NEW YORK (AP) — Safeway Inc. said Thursday that its net income fell 16 percent in the second quarter, as the grocery store operator spent more on advertising and fought to hold onto customers amid growing competition.

The Pleasanton, Calif.-based company says higher costs offset a bump in sales and improving market share. Going forward, the company is hoping its new "just for U" loyalty program will bolster its market share even more.

Shares of Safeway were down $1.46, or almost 9 percent, at $15.03, in trading.

Safeway and other grocery store operators have been struggling to hold onto market share at time when big-box retailers such as Target Corp. and Wal-Mart Stores Inc. are expanding their food offerings. Traditional supermarkets now account for 51 percent of grocery sales, down from 66 percent in 2000, according to UBS Investment Research.

Making matters worse, supermarkets are facing rising costs to keep their shelves stocked as a result of higher prices for corn, fuel and other commodities. But they're afraid to pass on those costs, lest customers decide to shop elsewhere.

Instead, Safeway and other grocers are looking to control costs by expanding and improving the image of their store-label products.

For the three months ended June 16, Safeway said it earned $122.7 million, or 51 cents per share. That's compared with a profit of $145.8 million, or 41 cents per share, in the year ago period, when there were more outstanding shares. Not including one-time items, the company said it earned 50 cents per share.

By that measure, analysts polled by FactSet on average expected a profit of 49 cents per share.

Total sales rose 2 percent to $10.39 billion, which also topped Wall Street expectations. Sales from stores open at least a year edged up 0.8 percent, when excluding fuel costs. The metric is a key gauge of health, because it strips out the impact of newly opened and closed stores.

For the year, the company expects to spend about $900 million on capital expenditures, such as the opening about 10 new Lifestyle stores and the remodeling of another 10. Safeway stood by its full-year guidance of $1.90 to $2.10 per share.

Safeway operates about 1,700 stores in North America under names including Vons in Southern California and Nevada and Randalls in Texas.