this Second Amendment and to carry out the transactions contemplated by the Credit Agreement.

B. Authorization of Agreements. The execution and delivery of this Second Amendment and the performance of the Credit Agreement have been duly authorized by all necessary corporate action on the part of the Borrowers.

C. No Conflict. The execution and delivery by Borrowers of this Second Amendment and the performance by Borrowers of the Credit Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Borrowers, the Certificate or Articles of Incorporation or Bylaws of Borrowers or any order, judgment or decree of any court or other agency of government binding on Borrowers, (ii) conflict with, result in a material breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Borrowers, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Borrowers, or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Borrowers, except for such approvals or consents which will be obtained on or before the Second Amendment Effective Date and disclosed in writing to Lenders.

D. Governmental Consents. The execution and delivery by Borrowers of this Second Amendment and the performance by Borrowers of the Credit Agreement do not and will not require the Borrowers to make or obtain any registration with, consent or approval of, or notice to, or other action to, with or by, any United States or Canadian federal, state or other governmental authority or regulatory body.

E. Binding Obligation. This Second Amendment has been duly executed and delivered by Borrowers and, when executed and delivered, this Second Amendment and the Credit Agreement will be the legally valid and binding obligations of Borrowers, enforceable against Borrowers in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability.

F. Incorporation of Representations and Warranties From Credit Agreement. The representations and warranties contained in Section 7 of the Credit Agreement are and will be true, correct and complete in all material respects to the same extent as though made on and as of the Second Amendment Effective Date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date.

G. Absence of Default. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Second Amendment that would constitute an Event of Default or a Potential Event of Default.

SECTION 6.

CONDITIONS TO EFFECTIVENESS.

This Second Amendment shall become effective as of May 20, 2004, and only upon the satisfaction of all of the following conditions precedent, in form and substance satisfactory to the Arrangers (the “Second Amendment Effective Date”):

(i) On or before the Second Amendment Effective Date, the Borrowers shall have delivered to the Arrangers resolutions of the Board of Directors of each Borrower authorizing and approving the execution, delivery and performance of this Second Amendment, in each case certified by the corporate secretary or an assistant secretary of such Borrower, as the case may be, as of the Second Amendment Effective Date;

(ii) On or before the Second Amendment Effective Date, the Borrowers shall have delivered to the Arrangers a certificate of the corporate secretary or an assistant secretary of each Borrower which shall certify, as of the Second Amendment Effective Date, the names and offices of the officers of each Borrower authorized to sign this Second Amendment;

(iii) On or before the Second Amendment Effective Date, the Borrowers shall have delivered to the Arrangers a counterpart hereof executed by a duly authorized officer of each Borrower, each Tranche B Domestic Lender and each Tranche B Canadian Lender identified on Schedule 2.1 attached hereto, and Lenders constituting Requisite Lenders;

(iv) On or before the Second Amendment Effective Date, each of Safeway and Canada Safeway shall have paid to the Administrative Agent for distribution to each Consenting Tranche B Lender and New Tranche B Lender an upfront fee in respect of its allocated share of Tranche B Domestic Commitments and/or Tranche B Canadian Commitments, as applicable, in an amount that has been separately agreed to by the parties.

SECTION 7.

LIMITATION OF AMENDMENTS.

Without limiting the generality of the provisions of subsection 13.6 of the Credit Agreement, the consent and the amendments set forth above shall be limited precisely by their terms, shall not have any force or effect with respect to any other matter except as expressly provided above, and nothing in this Second Amendment shall be deemed to:

(i) constitute a waiver or modification of any other term, provision or condition of the Credit Agreement or any other instrument or agreement referred to therein; or

(ii) prejudice any right or remedy that Administrative Agent or any Lender may now have (except to the extent such right or remedy was based upon existing defaults that will not exist after giving effect to this Second Amendment) or may have in the future under or in connection with the Credit Agreement or any other instrument or agreement referred to therein;

provided, however, that this Second Amendment shall be deemed to amend, modify and waive any provision of Section 2.8 of the Credit Agreement setting forth the procedures for extending the Tranche B Revolving Termination Date to the extent that this Second Amendment is inconsistent therewith.

Except as expressly set forth herein, the terms, provisions and conditions of the Credit Agreement and the other Loan Documents shall remain in full force and effect and in all other respects are hereby ratified and confirmed.

SECTION 8.

MISCELLANEOUS.

A. Reference To and Effect on the Credit Agreement and the Loan Documents.

(i) On and after the Second Amendment Effective Date, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the “Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement, as amended by this Second Amendment.

(ii) Except as specifically amended by this Second Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed.

(iii) The execution, delivery and performance of this Second Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Agent or any Lender under, the Credit Agreement or any of the other Loan Documents.

B. Fees and Expenses. Borrowers acknowledge that all costs, fees and expenses as described in subsection 13.2 of the Credit Agreement incurred by the Administrative Agent and its counsel with respect to this Second Amendment and the documents and transactions contemplated hereby shall be for the account of Borrowers.

C. Headings. Section and subsection headings in this Second Amendment are included herein for convenience of reference only and shall not constitute a part of this Second Amendment for any other purpose or be given any substantive effect.

D. Applicable Law. THIS SECOND AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

E. Counterparts; Effectiveness. This Second Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Second Amendment shall become effective upon the execution of a counterpart hereof by Borrowers, the Tranche B Domestic Lenders and Tranche B Canadian Lenders identified on Schedule 2.1 attached hereto, and Lenders constituting Requisite Lenders, and receipt by Company and Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof.

[Remainder of page left intentionally blank.]

IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed as of the date first written above.

EX-10.(III)27

Exhibit 10(iii).27

AMENDMENT TO THE 1999

AMENDED AND RESTATED EQUITY PARTICIPATION PLAN

OF

SAFEWAY INC.

Adopted February 26, 2004

Safeway Inc., a Delaware corporation (the “Company”), adopted The 1999 Amended and Restated Equity Participation Plan of Safeway Inc. (the “Plan”), effective upon the approval of the Plan by the stockholders of the Company. The stockholders of the Company approved the Plan at the Company’s meeting of stockholders held on May 11, 1999. The Plan was amended to increase the aggregate number of shares of Common Stock issuable under the Plan by an amendment to the Plan adopted by the Board on February 25, 2003, and such amendment was approved at the Company’s meeting of stockholders on May 15, 2003.

The Company desires to amend the Plan to limit the period during which Awards (as defined in the Plan) may be granted or awarded under the Plan. Such limit is intended to satisfy the ten year term limit under New York Stock Exchange, Inc. (“NYSE”) Rule 303A.08 (Shareholder Approval of Equity Compensation Plans) applicable to “formula plans” (as defined in such Rule) that were approved prior to the effective date of such Rule (June 30, 2003). This Amendment of the Plan shall be effective as of the date of adoption by the Board of Directors of the Company. This Amendment shall be interpreted and applied in accordance with NYSE Rule 303A.08 and the ten year term limit of such Rule.

Section 11.2 of the Plan is hereby amended in its entirety as follows:

11.2 Amendment, Suspension or Termination of the Plan. Except as otherwise provided in this Section 11.2, the Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board. However, without approval of the Company’s stockholders given within twelve months before or after the action by the Board, no action of the Administrator may (a) except as provided in Section 11.3, increase the limits imposed in Section 2.1 on the maximum number of shares which may be issued under the Plan or (b) materially increase the benefits available to participants under the Plan. No amendment, suspension or termination of the Plan shall, without the consent of the Holder, alter or impair any rights or obligations under any Award theretofore granted or awarded, unless the Award itself otherwise expressly so provides. No Awards may be granted or awarded during any period of suspension or after termination of the Plan, and in no event may any Awards be granted or awarded under the Plan after the first to occur of the following events:

(a) The expiration of ten years from the date the Plan is adopted by the Board; or

(b) The expiration of ten years from the date the Plan is approved by the Company’s stockholders under Section 11.5.

For purposes of the preceding sentence, the adoption by the Board of an amendment to the Plan increasing the aggregate number of shares of Common Stock issuable under the Plan, and the approval of such amendment by the stockholders of the Company within twelve months pursuant to Section 11.5, shall be treated as the adoption of the Plan by the Board, and the approval of the Plan by the Company’s stockholders, respectively. The Plan was amended to increase the aggregate number of shares of Common Stock issuable under the Plan by an amendment to the Plan adopted by the Board on February 25, 2003, and such amendment was approved by the stockholders of the Company on May 15, 2003. Accordingly, pursuant to this Section 11.2, no Awards may be granted or awarded under the Plan after February 24, 2013 (unless the Plan is further amended to increase the aggregate number of shares of Common Stock in accordance with this Section 11.2).

IN WITNESS WHEREOF, Safeway Inc. has hereunder adopted this Amendment to the Plan as indicated by the signature of its duly authorized officer this 26th day of February, 2004.

SAFEWAY INC.
By:	/s/ Robert A. Gordon
Name:	Robert A. Gordon
Title:	Senior Vice President & General Counsel

2

EX-10.(III)28

Exhibit 10(iii).28

AMENDMENT TO THE 1999

AMENDED AND RESTATED EQUITY PARTICIPATION PLAN

OF

SAFEWAY INC.

Adopted by the Board of Directors on May 2, 2004

Safeway Inc., a Delaware corporation (the “Company”), adopted The 1999 Amended and Restated Equity Participation Plan of Safeway Inc. (the “Plan”), effective upon the approval of the Plan by the stockholders of the Company. The stockholders of the Company approved the Plan at the Company’s meeting of stockholders held on May 11, 1999. The Plan was amended to increase the aggregate number of shares of Common Stock issuable under the Plan by an amendment to the Plan adopted by the Board on February 25, 2003, and such amendment was approved at the Company’s annual meeting of stockholders on May 15, 2003. The Plan was further amended by the Board of Directors on February 26, 2004. The Company desires to further amend the Plan to prohibit repricing of equity awards under the Plan without stockholder approval and to prohibit the use of loans by directors and officers to exercise stock options or other equity awards.

Pursuant to Section 11.2 of the Plan, the Board of Directors of the Company (the “Board”) hereby adopts this Amendment to the Plan, effective as of May 2, 2004.

1. Section 10.2 of the Plan is hereby amended to read in its entirety as follows:

10.2 Duties and Powers of Committee. It shall be the duty of the Committee to conduct the general administration of the Plan in accordance with its provisions. The Committee shall have the power to interpret the Plan and the Award Agreements, and to adopt such rules for the administration, interpretation, and application of the Plan as are consistent therewith, to interpret, amend or revoke any such rules and to amend any Award Agreement provided that the rights or obligations of the Holder of the Award that is the subject of any such Award Agreement are not affected adversely. Notwithstanding the foregoing, except as provided in Section 11.3, neither the Committee nor the Board shall, without the approval of the stockholders of the Company, authorize the amendment of any outstanding Award to reduce its exercise price. Furthermore, except as provided in Section 11.3, no Award shall be canceled and replaced with the grant of an Award having a lesser per share exercise price without the further approval of stockholders of the Company. Any grant or award under the Plan need not be the same with respect to each Holder. Any interpretations and rules with respect to Incentive Stock Options shall be consistent with the provisions of Section 422 of the Code. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan except with respect to matters which under Rule 16b-3 or Section 162(m) of the Code, or any regulations or rules issued thereunder, are required to be determined in the sole discretion of the Committee. Notwithstanding the foregoing, the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect to Options and Dividend Equivalents granted to Independent Directors.

2. Section 11.2 of the Plan is hereby amended in its entirety as follows:

11.2 Amendment, Suspension or Termination of the Plan. Except as otherwise provided in this Section 11.2, the Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board. However, without approval of the Company’s stockholders given within twelve months before or after the action by the Board, no action of the Administrator may (a) except as provided in Section 11.3, increase the limits imposed in Section 2.1 on the maximum number of shares which may be issued under the Plan, (b) materially increase the benefits available to participants under the Plan, (c) amend the Plan to authorize the amendment of any outstanding Award to reduce its exercise price (except as provided in Section 11.3) or (d) amend the Plan to permit the cancellation and replacement of any outstanding Award with the grant of an Award having a lesser per share exercise price (except as provided in Section 11.3). No amendment, suspension or termination of the Plan shall, without the consent of the Holder alter or impair any rights or obligations under any Award theretofore granted or awarded, unless the Award itself otherwise expressly so provides. No Awards may be granted or awarded during any period of suspension or after termination of the Plan, and in no event may any Incentive Stock Options be granted under the Plan after the first to occur of the following events:

(a) The expiration of ten years from the date the Plan is adopted by the Board; or

(b) The expiration of ten years from the date the Plan is approved by the Company’s stockholders under Section 11.5.

For purposes of the preceding sentence, the adoption by the Board of an amendment to the Plan increasing the aggregate number of shares of Common Stock issuable under the Plan, and the approval of such amendment by the stockholders of the Company within twelve months pursuant to Section 11.5, shall be treated as the adoption of the Plan by the Board, and the approval of the Plan by the Company’s stockholders, respectively.

3. Section 11.5 of the Plan is hereby amended to read in its entirety as follows:

11.5 Approval of Plan by Stockholders. The Plan will be submitted for the approval of the Company’s Stockholders within twelve months after the date of the Board’s initial adoption of the Plan. Any amendment to the Plan increasing the aggregate number of shares of Common Stock issuable under the Plan, and any other amendment to the Plan that requires the approval of the Company’s stockholders, will be submitted for the approval of the Company’s stockholders within twelve months after the date of the Board’s adoption of such amendment. In addition, to the extent required under Section 162(m) of the Code, if the Board determines that Awards other than Options or Stock Appreciation Rights which may be granted to Section 162(m) Participants should continue to be eligible to qualify as performance-based compensation under Section 162(m)(4)(C) of the Code, the Performance Criteria must be disclosed to and approved by the Company’s stockholders no later than the first stockholder meeting that occurs in the fifth year following the year in which the Company’s stockholders previously approved the Performance Criteria.

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4. Section 11.7 of the Plan is hereby amended to read in its entirety as follows:

11.7 Loans. The Committee may, in its discretion, extend one or more loans to Employees (other than any Director or officer of the Company) in connection with the exercise or receipt of an Award granted or awarded under the Plan, or the issuance of Restricted Stock or Deferred Stock awarded under the Plan. The terms and conditions of any such loan shall be set by the Committee. Notwithstanding the foregoing, no loan shall be made to an Employee under this Section to the extent such loan shall result in an extension or maintenance of credit, an arrangement for the extension of credit, or a renewal of an extension of credit in the form of a personal loan that is prohibited by Section 13(k) of the Exchange Act or other applicable law. In the event that the Administrator determines in its discretion that any loan under this Section is or will become prohibited by Section 13(k) of the Exchange Act or other applicable law, the Administrator may provide that such loan is immediately due and payable in full and may take any other action in connection with such loan as the Administrator determines in its discretion to be necessary or appropriate for the repayment, cancellation or extinguishment of such loan.

IN WITNESS WHEREOF, the Board of Directors of Safeway Inc. has hereunder adopted this Amendment to the Plan as indicated by the signature of the duly authorized officer of Safeway Inc. this 25th day of June, 2004.

SAFEWAY INC.
By:	/s/ Linda C. Sayler
Name:	Linda C. Sayler
Title:	Secretary

3

EX-10.(III)29

Exhibit 10(iii).29

AMENDMENT TO THE 1999

AMENDED AND RESTATED EQUITY PARTICIPATION PLAN

OF

SAFEWAY INC.

Adopted by the Board of Directors on June 2, 2004

Safeway Inc., a Delaware corporation (the “Company”), adopted The 1999 Amended and Restated Equity Participation Plan of Safeway Inc. (the “Plan”), effective upon the approval of the Plan by the stockholders of the Company. The stockholders of the Company approved the Plan at the Company’s meeting of stockholders held on May 11, 1999. The Plan was amended to increase the aggregate number of shares of Common Stock issuable under the Plan by an amendment to the Plan adopted by the Board on February 25, 2003, and such amendment was approved at the Company’s annual meeting of stockholders on May 15, 2003. The Plan was further amended by the Board of Directors on February 26, 2004 and May 2, 2004. The Company desires to amend the Plan to modify certain provisions of the Plan relating to Independent Directors (as defined in the Plan) and the Options (as defined in the Plan) to be granted to Independent Directors.

Pursuant to Section 11.2 of the Plan, the Board of Directors of the Company (the “Board”) hereby adopts this Amendment to the Plan, effective as of June 2, 2004, subject to the approval of this Amendment by the stockholders of the Company within 12 months of such adoption.

Commencing on June 3, 2004, Options shall be granted to Independent Directors under the terms and conditions of the Plan (as amended by this Amendment). Each Option granted to an Independent Director under the Plan (as amended by this Amendment) shall not be exercisable by the Independent Director (or any other holder thereof), unless and until this Amendment is approved by the stockholders of the Company in accordance with the Plan. In the event that the stockholders of the Company fail to approve this Amendment in accordance with the terms of the Plan, any Option granted to an Independent Director under the Plan (as amended by this Amendment) shall immediately terminate and be null and void.

This Amendment shall be presented to the stockholders of the Company at the annual meeting of stockholders next following the adoption of this Amendment. In the event that the stockholders of the Company fail to approve this Amendment at such meeting of stockholders, this Amendment shall cease to be effective as of June 2, 2004, and shall be null and void, and the Plan (as in effect prior to this Amendment) shall be and remain in full force and effect in accordance with the terms thereof. In such event, the Company shall, and shall cause each Independent Director to, comply with the provisions of the Plan (as in effect prior to this Amendment) as soon as reasonably practicable.

1. Section 1.29 of the Plan is hereby amended to delete the provisions thereof and to reserve such Section.

2. Section 4.5 of the Plan is hereby amended to read in its entirety as follows:

4.5. Granting of Options to Independent Directors. Any Independent Director who is initially elected or appointed to the Board shall, upon the date of such election or appointment, be granted an Option to purchase twenty thousand (20,000) shares of Common Stock (subject to adjustment as provided in Section 11.3).

3. Section 5.4 of the Plan is hereby amended to read in its entirety as follows:

5.4. Terms of Options Granted to Independent Directors. The price per share of the shares subject to each Option granted to an Independent Director under Section 4.5 shall be set by the Board; provided, however, that such price shall be no less than 100% of the fair market value of a share of Common Stock on the date the Option is granted. Options granted to Independent Directors shall become exercisable in cumulative annual installments of one-third on each of the first, second and third anniversaries of the date of Option grant and, subject to Section 6.6, the term of each Option granted to an Independent director shall be ten (10) years from the date the Option is granted. No portion of an Option which is unexercisable at Termination of Directorship shall thereafter become exercisable.

4. Section 11.4 of the Plan is hereby amended to delete the provisions thereof and to reserve such Section.

5. The Plan is hereby amended to delete Schedule I thereto.

IN WITNESS WHEREOF, the Board of Directors of Safeway Inc. has hereunder adopted this Amendment to the Plan as indicated by the signature of the duly authorized officer of Safeway Inc. this 2nd day of June, 2004.

SAFEWAY INC.
By:	/s/ Linda C. Sayler
Name:	Linda C. Sayler
Title:	Secretary

2

EX-10.(III)30

Exhibit 10(iii).30

1999 Amended and Restated

Equity Participation Plan

Of

Safeway Inc.

NON-QUALIFIED STOCK OPTION AGREEMENT

(U.S. Employees)

You have been selected to be a participant in the 1999 Amended and Restated Equity Participation Plan of Safeway Inc., as specified below:

Employee: «name»	SSN: «ssn»
Date of Grant: «grantdate»	Grant #: «grant»
Date of Expiration: «expdate»
Number of Options Granted: «shares»
Exercise Price per Share: $«price»

IN WITNESS WHEREOF, the parties have caused the Option Agreement set forth below to be executed as of the Date of Grant.

SAFEWAY INC.

By:

Employee’s Signature/«name»

Street or P.O. Box

City, State ZIP

THIS AGREEMENT is made on and as of the Date of Grant set forth above between SAFEWAY INC., a Delaware corporation (the “Company”) and the Employee named above pursuant to the provisions of the 1999 Amended and Restated Equity Participation Plan of Safeway Inc. (the “Plan”). The parties hereto agree as follows:

ARTICLE I

DEFINITIONS

Whenever the following terms are used in this Agreement, they shall have the meaning specified below unless the context clearly indicates to the contrary. The masculine pronoun shall include the feminine and neuter, and the singular the plural, where the context so indicates. Terms not otherwise defined in this Agreement shall have the meaning specified in the Plan.

Section 1.1 - Option

“Option” shall mean the option to purchase Common Stock of the Company granted under this Agreement.

Section 1.2 - Termination of Employment

“Termination of Employment” shall mean the time when the employee-employer relationship between the Employee and the Company or a Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, a termination by resignation, discharge, death, Disability or retirement; but excluding terminations where there is a simultaneous reemployment or continuing employment of the Employee by the Company or a Subsidiary, (b) at the discretion of the Committee, terminations which result in a temporary severance of the employer-employee relationship, and (c) at the discretion of the Committee, terminations which are followed by the simultaneous establishment of a consulting relationship by the Company or a Subsidiary with the Employee. The Committee, in its absolute discretion, shall determine the effect of all other matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for good cause, and all questions of whether a particular leave of absence constitutes a Termination of Employment.

Section 1.3 - Change in Control of the Company

A “Change in Control of the Company” shall be deemed to have occurred, subject to subparagraph (d) hereof, if any of the events (an “Event”) in subparagraphs (a), (b) or (c) occur during the term of the Agreement:

(a) Any “person” (as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than an employee benefit plan of the Company, a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or an underwriter who acquires such securities for the purpose of resale in an underwritten public offering of such securities, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 25% or more of the Company’s then outstanding voting securities carrying the right to vote in elections of persons to the Board, regardless of comparative voting power of such voting securities; or

(b) As a result of a tender offer or exchange offer for the purchase of securities of the Company (other than such an offer by the Company for its own securities), or as a result of a proxy contest, merger, consolidation or sale of assets, or as a result of any combination of the foregoing, individuals who at the beginning of any two-year period constitute the Board plus new directors (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in clauses (a) or (c) of this Subsection) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such two year period or whose election or nomination for election was previously so approved (collectively, the “Continuing Board Members”), cease for any reason to constitute a majority thereof; or

(c)

(i) The consummation of a merger or consolidation of the Company with any other corporation regardless of which entity is the surviving company, other than a merger or consolidation which would result in the voting securities of the Company carrying the right to vote in elections of persons to the Board outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the Company’s then outstanding voting securities carrying the right to vote in elections of persons to the Board, or such securities of such surviving entity outstanding immediately after such merger or consolidation, or

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(ii) The holders of securities of the Company entitled to vote thereon approve a plan of complete liquidation of the Company, or

(iii) The consummation of an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.

(d) Notwithstanding the definition of a “Change in Control of the Company” as set forth in this Section 1.3, no Event described in subparagraph (c)(i) shall constitute a Change in Control of the Company if (I) the merger or consolidation would result in the voting securities of the Company carrying the right to vote in elections of persons to the Board outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50%, but less than 80%, of the Company’s then outstanding voting securities carrying the right to vote in elections of persons to the Board, or such securities of such surviving entity outstanding immediately after such merger or consolidation, and (II), prior to the occurrence of any such Event the Continuing Board Members unanimously determine, by resolution, that such Event shall not constitute a Change in Control of the Company.

Section 1.4 - Demotion

“Demotion” shall mean the demotion of the Employee to a position within the Company which is not then eligible for grants of stock options or to a position that is eligible for stock option grants at a lower level than the level for which the Employee was eligible on the Date of Grant. Notwithstanding the foregoing, the Chief Executive Officer of the Company may make adjustments, in his discretion, in the foregoing definition in the event of the transfer, illness or disability of the Employee, the occurrence of a force majeure event (including without limitation acts of God, strikes or labor disturbances) affecting the Employee’s position or other similar circumstances.

Section 1.5 – Disability

“Disability” shall have the meaning set forth in Section 22(e)(3) of the Internal Revenue Code, as amended.

ARTICLE II

GRANT OF OPTION

Section 2.1 - Grant of Option

In consideration of the Employee’s agreement to remain in the employ of the Company or a Subsidiary and for other good and valuable consideration, on the date hereof the Company irrevocably grants to the Employee the option to purchase any part or all of the number of shares of its Common Stock upon the terms and conditions set forth in this Agreement. This Option is not intended to constitute an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code, as amended.

Section 2.2 - Purchase Price

The purchase price per share of the shares of stock covered by the Option shall be the price indicated above (which shall be no less than 100% of the Fair Market Value of a share of the Company’s Common Stock on the date of grant), without commission or other charge.

Section 2.3 - Consideration to Company

In consideration of the granting of this Option by the Company, the Employee agrees to render faithful and efficient services to the Company or a Subsidiary, with such duties and responsibilities as the Company shall from time to time prescribe, for a period of at least one (1) year from the date this Option is granted. Nothing in this Agreement or in the Plan shall confer upon the Employee any right to continue in the employ of the Company or any Subsidiary or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries, which are hereby expressly reserved, to discharge the Employee at any time for any reason whatsoever, with or without cause.

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ARTICLE III

PERIOD OF EXERCISABILITY

Section 3.1 - Commencement of Exercisability

(a) Subject to Section 3.2, the Option shall become exercisable in five (5) cumulative installments as follows:

Relation to date of this Agreement	% of shares subject to this Option that may be purchased
On and before first anniversary	none
After the first anniversary	20	%
After the second anniversary	20	%
After the third anniversary	20	%
After the fourth anniversary	20	%
After the fifth anniversary	20	%

Section 3.2 - Duration of Exercisability

The installments provided for in Section 3.1 are cumulative. Each such installment that becomes exercisable pursuant to Section 3.l shall remain exercisable until it becomes unexercisable under Section 3.3. No portion of an Option that is unexercisable at Termination of Employment shall thereafter become exercisable. No portion of an Option that is unexercisable upon a Demotion shall thereafter become exercisable. Notwithstanding the foregoing, in the event of a Demotion to a position that is eligible for stock option grants at a lower level than the level for which the Employee was eligible on the Date of Grant, the immediately preceding sentence shall apply only to that part (if any) of the unexercisable portion of the Option which exceeds the minimum number of stock options to which such position is eligible.

Section 3.3 - Expiration of Option

The Option may not be exercised to any extent by anyone after the first to occur of the following events:

(a) The expiration of six years from the date the Option was granted; or

(b) The expiration of three months from the date of the Employee’s Termination of Employment unless such Termination of Employment results from his or her death, his or her retirement on or after age 55 in accordance with the Company’s retirement policies as then in effect, or his or her Disability; or

(c) The expiration of one year from the date of the Employee’s Termination of Employment by reason of his or her death or Disability or his or her retirement on or after age 55 in accordance with the Company’s retirement policies as then in effect; or

(d) The engagement by the Employee in willful misconduct which injures the Company or any of its Subsidiaries; or

(e) The effective date of either the merger or consolidation of the Company with or into another corporation, or the acquisition by another corporation or person of all or substantially all of the Company’s assets or 80% or more of the Company’s then outstanding voting stock, or the liquidation or dissolution of the Company, unless the Committee waives this provision in connection with such transaction. At least ten days prior to the effective date of such merger, consolidation, acquisition, liquidation or dissolution the Committee shall give the Employee notice of such event if the Option has then neither been fully exercised nor become unexercisable under this Section 3.3.

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Section 3.4 - Acceleration of Exercisability

Upon the occurrence of a Change in Control of the Company, this Option shall be exercisable as to all shares covered hereby, notwithstanding that this Option may not yet have become fully exercisable under Section 3.1(a).

ARTICLE IV

EXERCISE OF OPTION

Section 4.1 - Person Eligible to Exercise

During the lifetime of the Employee, only the Employee may exercise the Option or any portion thereof. After the death of the Employee, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3, be exercised by his or her personal representative or by any person empowered to do so under the Employee’s will or under the then applicable laws of descent and distribution.

Section 4.2 - Partial Exercise

Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.3; provided, however, that each partial exercise shall be for not less than 100 shares (or the minimum installment set forth in Section 3.1, if a smaller number of shares) and shall be for whole shares only.

Section 4.3 - Manner of Exercise

The Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary or his or her office of all of the following prior to the time when the Option or such portion becomes unexercisable under Section 3.3:

(a) Notice in writing signed by the Employee or other person then entitled to exercise such Option or portion, stating that such Option or portion is exercised, such notice complying with all applicable rules established by the Committee; and

(b) Full payment (in cash or by check) for the shares with respect to which such Option or portion is thereby exercised; provided, however, that the Committee may, in its discretion: (i) allow a delay in payment of up to thirty (30) days from the date the Option, or portion thereof, is exercised; (ii) allow payment, in whole or in part, through the delivery of shares of Common Stock which have been owned by the Employee for at least six months, duly endorsed for transfer to the Company, with a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof; (iii) allow payment, in whole or in part, through the delivery of property of any kind which constitutes good and valuable consideration; (iv) allow payment, in whole or in part, through the delivery of a notice that the Employee has placed a market sell order with a broker with respect to shares of Common Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price, provided that payment of such proceeds is then made to the Company upon settlement of such sale; or (v) allow payment through any combination of the consideration provided in the foregoing subparagraphs (ii), (iii) and (iv).

(c) On or prior to the date the same is required to be withheld, full payment (in cash or by check) of any amount that must be withheld by the Company for federal, state and/or local tax purposes; provided, however, that the Committee may, in its discretion, allow for such payment to be in the form of shares of Common Stock in accordance with the terms of the Plan.

(d) Such representations and documents as the Committee, in its absolute discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act and any other federal or state securities laws or regulations. The Committee may, in its absolute discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer orders to transfer agents and registrars; and

(e) In the event the Option or portion shall be exercised pursuant to Section 4.l by any person or persons other than the Employee, appropriate proof of the right of such person or persons to exercise the Option.

Section 4.4 - Conditions to Issuance of Stock Certificates

The shares of stock deliverable upon the exercise of the Option, or any portion thereof, may be either previously

5

authorized but unissued shares or issued shares which have then been reacquired by the Company. Such shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the following conditions:

(a) The admission of such shares to listing on all stock exchanges on which such class of stock is then listed; and

(b) The completion of any registration or other qualification of such shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Committee shall, in its absolute discretion, deem necessary or advisable; and

(c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Committee shall, in its absolute discretion, determine to be necessary or advisable; and

(d) The lapse of such reasonable period of time following the exercise of the Option as the Committee may from time to time establish for reasons of administrative convenience; and

(e) Unless a Registration Statement under the Securities Act of 1933 is in effect with respect to the shares to be issued, the receipt of the written representation of Employee that the shares of Common Stock are being acquired by him for investment and with no present intention of selling or transferring them and that he will not sell or otherwise transfer the shares except in compliance with all applicable securities laws.

Section 4.5 - Rights as Stockholder

The holder of the Option shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any shares purchasable upon the exercise of any part of the Option unless and until certificates representing such shares shall have been issued by the Company to such holder.

ARTICLE V

OTHER PROVISIONS

Section 5.1 - Administration

The Committee shall have the power to interpret the Plan and this Agreement, to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith, to interpret or revoke any such rules, and to amend this Agreement provided such amendment does not impair the rights of the Employee granted hereunder. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon the Employee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Option. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Agreement.

Section 5.2 - Option Subject to Terms of Plan

This Option Agreement and the rights of Employee hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. Any inconsistency between this Option Agreement and the Plan shall be resolved in favor of the Plan.

Section 5.3 - Option Not Transferable

The Option may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, unless and until the Option has been exercised, or the shares underlying the Option have been issued. Subject to the preceding sentence, neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Employee or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 5.3 shall not prevent transfers by will or by the applicable laws of descent and distribution.

Section 5.4 - Notices

Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Employee shall be addressed to him or her at the address given beneath his signature

6

hereto or the last known address for the Employee contained in the Company’s personnel records. By a notice given pursuant to this Section 5.4, either party may hereafter designate a different address for notices to be given to him or her. Any notice which is required to be given to the Employee shall, if the Employee is then deceased, be given to the Employee’s personal representative if such representative has previously informed the Company of his or her status and address by written notice under this Section 5.4. Any notice shall be deemed duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.

Section 5.5 - Titles

Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

Section 5.6 - Construction

This Agreement shall be administered, interpreted and enforced under the laws of the State of Delaware.

[Signatures on 1st page of Agreement]

7

EX-10.(III)31

Exhibit 10(iii).31

AMENDMENT TO THE 2002

EQUITY INCENTIVE PLAN

OF

SAFEWAY INC.

Adopted by the Board of Directors on May 2, 2004

Safeway Inc., a Delaware corporation (the “Company”), adopted The 2002 Equity Incentive Plan of Safeway Inc. (the “Plan”), effective as of July 30, 2002. The Company desires to amend the Plan to prohibit repricing of equity awards under the Plan without stockholder approval and to prohibit the use of loans by officers to exercise stock options and other equity awards.

Pursuant to Section 11.2 of the Plan, the Board of Directors of the Company (the “Board”), as the “Administrator” (as defined in the Plan), hereby adopts this Amendment to the Plan, effective as of May 2, 2004.

1. Section 10.2 of the Plan is hereby amended to read in its entirety as follows:

10.2 Duties and Powers of Committee. It shall be the duty of the Committee to conduct the general administration of the Plan in accordance with its provisions. The Committee shall have the power to interpret the Plan and the Award Agreements, and to adopt such rules for the administration, interpretation, and application of the Plan as are consistent therewith, to interpret, amend or revoke any such rules and to amend any Award Agreement provided that the rights or obligations of the Holder of the Award that is the subject of any such Award Agreement are not affected adversely. Notwithstanding the foregoing, except as provided in Section 11.3, neither the Committee nor the Board shall, without the approval of the stockholders of the Company, authorize the amendment of any outstanding Award to reduce its exercise price. Furthermore, except as provided in Section 11.3, no Award shall be canceled and replaced with the grant of an Award having a lesser per share exercise price without the further approval of stockholders of the Company. Any grant or award under the Plan need not be the same with respect to each Holder. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan except with respect to matters which under Rule 16b–3 or any regulations or rules issued thereunder, are required to be determined in the sole discretion of the Committee.

2. Section 11.2 of the Plan is hereby amended in its entirety as follows:

11.2 Amendment, Suspension or Termination of the Plan. Except as otherwise provided in this Section 11.2, the Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator. However, without approval of the Company’s stockholders, no action of the Administrator may (a) amend the Plan to authorize the amendment of any outstanding Award to reduce its exercise price (except as provided in Section 11.3) or (b) amend the Plan to permit the cancellation and replacement of any outstanding Award with the grant of an Award having a lesser per share exercise price (except as provided in Section 11.3). Any amendment to the Plan that requires the approval of the Company’s stockholders will be submitted for the approval of the Company’s stockholders. No amendment, suspension or termination of the

Plan shall, without the consent of the Holder alter or impair any rights or obligations under any Award theretofore granted or awarded, unless the Award itself otherwise expressly so provides. No Awards may be granted or awarded during any period of suspension or after termination of the Plan.

3. Section 11.5 of the Plan is hereby amended to read in its entirety as follows:

11.5 Loans. The Committee may, in its discretion, extend one or more loans to Employees (other than officers of the Company) in connection with the exercise or receipt of an Award granted or awarded under the Plan, or the issuance of Restricted Stock or Deferred Stock awarded under the Plan. The terms and conditions of any such loan shall be set by the Committee. Notwithstanding the foregoing, no loan shall be made to an Employee under this Section to the extent such loan shall result in an extension or maintenance of credit, an arrangement for the extension of credit, or a renewal of an extension of credit in the form of a personal loan that is prohibited by Section 13(k) of the Exchange Act or other applicable law. In the event that the Administrator determines in its discretion that any loan under this Section is or will become prohibited by Section 13(k) of the Exchange Act or other applicable law, the Administrator may provide that such loan is immediately due and payable in full and may take any other action in connection with such loan as the Administrator determines in its discretion to be necessary or appropriate for the repayment, cancellation or extinguishment of such loan.

IN WITNESS WHEREOF, the Board of Directors of Safeway Inc. has hereunder adopted this Amendment to the Plan as indicated by the signature of the duly authorized officer of Safeway Inc. this 25th day of June, 2004.

SAFEWAY INC.
By:	/s/ Linda C. Sayler
Name:	Linda C. Sayler
Title:	Secretary

2

EX-10.(III)32

Exhibit 10(iii).32

DEFERRED COMPENSATION PLAN FOR SAFEWAY

NON-EMPLOYEE DIRECTORS

(Amended and Restated June 2, 2004)

ARTICLE I

1.1 Name and Purpose. The name of this plan is the “Deferred Compensation Plan for Safeway Directors” (the “Plan”). Its purpose is to provide non-employee Directors of the Company with increased flexibility in timing the receipt of board service fees and to assist the Company in attracting and retaining qualified individuals to serve as Directors. The Plan was adopted by the Board of Directors on December 21, 1994 and amended and restated effective June 2, 2004.

1.2 Definitions. Whenever used in this Plan, the following terms shall have the meaning set forth below:

(a) “Automatic Deferral” means the automatic deferral of fifty percent of a Director’s Compensation as described in Section 3.1 below.

(b) “Board” means the Board of Directors of the Company.

(c) “Closing Price” means the closing price of the Company’s Common Stock as reported in The Wall Street Journal.

(d) “Common Stock” means the Common Stock, par value $.01 per share, of Safeway Inc.

(e) “Company” means Safeway Inc.

(f) “Compensation” means all remuneration paid to a Director for services as a Director other than reimbursement for expenses and shall include, but not be limited to, monthly fees for service and fees for attendance at meetings.

(g) “Director” means any individual serving on the Board who is not an employee of the Company or any of its direct or indirect subsidiaries.

(h) “Elective Deferral” means a Participant’s elective deferral as described in Section 3.2 below.

(i) “Participant” means a Director who receives Compensation from the Company in any Plan Year.

(j) “Plan Administrator” means a committee consisting of one or more senior executives of the Company designated by the Chief Executive Officer of the Company.

(k) “Plan Year” means the calendar year.

ARTICLE II

2.1 Participation in the Plan. Any individual who is a Director as defined in Section 1.2(g) shall participate in the Plan.

ARTICLE III

3.1 Automatic Deferrals. Payment of fifty percent of a Director’s Compensation for each Plan Year shall automatically be deferred under the Plan, beginning with the 2005 Plan Year for Directors serving on the Board as of June 3, 2004 and with the 2004 Plan Year for Directors who are first elected or appointed to the Board after June 3, 2004.

3.2 Election to Defer. Each Director may elect annually to have payment of all or any portion of his or her Compensation, in excess of the amount subject to the Automatic Deferral, for that Plan Year deferred. No election to defer under this Plan may be made after December 31 of the year preceding the Plan Year during which Compensation would otherwise be paid. An election to defer any Compensation shall be in writing and shall be delivered to the Plan Administrator. An election to defer shall be irrevocable by the Director and shall be effective for the Plan Year or Plan Years immediately following the date on which it was filed as set forth in the written election to defer. In the absence of a written election to defer filed by a Director with the Plan Administrator, his or her Compensation remaining after the Automatic Deferral will be paid directly to the Director. Notwithstanding the foregoing, a Director who is first appointed or elected to the Board in a Plan Year may elect to defer under the Plan all or a portion of his or her Compensation, in excess of the amount subject to the Automatic Deferral, with respect to such Compensation earned on and after the first day of the month next following the date such Director completes and returns the written election to defer to the Company, provided that such election is made within 30 days after the date the Director is first elected or appointed to the Board.

3.3 Special Distribution Election. Each Participant may elect that Compensation deferred pursuant to an Elective Deferral will be paid in January of a specified year in the future that is at least twelve months from the last day of the Plan Year in which the deferred Compensation would otherwise have been paid to the Participant; provided, however, that if the Participant ceases to be a Director prior to such specified year, the Participant’s account will be paid as soon as practicable following the date on which the Participant ceases to be a Director. Compensation deferred pursuant to an Automatic Deferral is payable only upon the Participant’s termination of service with the Company as a Director.

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3.4 Mode of Deferral. Payment of a Participant’s Compensation deferred pursuant to an Automatic Deferral shall be deferred by means of a stock credit. Payment of a Participant’s Compensation deferred pursuant to an Elective Deferral may be deferred by means of a cash credit, a stock credit or a combination of the two as the Participant shall elect in writing at the same time as the election provided for in Section 3.2. If a Participant fails to make an election as to the mode of deferral of his or her Elective Deferral, he or she shall be deemed to have elected deferral by means of a cash credit. Cash credits and stock credits shall be recorded in accounts established in Participants’ names on the books of the Company.

(a) Cash Credits. If the Elective Deferral is deferred wholly or partly by means of a cash credit, the Participant’s cash credit account shall be credited, as of the last day of the calendar quarter, with the dollar amount of Compensation deferred during the quarter by means of a cash credit. As of the last day of each calendar quarter, the Participant’s cash credit account shall also be credited with interest equivalent in an amount determined by applying to the balance in the account as of the first day of the quarter (less any distributions during the quarter) an interest rate for such quarter which, when annualized, shall be the prime rate of Bankers Trust Company or such other rate as the Plan Administrator may designate, as of the first business day of the quarter. Interest shall be calculated on the actual number of days in the quarter based upon a 360-day year.

(b) Stock Credits. The Participant’s stock credit account shall be credited, as of the last day of the calendar quarter with a Common Stock equivalent equal to the number of shares of Common Stock (including fractions of a share) that could have been purchased at the average of the Closing Price of Common Stock on each business day during the last month of the calendar quarter with the amount of the Compensation deferred during the quarter by means of a stock credit. As of the date any dividend is paid to holders of Common Stock, the Participant’s stock credit account shall also be credited with an additional Common Stock equivalent equal to the number of shares of Common Stock (including fractions of a share) that could have been purchased at the Closing Price of Common Stock on such date with the dividend paid on the number of shares of Common Stock to which the Participant’s stock credit account is then equivalent. In case of dividends paid in property, the dividend shall be deemed to be the fair market value of the property at the time of distribution of the dividend, as determined by the Plan Administrator.

3.5 Distribution of Credits.

(a) If a Participant has elected payment in a specified year under Section 3.3, distribution of his or her accounts will only be made in a single lump sum payment. Otherwise, unless a Participant has elected to receive installment payments as provided below or if the Participant fails to make any election with respect to distribution of his or her accounts, payment of a Participant’s accounts shall be made in a single lump sum as soon as practicable following the end of the Plan Year in which the Participant ceases to be a Director.

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(b) At the election of the Participant made in writing and delivered to the Plan Administrator at least twelve months prior to the date his or her accounts would otherwise be distributed, distribution of his or her accounts, commencing as soon as practicable following the end of the Plan Year in which the Participant ceases to be a Director, shall be made in any number of annual installments not exceeding ten. Any such election, unless made irrevocable by its terms, may be changed by written notice to the Plan Administrator at least twelve months prior to the date his or accounts otherwise would be distributed.

(c) Distribution of a Participant’s cash credit and stock credit accounts shall be made in cash. The amount of the distribution for stock credit accounts shall be determined by multiplying the number of shares of Common Stock attributable to the distribution by the average of the Closing Price of Common Stock on each business day in the month of December immediately prior to the Plan Year in which the installment is to be paid.

3.6 Adjustment. If at any time the number of outstanding shares of Common Stock shall be increased as the result of any stock dividend, subdivision or reclassification of shares, the number of shares of Common Stock to which each Participant’s stock credit account is equivalent shall be increased in the same proportion as the outstanding number of shares of Common Stock is increased, or if the number of outstanding shares of Common Stock shall at any time be decreased as the result of any combination or reclassification of shares, the number of shares of Common Stock to which each Participant’s stock credit account is equivalent shall be decreased in the same proportion as the outstanding number of shares of Common Stock is decreased. In the event the Company shall at any time be consolidated with or merged into any other corporation and holders of the Company’s Common Stock receive common shares of the resulting or surviving corporation, there shall be credited to each Participant’s stock credit account, in place of the shares then credited thereto, a stock equivalent determined by multiplying the number of common shares of stock given in exchange for a share of Common Stock upon such consolidation or merger, by the number of shares of Common Stock to which the Participant’s account is then equivalent. If in such a consolidation or merger, holders of the Company’s Common Stock shall receive any consideration other than common shares of the resulting or surviving corporation, the Plan Administrator, in its sole discretion, shall determine the appropriate change in Participants’ stock credit accounts.

3.7 Installment Amount. In the event a Participant has elected to receive distribution of his or her accounts in more than one installment, the amount of each installment shall be determined by multiplying the current balance (denominated in cash units for the portion elected to be deferred as cash credits and denominated in stock units for the portion deferred or elected to be deferred in stock credits) in the accounts as determined under Section 3.4, by a fraction, the numerator of which is one, and the

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denominator of which is the number of installments yet to be paid. With respect to cash credits, interest shall continue to be credited in accordance with Section 3.4 during the payment period.

3.8 Distribution upon Death. In the event of the death of a Participant, whether before or after ceasing to serve as a Director, any cash credit account and stock credit account to which he or she was entitled, shall be converted to cash and distributed in a single lump sum to such person or persons or the survivors thereof, including corporations, unincorporated associations or trusts, as the Participant may have designated. All such designations shall be made in writing signed by the Participant and delivered to the Plan Administrator. A Participant may from time to time revoke or change any such designation by written notice to the Plan Administrator. If there is no unrevoked designation on file with the Plan Administrator at the time of the Participant’s death, or if the person or persons designated therein shall have all predeceased the Participant or otherwise ceased to exist, such distributions shall be made in accordance with the Participant’s will or in the absence of a will, to the administrator of the Participant’s estate. Any distribution under this Section 3.8 shall be made as soon as practicable following the end of the fiscal quarter in which the Plan Administrator is notified of the Participant’s death. In this case, a Participant’s stock credit account shall be converted to cash by multiplying the number of whole and fractional shares of Common Stock to which the Participant’s stock credit account is equivalent by the average of the Closing Price of Common Stock on each business day during the last month of the calendar quarter prior to the date of death.

3.9 Withholding Taxes. The Company shall deduct from all distributions under the Plan any taxes required to be withheld by federal, state or local governments.

ARTICLE IV

4.1 Plan Administrator. The Plan Administrator shall have full power and authority to administer the Plan including the power to promulgate forms to be used with regard to the Plan, the power to promulgate rules of Plan administration, the power to settle any disputes as to rights or benefits arising from the Plan, and the power to make such decisions or take such actions as the Plan Administrator, in its sole discretion, deems necessary or advisable to aid in the proper maintenance of the Plan.

ARTICLE V

5.1 Funding. No promise hereunder shall be secured by any specific assets of the Company, nor shall any assets of the Company be designated as attributable or allocated to the satisfaction of such promises. In addition, amounts deferred pursuant to the terms of the Plan and income attributable to such amounts shall remain (until distributed in accordance with the terms of the Plan) solely the property of the Company, subject to the claims of the Company’s general creditors.

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ARTICLE VI

6.1 Non-alienation of Benefits. No benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge; and any attempt to do so shall be void. No such benefit shall, prior to receipt thereof by the Participant, be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of the Participant.

6.2 Domestic Relations Orders. If a court of competent jurisdiction determines pursuant to a judgment, order or approval of a marital property settlement agreement that all or any portion of the benefits payable under the Plan to a Participant constitute community property of the Participant and his or her spouse or former spouse (hereafter, the “Alternate Payee”) or property which is otherwise subject to division by the Participant and the Alternate Payee, a division of such property shall not constitute a violation of Section 6.1, and any portion of such property may be paid or set aside for payment to the Alternate Payee. The preceding sentence of this Section 6.2, however, shall not create any additional rights and privileges for the Alternate Payee (or the Participant) not already provided under the Plan; in this regard, the Administrator shall have the right to refuse to recognize any judgment, order or approval of a martial property settlement agreement that the Administrator it its sole discretion determines provides for any additional rights and privileges not provided under the Plan, including without limitation provisions relating to form and time of payment.

ARTICLE VII

7.1 Delegation of Administrative Duties. Administrative duties imposed by this Plan may be delegated by the Plan Administrator or the individual charged with such duties.

7.2 Governing Law. This Plan shall be governed by the laws of the State of Delaware.

7.3 Amendment, Modification and Termination of the Plan. The Plan Administrator at any time may terminate and in any respect, amend or modify the Plan.

IN WITNESS WHEREOF, the Board has caused this amended and restated Plan to be executed by a duly authorized officer of the Company this 16^th day of July 2004.

SAFEWAY INC.
By:	/s/ Robert A. Gordon
Name:	Robert A. Gordon
Its:	Senior Vice President & General Counsel

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EX-10.(III)33

Exhibit 10(iii).33

THE 2001 AMENDED AND RESTATED

SHARE APPRECIATION RIGHTS PLAN

OF

CANADA SAFEWAY LIMITED

Safeway Inc., a Delaware corporation, previously adopted the Stock Option and Incentive Plan for Key Employees of Safeway Inc. for the benefit of its eligible employees (the “Prior Plan”). The Prior Plan has previously been amended from time to time, and was amended and restated in its entirety and consolidated with other plans in order to constitute an equity participation plan entitled “The 1999 Amended and Restated Equity Participation Plan of Safeway Inc.” (as amended May 15, 2003 and as otherwise in effect from time to time, the “Safeway Equity Participation Plan”). Safeway Inc. adopted the Safeway Equity Participation Plan, effective upon approval by the stockholders of Safeway Inc., as provided in the Safeway Equity Participation Plan, for the benefit of its eligible employees, consultants and directors.

Canada Safeway Limited, an Alberta corporation, previously adopted the Share Appreciation Rights Plan of Canada Safeway Limited (as in effect from time to time, the “Plan”) under which Canada Safeway Limited could, from time to time, upon and subject to the terms and conditions in the Plan, grant to certain employees of Canada Safeway Limited and its subsidiary corporations who were also granted “Options” (as defined herein) under the Safeway Equity Participation Plan (or the Prior Plan), certain Share Appreciation Rights as described in the Plan. The Plan is herein amended and restated in its entirety effective as of December 3, 2001 and, as so amended and restated, is entitled “The 2001 Amended and Restated Share Appreciation Rights Plan of Canada Safeway Limited.”

The purposes of the Plan are as follows:

(1) to further the growth, development and financial success of Canada Safeway Limited by providing additional incentives to certain of the employees of Canada Safeway Limited and its subsidiary corporations who have been or will be given responsibility for the management or administration of the business affairs of Canada Safeway Limited and its subsidiary corporations; and

(2) to enable Canada Safeway Limited and its subsidiary corporations to obtain and retain the services of the type of professional, technical and managerial employees considered essential to the long-range success of Canada Safeway Limited.

THE 2001 AMENDED AND RESTATED

SHARE APPRECIATION RIGHTS PLAN

OF

CANADA SAFEWAY LIMITED

ARTICLE I

DEFINITIONS

1.1 General. Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise. The terms used in the Plan that are not otherwise defined herein shall have the meanings set forth in the Safeway Equity Participation Plan. In the event that a term defined herein is also defined in the Safeway Equity Participation Plan, the meaning set forth in the Safeway Equity Participation Plan shall govern.

1.2 Award. “Award” shall mean a Stock Appreciation Right, which may be granted under the Plan.

1.3 Award Agreement. “Award Agreement” shall mean a written agreement executed by an authorized officer of Canada Safeway and the Holder which shall contain such terms and conditions with respect to an Award as the Administrator shall determine, consistent with the Plan.

1.4 Canada Safeway. “Canada Safeway” shall mean Canada Safeway Limited, an Alberta corporation.

1.5 Canadian Securities Laws. “Canadian Securities Laws” shall mean all applicable securities and corporate laws, rules, regulations, notices, instruments and policies in force in Canada.

1.6 Common Stock. “Common Stock” shall mean the common stock of the Company, par value $0.01 per share, and any equity security of the Company issued or authorized to be issued in replacement thereof in the future, but excluding any preferred stock and any warrants, options or other rights to purchase Common Stock.

1.7 Company. “Company” shall mean Safeway Inc., a Delaware corporation.

1.8 DRO. “DRO” shall mean a domestic relations order that would constitute a domestic relations order or its equivalent under the Matrimonial Property Act (Alberta), the Domestic Relations Act (Alberta), similar laws of the Provinces of Canada, and the Divorce Act (Canada).

1.9 Employee. “Employee” shall mean any officer or other employee of Canada Safeway, or of any subsidiary corporation of Canada Safeway which is a Subsidiary.

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1.10 Exchange Act. “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

1.11 Fair Market Value. “Fair Market Value” of a share of Common Stock as of a given date shall be (a) the closing price of a share of Common Stock on the principal exchange on which shares of Common Stock are then trading, if any (or as reported on any composite index which includes such principal exchange), on such date, or if shares were not traded on such date, then on the next preceding date on which a trade occurred, or (b) if Common Stock is not traded on an exchange but is quoted on NASDAQ or a successor quotation system, the mean between the closing representative bid and asked prices for the Common Stock on such date as reported by NASDAQ or such successor quotation system; or (c) if Common Stock is not publicly traded on an exchange and not quoted on NASDAQ or a successor quotation system, the Fair Market Value of a share of Common Stock as established by the Administrator acting in good faith. In determining the Fair Market Value of the Company’s Common Stock under subsection (a) of this Section 1.11, the Administrator may rely on the closing price as reported in the New York Stock Exchange composite transactions published in the Western Edition of the Wall Street Journal.

1.12 Holder. “Holder” shall mean a person who has been granted an Award.

1.13 Option. “Option” shall mean a stock option granted under Article IV of the Safeway Equity Participation Plan.

1.14 Plan. “Plan” shall mean The Amended and Restated 2001 Share Appreciation Rights Plan of Canada Safeway Limited.

1.15 Securities Act. “Securities Act” shall mean the Securities Act of 1933, as amended.

1.16 Stock Appreciation Right. “Stock Appreciation Right” shall mean a stock appreciation right granted under Article IV of the Plan.

1.17 Stock Appreciation Right Base Amount. “Stock Appreciation Right Base Amount” means the amount with respect to a Stock Appreciation Right to be utilized in the calculations set forth in Section 5.1 below, which amount shall be determined by the Administrator in accordance with the provisions of Section 4.2(a)(iv) below.

1.18 Subsidiary. “Subsidiary” shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

1.19 Substitute Award. “Substitute Award” shall mean a Stock Appreciation Right granted under the Plan upon the assumption of, or in substitution for, outstanding equity awards previously granted by a company or other entity in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or stock; provided, however, that in no event shall the term “Substitute Award” be construed

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to refer to an award made in connection with the cancellation and repricing of a Stock Appreciation Right.

1.20 Termination of Employment. “Termination of Employment” shall mean the time when the employee-employer relationship between a Holder and Canada Safeway or any Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, a termination by resignation, discharge, death, disability or retirement; but excluding (a) terminations where there is a simultaneous reemployment or continuing employment of a Holder by Canada Safeway or any Subsidiary, (b) at the discretion of the Administrator, terminations which result in a temporary severance of the employee-employer relationship, and (c) at the discretion of the Administrator, terminations which are followed by the simultaneous establishment of a consulting relationship by Canada Safeway or a Subsidiary with the former employee. The Administrator, in its absolute discretion, shall determine the effect of all matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for good cause, and all questions of whether a particular leave of absence constitutes a Termination of Employment.

ARTICLE II

STOCK APPRECIATION RIGHTS SUBJECT TO PLAN

2.1 Stock Appreciation Rights Subject to Plan

The aggregate number of Stock Appreciation Rights that may be granted under the Plan may not exceed the number of Options granted under the Safeway Equity Participation Plan.

2.2 Add-back of Stock Appreciation Rights

If any Stock Appreciation Right under the Plan expires or is canceled without having been fully exercised, the number of shares subject to such Stock Appreciation Right, but as to which such Stock Appreciation Right was not exercised prior to its expiration or cancellation, may again be awarded hereunder, subject to the limitations of Section 2.1. Furthermore, any Stock Appreciation Rights subject to Awards which are adjusted pursuant to Section 8.3 and become exercisable with respect to shares of stock of another corporation shall be considered cancelled and may again be granted hereunder, subject to the limitations of Section 2.1.

ARTICLE III

AWARD AGREEMENTS

3.1 Award Agreement

Each Award shall be evidenced by an Award Agreement.

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3.2 Consideration

In consideration of the granting of an Award under the Plan, the Holder shall agree, in the Award Agreement, to remain in the employ of Canada Safeway or any Subsidiary for a period of at least one (1) year (or such shorter period as may be fixed in the Award Agreement or by action of the Administrator following grant of the Award) after the Award is granted.

3.3 At-Will Employment

Nothing in the Plan or in any Award Agreement hereunder shall confer upon any Holder any right to continue in the employ of the Company, Canada Safeway or any Subsidiary, or shall interfere with or restrict in any way the rights of the Company, Canada Safeway and any Subsidiary, which are hereby expressly reserved, to discharge any Holder at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written employment agreement between the Holder, and the Company, Canada Safeway and any Subsidiary.

ARTICLE IV

GRANTING OF STOCK APPRECIATION RIGHTS TO EMPLOYEES

4.1 Eligibility

Any Employee selected by the Administrator pursuant to Section 4.2(a)(i) shall be eligible to be granted a Stock Appreciation Right relating to an Option granted to such Employee under the Safeway Equity Participation Plan.

4.2 Granting of Stock Appreciation Rights to Employees

(a) The Administrator shall from time to time, in its absolute discretion, and subject to applicable limitations of the Plan:

(i) Select from among the Employees granted Options under the Safeway Equity Participation Plan (including Employees who have previously received Awards under the Plan) such of them as in its opinion should be granted Stock Appreciation Rights;

(ii) Determine the Option granted to an Employee to which Stock Appreciation Rights granted under the Plan shall relate;

(iii) Determine the number of shares of Common Stock to be subject to such Stock Appreciation Rights granted to the selected Employees; and

(iv) Determine the terms and conditions of such Stock Appreciation Rights, consistent with the Plan, including, without limitation, the Stock Appreciation Right Base Amount of such Stock Appreciation Right to be utilized in the calculation in Section 5.1 and the currency in which the same is to be based.

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Notwithstanding the above, the Administrator may delegate certain powers relating to the granting of Stock Appreciation Rights as it deems appropriate to executive officers of the Company or Canada Safeway, including the power to determine the number of shares of Common Stock to be subject to Stock Appreciation Rights (subject to a maximum amount set by the Administrator), and to determine the terms and conditions of such Stock Appreciation Rights.

(b) Upon the selection of an Employee to be granted a Stock Appreciation Right, the Administrator shall instruct the Secretary of Canada Safeway to issue the Stock Appreciation Right and may impose such conditions on the grant of the Stock Appreciation Right as it deems appropriate.

(c) Unless otherwise determined by Canada Safeway, a Stock Appreciation Right shall only be granted to an Employee in conjunction with an Option granted under the Safeway Equity Participation Plan (or the Prior Plan). Furthermore, each Stock Appreciation Right shall be exercisable only to the extent the related Option is exercisable.

ARTICLE V

TERMS OF STOCK APPRECIATION RIGHTS

5.1 Entitlement under Stock Appreciation Rights

Subject to the terms and conditions hereof, including, without limitation, Section 5.4 below, and subject to the terms and conditions of each Award Agreement, each Stock Appreciation Right shall entitle the Holder, upon exercise, to the following:

(a) Canada Safeway shall be obligated to pay to the Company, on behalf of the Holder, and at the direction of the Holder, but only in the event of the acquisition by such Holder of one (1) share of Common Stock pursuant to the due and proper exercise of the related Option, an amount, in such currency as may be determined by the Administrator in its sole discretion, and payable as hereinafter provided, equal to the excess, if any, of: (i) the Fair Market Value of one (1) share of Common Stock on the date of exercise of such Stock Appreciation Right, over (ii) the Stock Appreciation Right Base Amount of the Stock Appreciation Right; or

(b) Such other benefits as may be determined by the Administrator from time to time.

5.2 Term of Stock Appreciation Rights

The term of a Stock Appreciation Right granted to an Employee shall be set by the Administrator in its discretion. The Administrator may extend the term of any outstanding Stock Appreciation Right in connection with any Termination of Employment of the Holder, or amend any other term or condition of such Stock Appreciation Right relating to such a termination.

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5.3 Vesting of Stock Appreciation Rights

(a) The period during which the right to exercise, in whole or in part, a Stock Appreciation Right granted to an Employee vests in the Holder shall be set by the Administrator, subject to a minimum vesting period of three (3) years in order for any Stock Appreciation Right to become fully exercisable, and the Administrator may determine that a Stock Appreciation Right may not be exercised in whole or in part for a specified period after it is granted. At any time after grant of a Stock Appreciation Right, the Administrator may, in its sole and absolute discretion and subject to whatever terms and conditions it selects, accelerate the period during which a Stock Appreciation Right granted to an Employee vests.

(b) No portion of a Stock Appreciation Right granted to an Employee which is unexercisable at Termination of Employment, as applicable, shall thereafter become exercisable, except as may be otherwise provided by the Administrator either in the Award Agreement or by action of the Administrator following the grant of the Stock Appreciation Right.

5.4 Expiration of Stock Appreciation Rights

(a) No Stock Appreciation Right may be exercised to any extent by any Employee after the first to occur of the following events:

(i) Upon the termination, cancellation or expiration of the related Option; or

(ii) The expiration of three (3) months from the date of the Holder’s Termination of Employment for any reason other than death or disability (such “disability” to be determined in accordance with Canada Safeway’s policies and practices in effect from time to time), or retirement on or after age fifty-five (55) in accordance with Canada Safeway’s retirement policies, as then in effect; or

(iii) The expiration of one (1) year from the date of Holder’s Termination of Employment by reason of death or disability (such “disability” to be determined in accordance with Canada Safeway’s policies and practices in effect from time to time), or retirement on or after age fifty-five (55) in accordance with Canada Safeway’s retirement policies, as then in effect; or

(iv) The engagement by the Holder in willful misconduct which injures the Company, Canada Safeway or any of their respective Subsidiaries.

(b) Subject to the provisions of Section 5.4(a), the Administrator shall provide, in the terms of the Award Agreement of a Stock Appreciation Right, when such Stock Appreciation Right expires and becomes unexercisable; and (without limiting the generality of the foregoing) the Administrator may provide in the terms of the Award Agreement of the Stock Appreciation Right that such Stock Appreciation Right expires immediately upon a Termination of Employment for any reason.

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ARTICLE VI

EXERCISE OF STOCK APPRECIATION RIGHTS

6.1 Exercise of Stock Appreciation Rights

Except as may otherwise be determined by the Administrator from time to time, each exercisable Stock Appreciation Right may only be exercised and shall be exercised by the Holder contemporaneously with the due and proper exercise by the Holder, in accordance with the terms and conditions of the Safeway Equity Participation Plan (or the Prior Plan, if applicable) and any agreements entered into by the Employee in respect thereof, of the exercisable Option relating to the exercisable Stock Appreciation Right. The manner in which a Stock Appreciation Right may be exercised shall be set forth in the Award Agreement for such Stock Appreciation Right.

6.2 Manner of Exercise

A Stock Appreciation Right shall be deemed exercised upon delivery of all of the following to the Secretary of Canada Safeway or his or her office:

(a) A notice complying with the applicable rules established by the Administrator stating that the Stock Appreciation Right, or a portion thereof, is exercised;

(b) Such representations and documents as the Administrator, in its absolute discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act, the Canadian Securities Laws, and any other federal, state or provincial securities laws or regulations. The Administrator may, in its absolute discretion, also take whatever additional actions it deems appropriate to effect such compliance;

(c) In the event that the Option shall be exercised pursuant to Section 8.1 by any person or persons other than the Holder, appropriate proof of the right of such person or persons to exercise the Option; and

(d) A direction executed by the Holder directing Canada Safeway to pay the Company, on the Holder’s behalf, the amount required to be paid by Canada Safeway pursuant to Section 5.1(a).

6.3 Conditions to Payment by Canada Safeway

Unless otherwise determined by the Administrator, any payments pursuant to Section 5.1(a) above by Canada Safeway upon the exercise of a Stock Appreciation Right shall not be made prior to fulfillment of all of the following conditions:

(a) The completion of any registration or other qualification of the shares of Common Stock to be issued pursuant to the exercise of the Option related to the Stock Appreciation Right under any applicable United States or Canadian federal, state or provincial law including, but not by way of limitation, the Securities Act, the Canadian Securities Laws, or under the rulings or regulations of applicable

8

Securities Commissions or any other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable;

(b) The obtaining of any approval, exemption order or other clearance from any provincial, state or federal governmental agency which the Administrator shall, in its absolute discretion, determine to be necessary or advisable;

(c) The payment, if any is required, to Canada Safeway of all amounts which Canada Safeway is to withhold under federal, state or provincial law in connection with the exercise of the Stock Appreciation Right; and

(d) The lapse of such reasonable period of time following the exercise of the Stock Appreciation Right as the Administrator may establish from time to time for reasons of administrative convenience.

6.4 Rights as Stockholders

The Holders of Stock Appreciation Rights shall not be, nor have any of the rights or privileges of, shareholders or stockholders of the Company or any Parent Corporation or any Subsidiary (including Canada Safeway).

6.5 Canadian Securities Laws Requirements

Unless otherwise determined by the Committee, in each Award Agreement, the Employee will acknowledge to and agree with Canada Safeway as follows:

(a) that the granting of Stock Appreciation Rights and transfers thereof as permitted herein, are regulated by the Canadian Securities Laws;

(b) that Canada Safeway has relied on certain securities laws exemptions under the Canadian Securities Laws;

(c) that where necessary, Canada Safeway will attempt to obtain exemptions (the “Exemptions Orders”) from the requirements of the Canadian Securities Laws which, subject to Sections 6.5(d), 6.5(e) and 6.5(f) below, will permit, amongst other things, Stock Appreciation Rights to be transferred to the estate of the Employee and to his or her beneficiaries; provided that unless and until such Exemption Orders have been obtained, the right of the Employee, his or her estate, or beneficiaries, as the case may be, to transfer any Stock Appreciation Rights as permitted herein, may be restricted;

(d) that if the Employee, his or her estate, or beneficiaries, as the case may be, do not reside in any of the Provinces in which an Exemption Order had been granted at the time of any transfer of Stock Appreciation Rights as permitted herein, they may not be entitled to rely upon the provisions of Section 6.5(c) above and their right to transfer any Stock Appreciation Rights may be restricted;

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(e) that the basis and circumstances upon which the Exemption Orders may be granted, and the Canadian Securities Laws and other securities laws in general, may change from time to time and although the Corporation will attempt to inform the Employee of any such changes made known to it which may affect any of the matters in this Section 6.5, it is the sole responsibility of the Participating Employee, his or her estate, and beneficiaries, as the case may be, to comply with all applicable securities laws at the time of any transfer of Stock Appreciation Rights as permitted herein; and

(f) in advance of any transfer of Stock Appreciation Rights as permitted herein, the Employee, his or her estate, and beneficiaries, as the case may be, will confirm with the Human Resources Department of Canada Safeway that such transfer continues to comply with the Canadian Securities Laws and all applicable laws and regulations. For greater certainty, Canada Safeway is under no obligation, other than as set out in Section 6.5(c) above, to make any applications pursuant to, or seek any relief from, any Canadian Securities Laws which may otherwise prevent or restrict any transfer of Stock Appreciation Rights as permitted herein.

ARTICLE VII

ADMINISTRATION

7.1 Administration of the Plan

The Plan shall be administered by the Administrator in accordance with the provisions of Article X of the Safeway Equity Participation Plan (to the extent such provisions are not inconsistent with the other provisions of the Plan).

7.2 Duties and Powers of Administrator

It shall be the duty of the Administrator to conduct the general administration of the Plan in accordance with its provisions. The Administrator shall have the power to interpret the Plan and the Award Agreements, and to adopt such rules for the administration, interpretation, and application of the Plan as are consistent therewith, to interpret, amend or revoke any such rules and to amend any Award Agreement provided that the rights or obligations of the Holder of the Award that is the subject of any such Award Agreement are not affected adversely. Any such grant under the Plan need not be the same with respect to each Holder.

ARTICLE VIII

MISCELLANEOUS PROVISIONS

8.1 Not Transferable

(a) No Award under the Plan may be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution. No Award or interest or right therein shall be subject to, or exigible for, the debts, contracts or engagements of the Holder or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance,

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assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.

(b) Notwithstanding the provisions of Section 8.1(a) hereof, the Administrator, in its absolute discretion, may determine to grant to any Holder an Award which, by its terms as set forth in the applicable Award Agreement, may be transferred by the Holder, in writing and with prior written notice to the Administrator, (i) pursuant to a DRO, or (ii) by gift, without the receipt of any consideration, to a member of Holder’s immediate family, as defined in Rule 16a-1 under the Exchange Act, or to a trust for the exclusive benefit of, or any other entity owned solely by, such members, provided, that an Award that has been so transferred shall continue to be subject to all of the terms and conditions of the Award as applicable to the original Holder, and the transferee shall execute any and all such documents requested by the Administrator in connection with the transfer, including without limitation to evidence the transfer and to satisfy any requirements for an exemption for the transfer under applicable United States and Canadian federal, provincial and state securities laws.

8.2 Amendment, Suspension or Termination of the Plan

Except as otherwise provided in this Section 8.2, the Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator. No amendment, suspension or termination of the Plan shall, without the consent of the Holder alter or impair any rights or obligations under any Award theretofore granted or awarded, unless the Award itself otherwise expressly so provides. No Awards may be granted or awarded during any period of suspension or after termination of the Plan.

8.3 Changes in Common Stock or Assets of the Company, Acquisition or Liquidation of the Company and Other Corporate Events

(a) In the event that the Administrator determines that any dividend or other distribution (whether in the form of cash, Common Stock, other securities or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event, in the Administrator’s sole discretion, affects the Common Stock such that an adjustment is determined by the Administrator to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an Award, then the Administrator shall, in such manner as it may deem equitable, adjust any or all of:

(i) the number and kind of shares of Common Stock (or other securities or property) with respect to which Awards may be granted;

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(ii) the number and kind of shares of Common Stock (or other securities or property) subject to outstanding Awards; and

(iii) the Stock Appreciation Right Base Amount with respect to any Award.

(b) In the event of any transaction or event described in Section 8.3(a) or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate, or of changes in applicable laws, regulations, or accounting principles, the Administrator, in its sole and absolute discretion, and on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Holder’s request, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events, or to give effect to such changes in laws, regulations or principles:

(i) To provide for either the purchase of any such Award for an amount of cash equal to the amount that could have been attained upon the exercise of such Award or realization of the Holder’s rights had such Award been currently exercisable or payable or fully vested or the replacement of such Award with other rights or property selected by the Administrator in its sole discretion;

(ii) To provide that the Award cannot vest, be exercised or become payable after such event;

(iii) To provide that such Award shall be exercisable as to all shares covered thereby, notwithstanding anything to the contrary in Section 5.3 or the provisions of such Award;

(iv) To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares; and

(v) To make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to outstanding Awards, or Awards which may be granted in the future.

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(c) The Administrator may, in its discretion, include such further provisions and limitations in any Award, agreement or certificate, as it may deem equitable and in the best interests of either or both of the Company and Canada Safeway.

(d) Notwithstanding the foregoing, in the event that the Company becomes a party to a transaction that is intended to qualify for “pooling of interests” accounting treatment and, but for one or more of the provisions of the Plan or any Award Agreement would so qualify, then this Plan and any Award Agreement shall be interpreted so as to preserve such accounting treatment, and to the extent that any provision of the Plan or any Award Agreement would disqualify the transaction from pooling of interests accounting treatment (including, if applicable, an entire Award Agreement), then such provision shall be null and void. All determinations to be made in connection with the preceding sentence shall be made by the independent accounting firm whose opinion with respect to “pooling of interests” treatment is required as a condition to the Company’s consummation of such transaction.

(e) The existence of the Plan, the Award Agreement and the Awards granted hereunder shall not affect or restrict in any way the right or power of the Company or Canada Safeway, or the stockholders of the Company or Canada Safeway to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s or Canada Safeway’s capital structure or their respective businesses, any merger or consolidation of the Company or Canada Safeway, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the Company or Canada Safeway, or any sale or transfer of all or any part of their respective assets or businesses, or any other corporate act or proceeding, whether of a similar character or otherwise.

8.4 Tax Withholding

(a) Canada Safeway shall be entitled to require payment in cash or deduction from other compensation payable to each Holder of any sums required by federal, provincial, state or local tax law to be withheld with respect to the issuance, vesting, exercise or payment of any Award.

(b) The Administrator may in its discretion and in satisfaction of the requirement set forth in Section 8.4(a), allow such Holder to elect to have Canada Safeway or the Company withhold shares of Common Stock otherwise issuable under such Award (or allow the return of shares of Common Stock) having a Fair Market Value equal to the sums required to be withheld. Notwithstanding any other provision of the Plan, the number of shares of Common Stock which may be withheld with respect to the issuance, vesting, exercise or payment of any Award (or which may be repurchased from the Holder of such Award within six (6) months after such shares of Common Stock were acquired by the Holder from the

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Company) in order to satisfy the Holder’s federal, provincial, state and local income tax and payroll tax liabilities with respect to the issuance, vesting, exercise or payment of the Award shall be limited to the number of shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal, provincial, state and local income tax and payroll tax purposes that are applicable to such supplemental taxable income.

8.5 Forfeiture Provisions

Pursuant to its general authority to determine the terms and conditions applicable to Awards under the Plan, the Administrator shall have the right to provide, in the terms of Awards made under the Plan, or to require a Holder to agree by separate written instrument, that (a)(i) any proceeds, gains or other economic benefit actually or constructively received by the Holder upon any receipt or exercise of the Award must be paid to Canada Safeway, and (ii) the Award shall terminate and any unexercised portion of the Award (whether or not vested) shall be forfeited, if (b)(i) a Termination of Employment occurs prior to a specified date, or within a specified time period following receipt or exercise of the Award, or (ii) the Holder at any time, or during a specified time period, engages in any activity in competition with the Company, Canada Safeway or any of their respective Subsidiaries, or which is inimical, contrary or harmful to the interests of the Company, Canada Safeway or any of their respective Subsidiaries, as further defined by the Administrator or (iii) the Holder incurs a Termination of Employment for cause.

8.6 Effect of Plan upon Options and Compensation Plans

The adoption of the Plan shall not affect any other compensation or incentive plans in effect for the Company, Canada Safeway or any of their respective Subsidiaries, except as specifically set forth in the preamble hereof. Nothing in the Plan shall be construed to limit the right of the Company, Canada Safeway or any of their respective Subsidiaries (a) to establish any other forms of incentives or compensation for Employees of the Company, Canada Safeway or any of their respective Subsidiaries or (b) to grant or assume options or other rights or awards otherwise than under the Plan in connection with any proper corporate purpose including but not by way of limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, partnership, limited liability company, firm or association.

8.7 Compliance with Laws

The Plan, the granting and vesting of Awards under the Plan and the payment of money under the Plan or under Awards granted hereunder are subject to compliance with all applicable federal, provincial and state laws, rules and regulations (including but not limited to Canadian Securities Laws, state and federal securities laws and federal margin requirements) and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company or Canada Safeway, be necessary or advisable in connection therewith. Any securities delivered under the Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by the Company or Canada Safeway, provide such assurances and representations to the Company and Canada Safeway as the Company or Canada Safeway

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may deem necessary or desirable to assure compliance with all applicable legal requirements. To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

8.8 Titles

Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan.

8.9 Governing Law

The Plan and any agreements hereunder shall be administered, interpreted and enforced under the internal laws of the Province of Alberta, Canada without regard to conflicts of laws thereof.

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EX-10.(III)34

Exhibit 10(iii).34

1999 Amended and Restated

Equity Participation Plan

Of

Safeway Inc.

And

Share Appreciation Rights Plan

of Canada Safeway Limited

STOCK RIGHTS AGREEMENT

You have been selected to be a participant in the 1999 Amended and Restated Equity Participation Plan of Safeway Inc. and the 2001 Amended and Restated Share Appreciation Rights Plan of Canada Safeway Limited, as specified below:

Employee:	SIN:
Date of Grant:	Grant #:
Date of Expiration:
Number of Shares Subject to Purchase:
Base Price per Share: $(CANADIAN):

IN WITNESS WHEREOF, the parties have caused this Stock Right Agreement to be executed as of the Date of Grant.

SAFEWAY INC.

By:

CANADA SAFEWAY LIMITED

By:

Employee

Social Insurance Number

Address:

THIS AGREEMENT is made on and as of the Date of Grant set forth above between SAFEWAY INC., a Delaware corporation (the “Company”), Canada Safeway Limited, an Alberta corporation (“CSL”), and the Employee named above pursuant

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to the provisions of the 1999 Amended and Restated Equity Participation Plan of Safeway Inc. (the “Plan”) and the 2001 Amended and Restated Share Appreciation Rights Plan of Canada Safeway Limited (the “SAR Plan”). Each option to purchase a share of Common Stock granted hereunder by the Company pursuant to the Plan and the associated right granted hereunder to have the fair market value of such share in excess of the Base Price for such share paid by CSL pursuant to the SAR Plan shall together be termed a Right to purchase a share of Common Stock and shall be governed by the provisions of this Agreement and the respective plans. The parties hereto agree as follows:

ARTICLE I

DEFINITIONS

Whenever the following terms are used in this Agreement, they shall have the meaning specified below unless the context clearly indicates to the contrary. The masculine pronoun shall include the feminine and neuter, and the singular the plural, where the context so indicates. Terms not otherwise defined in this Agreement shall have the meaning specified in the Plan and the SAR Plan.

Section 1.1 - Option, SAR and Right

“Option” shall mean an option to purchase Common Stock of the Company granted under this Agreement. “SAR” shall mean the undertaking of CSL under this Agreement to fund the purchase price of a share acquired on exercise of an Option in excess of the Base Price. “Right” shall mean an Option and the corresponding SAR.

Section 1.2 - Termination of Employment

“Termination of Employment” shall mean the time when the employee-employer relationship between the Employee and the Company or a Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, a termination by resignation, discharge, death, disability or retirement; but excluding: (a) any terminations where there is a simultaneous reemployment or continuing employment of the Employee by the Company or a Subsidiary, (b) at the discretion of the Committee, terminations which result in a temporary severance of the employer-employee relationship, and (c) at the discretion of the Committee, terminations which are followed by the simultaneous establishment of a consulting relationship by the Company or a Subsidiary with the Employee. The Committee, in its absolute discretion, shall determine the effect of all other matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for good cause, and all questions of whether particular leave of absence constitutes a Termination of Employment.

Section 1.3 - Change in Control of the Company

A “Change in Control of the Company” shall be deemed to have occurred, subject to subparagraph (d) hereof, if any of the events (an “Event”) in subparagraphs (a), (b) or (c) occur during the term of the Agreement:

(a) Any “person” (as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than an employee benefit plan of the Company, a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or an underwriter who acquires such securities for the purpose of resale in an underwritten public offering of such securities, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 25% or more of the Company’s then outstanding voting securities carrying the right to vote in elections of persons to the Board, regardless of comparative voting power of such voting securities; or

(b) As a result of a tender offer or exchange offer for the purchase of securities of the Company (other than such an offer by the Company for its own securities), or as a result of a proxy contest, merger, consolidation or sale of assets, or as a result of any combination of the foregoing, individuals who at the beginning of any two-year period constitute the Board plus new directors (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in clauses (a) or (c) of this Subsection) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such two year period or whose election or nomination for election was previously so approved (collectively, the “Continuing Board Members”), cease for any reason to constitute a majority thereof; or

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(c)

(i) The consummation of a merger or consolidation of the Company with any other corporation regardless of which entity is the surviving company, other than a merger or consolidation which would result in the voting securities of the Company carrying the right to vote in elections of persons to the Board outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the Company’s then outstanding voting securities carrying the right to vote in elections of persons to the Board, or such securities of such surviving entity outstanding immediately after such merger or consolidation, or

(ii) The holders of securities of the Company entitled to vote thereon approve a plan of complete liquidation of the Company, or

(iii) The consummation of an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.

(d) Notwithstanding the definition of a “Change in Control of the Company” as set forth in this Section 1.3, no Event described in subparagraph (c)(i) shall constitute a Change in Control of the Company if (I) the merger or consolidation would result in the voting securities of the Company carrying the right to vote in elections of persons to the Board outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50%, but less than 80%, of the Company’s then outstanding voting securities carrying the right to vote in elections of persons to the Board, or such securities of such surviving entity outstanding immediately after such merger or consolidation, and (II), prior to the occurrence of any such Event the Continuing Board Members unanimously determine, by resolution, that such Event shall not constitute a Change in Control of the Company.

Section 1.4 - Base Price

The “Base Price” per share shall mean the amount of Canadian dollars, as specified on the first page hereof, that the Employee is required to pay to purchase shares of Common Stock under this Agreement.

Section 1.5 - Demotion

“Demotion” shall mean the demotion of the Employee to a position within the Company which is not then eligible for grants of stock rights or to a position that is eligible for stock right grants at a lower level than the level for which the Employee was eligible on the Date of Grant. Notwithstanding the foregoing, the Chief Executive Officer of the Company may make adjustments, in his discretion, in the foregoing definition in the event of the transfer, illness or disability of the Employee, the occurrence of a force majeure event (including without limitation acts of God, strikes or labor disturbances) affecting the Employee’s position or other similar circumstances.

Section 1.6 - Disability

“Disability” shall mean if a person is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.

ARTICLE II

GRANT OF RIGHT

Section 2.1 - Grant of Right

In consideration of the Employee’s agreement to remain in the employ of the Company or a Subsidiary and for other good and valuable consideration, on the date hereof the Company irrevocably grants to the Employee Options to purchase the number of shares of its Common Stock set forth above upon the terms and conditions set forth in this Agreement and CSL irrevocably undertakes to make the payments specified in Section 4.3(a)(i)(B) to the Company on behalf of and at the direction of the Employee.

Section 2.2 - Purchase Price

The purchase price of the shares of stock covered by the Option shall be the Fair Market Value (as defined in Section 1.21 of the Plan) at the time the Option is exercised, without commission or other charge. On behalf of and at the direction of the

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Employee, CSL shall pay the excess of the Fair Market Value of such shares over the Base Price per share indicated above as specified in Section 4.3(a)(i)(B).

Section 2.3 - Consideration to Company; CSL

In consideration of the granting of these Rights by the Company and CSL, the Employee agrees to render faithful and efficient services to the Company or a Subsidiary, with such duties and responsibilities as the Company shall from time to time prescribe, for a period of at least one (1) year from the date these Rights are granted. Nothing in this Agreement or in the Plan or the SAR Plan shall confer upon the Employee any right to continue in the employ of the Company, a Parent Corporation or any Subsidiary or shall interfere with or restrict in any way the rights of the Company or any Subsidiaries, which are hereby expressly reserved, to discharge the Employee at any time for any reason whatsoever, with or without cause.

ARTICLE III

PERIOD OF EXERCISABILITY

Section 3.1 - Commencement of Exercisability

These Rights shall become exercisable in five (5) cumulative installments as follows:

Relation to Date of Grant	% of Rights that may be exercised
On or before first anniversary	none
After the first anniversary	20	%
After the second anniversary	20	%
After the third anniversary	20	%
After the fourth anniversary	20	%
After the fifth anniversary	20	%

Section 3.2 - Duration of Exercisability

The installments provided for in Section 3.1 are cumulative. Each such installment that becomes exercisable pursuant to Section 3.1 shall remain exercisable until it becomes unexercisable under Section 3.3. Rights that are not yet exercisable at the Employee’s Termination of Employment shall not become exercisable thereafter. No portion of the Rights which are unexercisable upon a Demotion shall thereafter become exercisable. Notwithstanding the foregoing, in the event of a Demotion to a position that is eligible for a stock rights grant at a lower level than the level for which the Employee was eligible on the Date of Grant, the immediately preceding sentence shall apply only to that part (if any) of the unexercisable portion of the Rights which exceeds the minimum number of stock rights to which such position is eligible.

Section 3.3 - Expiration of Rights

The Rights may not be exercised to any extent by anyone after the first to occur of the following events:

(a) The expiration of ten years and one day from the Date of Grant; or

(b) The expiration of three months from the time of the Employee’s Termination of Employment unless such Termination of Employment results from his death, his retirement in accordance with the Company’s retirement policies as then in effect, or his Disability; or

(c) The expiration of one year from the date of the Employee’s Termination of Employment by reason of his death or Disability or his retirement on or after age 55 in accordance with the Company’s retirement policies as then in effect; or

(d) The engagement by the Employee in willful misconduct which injures the Company or any of its Subsidiaries; or

(e) The effective date of either the merger or consolidation of the Company with or into another corporation, or the acquisition by another corporation or person of all or substantially all of the Company’s assets or 80% or more of the

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Company’s then outstanding voting stock, or the liquidation or dissolution of the Company, unless the Committee waives this provision in connection with such transaction. At least ten days prior to the effective date of such merger, consolidation, acquisition, liquidation or dissolution the Committee shall give the Employee notice of such event if the Option has then neither been fully exercised nor become unexercisable under this Section 3.3.

Section 3.4 - Acceleration of Exercisability

Upon the occurrence of a Change in Control of the Company, these Rights shall be exercisable as to all shares covered hereby, notwithstanding that these Rights may not yet have become fully exercisable under Section 3.1.

ARTICLE IV

EXERCISE OF RIGHTS

Section 4.1 - Person Eligible to Exercise

During the lifetime of the Employee, only the Employee or the Employee’s permitted transferee may exercise the Rights. After the death of the Employee, any exercisable Rights may, prior to the time when the Rights become unexercisable under Section 3.3, be exercised by his or her personal representative, by any person entitled to do so under the Employee’s will, or under the then applicable laws of descent and distribution as the case may be.

Section 4.2 - Partial Exercise

Any exercisable Rights may be exercised at any time prior to the time when the Rights become unexercisable under Section 3.3; provided, however, that each exercise shall be for not less than 100 shares (or the minimum installment set forth in Section 3.1, if a smaller number of shares) and shall be for whole shares only.

Section 4.3 - Manner of Exercise

(a) Rights may be exercised solely by delivery to the Secretary or his or her office of all of the following prior to the time when the Rights become unexercisable under Section 3.3:

(i) Notice in writing, complying with all applicable rules established by the Committee, signed by the Employee or other person then entitled to exercise such Rights

(A) Stating that such Rights are exercised, and

(B) Directing CSL to pay to the Company the amount of cash, determined pursuant to Section 4.4 below, on the Employee’s behalf; and

(ii) (A) Payment (in cash or by check) of the Base Price set forth above for the shares with respect to which such Rights are thereby exercised; or

(B) Subject to the Committee’s consent, full payment in any other form approved by the Committee, consistent with applicable law and the Plan; or

(C) Any combination of the consideration provided in the foregoing subsections (A) and (B); and

(iii) On or prior to the date the same is required to be withheld, full payment (in cash or by check) of any amount that must be withheld by the Company for federal, provincial or state tax purposes, provided, however, that the Committee may, in its discretion, allow for such payment to be in the form of Common Stock in accordance with the terms of the Plan; and

(iv) Such representations and documents as the Committee, in its absolute discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act of 1933, Canadian Securities Laws and any other federal, provincial or state securities laws or regulations. The Committee may, in its absolute discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer orders to transfer agents and registrars; and

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(v) In the event the Rights shall be exercised pursuant to Section 4.1 by any person or persons other than the Employee, appropriate proof of the right of such person or persons to exercise the Rights.

Section 4.4 - SAR Payments By CSL

The amount to be paid by CSL in respect of the SAR portion of the Rights exercised shall be determined as follows. Upon the exercise of a Right or portion thereof pursuant to Section 4.3 above, CSL shall pay to the Company an amount of cash (denominated in Canadian dollars, determined by reference to the United States dollar/Canadian dollar exchange rate for the previous day as reported in the Wall Street Journal) equal to the product of (i) the amount, if any, by which the Fair Market Value (as defined in Section 1.21 of the Plan) of a share of Common Stock on the date of such exercise exceeds the Base Price, and (ii) the number of shares of Common Stock purchased pursuant to the exercise of such Right. For purposes of this Section 4.4, the date of exercise of a Stock Right shall be the date that CSL receives notice of such exercise. The SARs cannot be exercised independently of the Option granted hereunder and the proceeds from such SARs may only be applied to the purchase price of the Common Stock purchased pursuant to this Rights Agreement.

Section 4.5 - Conditions to Issuance of Stock Certificates

The shares of stock deliverable upon the exercise of the Rights, may be either previously authorized but unissued shares or issued shares which have then been reacquired by the Company. Such shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of the Rights prior to fulfillment of all of the following conditions:

(a) The admission of such shares to listing on all stock exchanges on which such class of stock is then listed; and

(b) The completion of any registration or other qualification of such shares under any state, federal or provincial law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Committee shall, in its absolute discretion, deem necessary or advisable; and

(c) The obtaining of any approval or other clearance from any state, federal or provincial governmental agency which the Committee shall, in its absolute discretion, determine to be necessary or advisable; and

(d) The lapse of such reasonable period of time following the exercise of the Right(s) as the Committee may from time to time establish for reasons of administrative convenience; and

(e) Unless a Registration Statement under the Securities Act of 1933 is in effect with respect to the shares to be issued, the receipt of the written representation of Employee that the shares of Common Stock are being acquired by him for investment and with no present intention of selling or transferring them and that he will not sell or otherwise transfer the shares except in compliance with all applicable securities laws; and

(f) Payment to CSL of amounts, if any, that are required to be withheld by CSL for all income taxes, federal, state, provincial or otherwise.

Section 4.6 - Rights as Stockholder

The holder of the Rights shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any shares purchasable upon the exercise of any part of the Rights unless and until certificates representing such shares shall have been issued by the Company to such holder.

Section 4.7 - Canadian Securities Law Requirements

The Employee hereby acknowledges to and agrees with the Company and CSL as follows:

(a) That the granting of Rights and transfers thereof as permitted herein, the issuance of Common Stock upon exercise of exercisable Rights, and trades of such Common Stock are regulated by the Canadian Securities Laws;

(b) That the Company and CSL have relied on certain securities laws exemptions in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba and Ontario (the “Relevant Provinces”) in respect of, among other things, the granting of Rights, and issuance of Common Stock upon exercise thereof;

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(c) That where necessary or advisable, the Company and CSL will attempt to obtain certain exemptions (the “Exemption Orders”) from the requirements of certain Canadian Securities Laws which, subject to sections 4.7(e), (f), (g) and (h) below:

(i) Will, among other things, permit Rights to be transferred to the estate of the Employee, his beneficiaries and to certain other persons; and

(ii) Subject to certain qualifications, will permit Common Stock acquired pursuant to the exercise of exercisable Rights to be traded by the Employee, his estate or beneficiaries and certain other persons, as the case may be, through the New York Stock Exchange (the “NYSE”) utilizing the services of a registered securities dealer, provided such trades are conducted in accordance with the rules of the NYSE and in accordance with all securities laws applicable thereto;

provided that unless and until such Exemption Orders have been obtained, the right of the Employee, his estate or beneficiaries and certain other persons, as the case may be, to transfer any Rights as permitted herein, or trade Common Stock acquired pursuant to the exercise of exercisable Rights, as the case may be, may be restricted;

(d) That while trades in Common Stock not outlined in section 4.7(c) above may be permitted in the Relevant Provinces, neither the Company nor CSL makes any representation in respect of the same;

(e) That if the Employee, his estate and beneficiaries and certain other persons, as the case may be, do not reside in any of the Relevant Provinces at the time of exercise of exercisable Rights, the Company may not be entitled to rely upon the provisions of section 4.7(b) above in respect of the issuance of Common Stock upon exercise of exercisable Rights;

(f) That if the Employee, his estate and beneficiaries and certain other persons, as the case may be, do not reside in any of the Relevant Provinces at the time of any transfer of Options or SARs as permitted herein or trade of Common Stock, they may not be entitled to rely upon the provisions of Section 4.7(c) above, and their right to transfer any Options or SARs, or trade in Common Stock may be restricted;

(g) That the basis and circumstances upon which the Exemption Orders may be granted, and Canadian Securities Laws in general, may change from time to time and although the Company and CSL will attempt to inform the Employee of any such changes made known to them which may affect any of the matters in this section 4.7, it is the sole responsibility of the Employee, his estate or beneficiaries and any other interested person, as the case may be, to comply with all applicable securities laws at the time of any transfer of Rights as permitted herein, or any trade of Common Stock acquired upon exercise of exercisable Rights; and

(h) In advance of any such transfer or trade the Employee, his estate and beneficiaries or any other interested person, as the case may be, will confirm with the Human Resources Department of CSL that such transfer or trade continues to comply with all applicable laws and regulations. For greater certainty, the Company and CSL are under no obligation, other than as set forth in Section 4.7(c) above, to make any applications to, or seek relief from, any Canadian Securities Laws which may otherwise prevent or restrict any exercise or transfer of Rights or Common Stock as permitted herein. THE EMPLOYEE IS URGED TO CONFER WITH HIS OR HER INVESTMENT ADVISOR AND OBTAIN CONFIRMATION THAT SUCH TRADES OR TRANSFERS COMPLY WITH ALL APPLICABLE SECURITIES LAWS AND REGULATIONS.

ARTICLE V

OTHER PROVISIONS

Section 5.1 - Administration

The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon the Employee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, the SAR Plan or the Rights. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Agreement.

7

Section 5.2 - Rights Subject to Terms of Plans

This Stock Rights Agreement and the rights of Employee hereunder are subject to all the terms and conditions of the Plan and the SAR Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan and the SAR Plan. Any inconsistency between this Stock Rights Agreement and the Plan or the SAR Plan shall be resolved in favor of the Plan or the SAR Plan, as the case may be.

Section 5.3 - Right Not Transferable

The Rights may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, unless and until the Rights have been exercised, or the shares underlying the Rights have been issued. Subject to the preceding sentence, neither the Rights nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Employee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 5.3 shall not prevent transfers by will or by the applicable laws of descent and distribution.

Section 5.4 - Notices

Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Employee shall be addressed to him or her at the address given beneath his signature hereto or the last known address for the Employee contained in the Company’s personnel records. By a notice given pursuant to this Section 5.4, either party may hereafter designate a different address for notices to be given to him or her. Any notice which is required to be given to the Employee shall, if the Employee is then deceased, be given to the Employee’s personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 5.4. Any notice shall be deemed duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the Canadian Postal Service.

Section 5.5 - Titles

Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

Section 5.6 - Construction

With respect to the obligations between Safeway Inc. and the Employee, this Agreement shall be administered, interpreted and enforced under the laws of the State of Delaware. With respect to the obligations between CSL and the Employee, this Agreement shall be administered, interpreted and enforced under the laws of the Province of Alberta.

[Signatures on 1st page of Agreement]

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EX-11.1

Exhibit 11.1

SAFEWAY INC. AND SUBSIDIARIES

Computation of Earnings Per Share

(In millions, except per-share amounts)

(Unaudited)

	12 Weeks Ended
	June 19, 2004					June 14, 2003
	Diluted			Basic		Diluted			Basic
Net income	$	155.2		$	155.2	$	161.0		$	161.0
Weighted average common shares outstanding		445.6			445.6		441.4			441.4
Common share equivalents		3.8					4.4
Weighted average shares outstanding		449.4					445.8
Earnings per share	$	0.35		$	0.35	$	0.36		$	0.36
Calculation of common share equivalents:
Options to purchase common shares		13.9					10.8
Common shares assumed purchased with potential proceeds		(10.1	)				(6.4	)
Common share equivalents		3.8					4.4
Calculation of common shares assumed purchased with potential proceeds:
Potential proceeds from exercise of options to purchase common shares	$	224.7				$	119.5
Common stock price used under the treasury stock method	$	22.29				$	18.76
Common shares assumed purchased with potential proceeds		10.1					6.4

Anti-dilutive shares totaling 24.2 million in 2004 and 27.4 million in 2003 have been excluded from diluted weighted average shares outstanding.

SAFEWAY INC. AND SUBSIDIARIES

Computation of Earnings Per Share

(In millions, except per-share amounts)

(Unaudited)

	24 Weeks Ended
	June 19, 2004					June 14, 2003
	Diluted			Basic		Diluted			Basic
Net income	$	198.3		$	198.3	$	323.6		$	323.6
Weighted average common shares outstanding		444.8			444.8		441.3			441.3
Common share equivalents		4.0					4.6
Weighted average shares outstanding		448.8					445.9
Earnings per share	$	0.44		$	0.45	$	0.73		$	0.73
Calculation of common share equivalents:
Options to purchase common shares		12.6					11.4
Common shares assumed purchased with potential proceeds		(8.6	)				(6.8	)
Common share equivalents		4.0					4.6
Calculation of common shares assumed purchased with potential proceeds:
Potential proceeds from exercise of options to purchase common shares	$	191.0				$	138.2
Common stock price used under the treasury stock method	$	22.21				$	20.33
Common shares assumed purchased with potential proceeds		8.6					6.8

Anti-dilutive shares totaling 24.5 million in 2004 and 26.8 million in 2003 have been excluded from diluted weighted average shares outstanding.

EX-31

EXHIBIT 31

Certifications

I, Steven A. Burd, Chairman, President and Chief Executive Officer of Safeway Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Safeway Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 29, 2004	/s/ Steven A. Burd
	Steven A. Burd
	Chairman, President and Chief Executive Officer

EXHIBIT 31

Certifications

I, Robert L. Edwards, Chief Financial Officer of Safeway Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Safeway Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 29, 2004	/s/ Robert L. Edwards
	Robert L. Edwards
	Executive Vice President and Chief Financial Officer

EX-32

Exhibit 32

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Safeway Inc. (the “Company”) hereby certifies that:

(i) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 19, 2004 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: July 29, 2004	/s/ Steven A. Burd
	Steven A. Burd
	Chief Executive Officer

Certification of Chief Financial Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Safeway Inc. (the “Company”) hereby certifies that:

(i) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 19, 2004 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: July 29, 2004	/s/ Robert L. Edwards
	Robert L. Edwards
	Chief Financial Officer

The foregoing certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

A signed original of this written statement required by Section 906 has been provided to Safeway Inc. and will be retained by Safeway Inc. and furnished to the Securities and Exchange Commission or its staff upon request.