Safeway, the US supermarket group, said on Thursday it expects to expand its Blackhawk gift card subsidiary this year to Germany, France and Australia, as it seeks to capitalise internationally on a retail concept that has thrived in the US.

The retailer launched Blackhawk in 2001 as a stand-alone subsidiary to sell gift cards in its own supermarket network. It is now the largest third party supplier of gift cards in the US and Canada, selling cards in more than 63,000 locations including at rival supermarkets and drug stores.

Blackhawk sells pre-paid and reloadable gift cards on behalf of other retail partners - such as Nordstrom, Best Buy, Pizza Hut and McDonald’s - as well as for credit cards companies, the NBA basketball league and telecoms companies.

The retailer has said it expects Blackhawk to contribute up to $100m in pre-tax income this year.

Blackhawk’s rapid expansion has been supported by the dramatic growth in demand for gift cards in the US, with Americans spending around $25bn on cards in the run up to the 2006 holiday season.

Steve Burd, Safeway’s chief executive, told investors yesterday that the number of active outlets selling the cards in the US had increased 40 per cent during the first quarter against the previous year, and that the number of brands issuing the cards had doubled during the same period.

He also said unit sales at the various card distribution points had roughly doubled over the year.

Mr Burd said Safeway’s international expansion of the network would incur only minimal costs. “The beauty of Blackhawk is that it’s not capital intensive, and it is not people intensive... it can clearly break even in the first 12 months of operation.”

Safeway yesterday reported a 22 per cent increase in first quarter profits, as it benefits from a continuing store remodelling programme,

First-quarter profit was $174.4 million, or 39 cents per share, and sales rose 4.8 per cent to $9.32bn.

Safeway, together with its rivals Kroger and Supervalu, is currently engaged in talks with the UFCW grocery workers union aimed at reaching a new three year contract for their workers in southern California. Both sides have said they want to avoid a repetition of the damaging five month strike of 2003-4. Mr Burd said the talks were “slow and steady”.