Safeway (SWY)

CHAIRMAN OF THE BOARD

Section 5. The Chairman of the Board, if such an officer be elected, shall, if present, preside at all meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by these By-Laws. If there is no President, the Chairman of the Board shall in addition be the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in Section 6 of this Article IV.

CHAIRMAN OF THE BOARD

Section 6. The Chairman of the Board, if such an officer be elected, shall, if present, preside at all meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by these By-Laws. If there is no President, the Chairman of the Board shall in addition be the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article IV.

CHAIRMAN OF THE BOARD

Section 6. The Chairman of the Board, if such an officer be elected, shall, if present, preside at all meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by these By-Laws. If there is no President, the Chairman of the Board shall in addition be the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article IV.

CHAIRMAN OF THE BOARD

Section 6. The Chairman of the Board, if such an officer be elected, shall, if present, preside at all meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by these By-Laws. If there is no President, the Chairman of the Board shall in addition be the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article IV.

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AS CHAIRMAN OF THE BOARD

Trowel Trades S&P 500 Index Fund, P.O. Box 75000, Detroit, Michigan 48275, which owns 15,607 shares of Common Stock, has given notice that it intends to present at the Annual Meeting the following proposal:

RESOLVED:  The shareholders of Safeway Inc. (“Company”) urge the Board of Directors to amend the Company’s bylaws, to require that an independent director as defined by the rules of the New York Stock Exchange (“NYSE”), effective upon the expiration of current employment contracts, be its Chairman of the Board of Directors.

Supporting Statement

The recent wave of corporate scandals at such companies as Enron, WorldCom and Tyco has resulted in renewed emphasis on the importance of independent directors. For example, both the NYSE and the NASDAQ have adopted new rules that would require corporations that wish to be traded on them to have a majority of independent directors.

Unfortunately, having a majority of independent directors alone is clearly not enough to prevent the type of scandals that have afflicted Enron, WorldCom and Tyco. All of these corporations had a majority of independent directors on their boards when the scandals occurred.

All of these corporations also had a Chairman of the Board who was also an insider, usually the Chief Executive Officer (“CEO”), or a former CEO, or some other officer. We believe that no matter how many independent directors there are on a board, that board is less likely to protect shareholder interests by providing independent oversight of the officers if the Chairman of that board is also the CEO, former CEO or some other officer or insider of the company.

We respectfully urge the board of our Company to dramatically change its corporate governance structure by having an independent director serve as its Chairman.

Board Recommendation

The Board of Directors recommends a vote “AGAINST” this proposal for the following reasons:

The Board agrees with the proponent that it is the responsibility of the Board to provide independent oversight of management and, as discussed below, the Board believes that strong oversight mechanisms are already in place at our Company.

First, the only member of management who is a member of the Board is the Chairman and Chief Executive Officer. The other eight members of the Board are non-management directors, all of whom meet the independence requirements of the New York Stock Exchange and the Company’s Director Independence Standards.

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Second, as described in our Guidelines, the non-management members of the Board elect annually a Lead Independent Director whose responsibilities include:

In performing the duties described above, the Lead Independent Director is expected to consult with and solicit the participation of the chairs of the appropriate Board committees.

Third, the non-management directors meet in executive session, on a periodic basis, but no less than two times a year, without management directors or management present. The Lead Independent Director, currently Paul Hazen, presides at these meetings. In 2004, the non-management directors met four times.

Fourth, various Committees of the Board perform oversight functions independent of management. The Audit Committee, the Executive Compensation Committee and the Nominating and Corporate Governance Committee are each comprised entirely of independent, non-management directors. This means that independent directors have oversight of critical matters such as the integrity of the Company’s financial statements, executive compensation, including the compensation of the Chairman and Chief Executive Officer and the selection and evaluation of directors. See the charters for each of these Committees, which are available on the Company’s web site at www.safeway.com/investor_relations, for a complete description of the responsibilities of each of these Committees. Moreover, the Board and each of its Committees have the authority to retain independent legal, accounting and other experts and consultants to advise the Board and the Committees as they may deem appropriate.

Fifth, the Board has an Executive Committee, comprised of the Chairman, Lead Independent Director and two other independent directors, which meets each month in which there is no regular Board meeting. At these meetings, the independent directors obtain updated information about the Company and provide specific instructions to the Chairman about the information to be provided to the Board and the subjects to cover at the next Board meeting. The input of this Committee has resulted in certain refinements in the amount and type of information supplied to Board members and in the conduct of the Board meetings.

According to the most recent information from executive search firm Spencer Stuart, 74% of the S&P 500 companies have their CEO serving as Chairman. Of the 26% that have different people in those roles, many have a non-independent director or a former CEO as Chairman. Only 8% of the S&P 500 companies have a Chairman who is an independent director or not a former CEO.

At the 2004 Annual Meeting, a similar proposal was defeated by a vote of approximately 60% against the proposal.

In view of the strong oversight mechanisms that the Company already has implemented, the Board does not believe that it is necessary to mandate a separation of the positions of Chairman and Chief Executive Officer through a Bylaw amendment. In fact, the Board believes that imposing such an absolute rule would be unwise

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and not in the best interests of stockholders because it would eliminate the Board’s flexibility to determine whether the positions should be held by the same person or by separate persons based on the circumstances and individuals available at any particular point in time. The Board believes that at the present time the interests of the Company and its stockholders are best served by the leadership and direction provided by a single Chairman and Chief Executive Officer.

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “AGAINST” THIS STOCKHOLDER PROPOSAL, and your Proxy will so voted unless you specify otherwise.