Safeway Inc (SWY), the No. 3 U.S. grocer, Tuesday posted its biggest quarterly sales rebound in more than three years due to improved customer service and a focus on fresh foods, and its stock rose more than 4 percent.

Safeway, based in Pleasanton, Calif., also said it would launch a $100 million advertising campaign as it steps up efforts to win back customers that have been defecting to rival chains, including giant discounter Wal-Mart Stores Inc. (WMT).

Safeway's identical store sales, which strip out new or replacement stores, increased 2.8 percent in the first quarter before the effect of fuel sales and a strike that hit Southern California stores more than a year ago, Safeway said.

Identical store sales are a key gauge of supermarket sales growth. Including fuel sales, identical store sales rose 4.0 percent in the quarter.

Total sales for the quarter rose about 12 percent to $8.6 billion, from $7.7 billion in the prior year.

Safeway, which operates more than 1,800 supermarkets, said its new advertising campaign called "Ingredients for Life" would highlight its fresh fruits and vegetables and private label brands.

The ad campaign, which the company said is its biggest such push ever, will run for 12 months and will also highlight customer service and store offerings that include, meat, bakery, deli products and prepared meals.

Safeway, which along with rivals Kroger Co. (KR) and Albertsons Inc. (ABS) faces stiff competition from Wal-Mart, said the nationwide advertising push would kick off on April 18, and would include print, TV, radio, Internet and outdoor media advertising.

Safeway shares rose 85 cents to $19.46 on the New York Stock Exchange. The stock earlier hit a three-month high of $19.90.

Safeway is scheduled to report its first-quarter results May 3.