UPDATE 4-Safeway to cut costs, prices in 2009

* Expects '09 EPS $2.34-$2.44 vs Street view $2.37

* Keeps 2008 EPS view $2.25-$2.35 unchanged

* Says started real estate development business

* Shares slip after rising as much as 5 pct (Adds CEO and CFO comments, updates stock activity)

By Jessica Wohl

CHICAGO, Dec 4 (Reuters) - Safeway Inc (SWY.N) said profit next year may top analysts' expectations as it cuts prices to attract cost-conscious shoppers to its supermarkets and kept its 2008 forecast unchanged.

Safeway shares fell after rising earlier in the day as analysts at a meeting with Safeway's top executives questioned whether its goals may be too lofty as U.S. consumers continue to cut back on their spending during the recession.

The company also said it got into the real estate development business over the past three or four months, with a focus on urban and suburban shopping center development.

Safeway expects to earn $2.34 to $2.44 per share in fiscal 2009. Analysts, on average, expected Safeway to earn $2.37 per share, according to Reuters Estimates.

Safeway also said it would make an aggressive effort to cut costs and forecast cash capital expenditures of about $1.2 billion in 2009, down from $1.6 billion in 2008.

Safeway was making its stores more upscale when the U.S. recession struck. Now, as consumers trim spending in response to a weak economy, rising job losses and tighter credit, the company has cut prices on high-demand products such as milk. Also, while it is still remodeling stores, in many cases it is doing less-extensive work rather than complete overhauls.

Chairman and Chief Executive Steve Burd said Safeway chose to work less on lowering prices in 2008 to keep its earnings guidance intact in the current economic environment. Now it is planning to cut more prices heading into 2009.

The company still expects to earn $2.25 to $2.35 this year. Analysts' average forecast is $2.24.

REAL ESTATE PLANS

While Safeway's main business is its grocery chains such as Safeway, Vons and Dominick's, it branched out a few years ago with the Blackhawk gift card distribution network. The soft economy is hitting overall retail sales and sales of gift cards, but Burd said the impact on Blackhawk should not be all that noticeable.

Now, Safeway is getting into real estate development, where Burd said opportunities are "pretty extraordinary." Safeway already has some 36 projects underway with very little capital investment and could take on a partner on some plans, he said.