BrainTrust Query: Supervalu – Can it grow on multiple fronts?

Discussion
May 05, 2011
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Editor’s
note: Gene Hoffman was chairman and president of Supervalu Wholesale Foods
Companies for a decade, following his tenure as president of The Kroger Co.
Mr. Hoffman looks back to that era as the company’s “halcyon days.” He
writes, “Jack Crocker was our insightful and inspirational leader back
then and I was head of all operations save for its two low impact subs back
then, Shopko and County Seat.”

Supervalu, which once had a laser-like focus
on its business model with a “total
commitment to serving customers more effectively than anyone else could serve
them” seems unsure of what it is today. Is its current strategy to be
one of the largest and most successful wide assortment supermarket chains or
to be one of the largest limited assortment store chains, or both?

In the mid-70s
to the mid-80s, Supervalu was America’s largest food wholesaler, a multi-billion
dollar corporation and the envy of the food industry. Its sales tripled and
net profits compounded at 20 percent annually, resulting in three stock splits.
Today, Supervalu is a much larger, more diversified, debt-burdened, low-achieving
conglomerate — a food wholesaler, operator of numerous regional supermarket
chains and an expanding limited assortment chain, Save-A-Lot.

At an investor
event on May 3rd, after two years under the leadership of its current CEO,
Craig Herkert, Supervalu detailed its strategic plan to deliver profitable
growth in the future for shareholders. It also put out a press release that
reads like Retailing 101.

It would have to “improve sales growth at the company’s traditional
retail banners,” Supervalu said. It would also need to “improve promotion
of our value pricing, enhance such fresh offerings as locally grown produce,
develop and maintain a compelling collection of private brands, adjust store
assortments and format based on the needs of each neighborhood, and improve
the customer experience in stores and online.”

In addition, the release
stated that one of Supervalu’s long-term goals is the natural expansion of
its Save-A-Lot banner and that it intends to grow by 160 new stores in fiscal
2012, keeping the company on track to have 2,400 stores by 2015. Thus, while struggling
for sales and to retain share of market, Supervalu’s intent still seems to
be to follow a multi-front growth strategy.

Discussion Questions: What must Supervalu do to grow successfully between now and 2015? Is its multi-front growth strategy sound?

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15 Comments on "BrainTrust Query: Supervalu – Can it grow on multiple fronts?"


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Justin Time
Guest
10 years 12 days ago

I sure hope Supervalu can pull it off.

They’ve got some very weak divisions such as Shoppers in Washington DC and Baltimore; weakened banners, such as Acme in the Philly area, Shop N Save in St. Louis and Pittsburgh, Farm Fresh in Tidewater VA, Shaw and Star in New England, and Cub in the Midwest.

Save-A-Lot, for now, seems to be their bright star. If they can head off the mini Walmart invasion, the City Targets, and Aldi and the others, there can be growth potential.

Otherwise, they may be as doomed as A&P.

Liz Crawford
Guest
10 years 12 days ago

It seems that the emphasis on price and value is the way to go… but the question then becomes, how to distinguish itself from there?

Aldi has a good formula for low price, fresh produce and private label. I could see a scenario where Supervalu goes after Aldi’s traffic, but offers a wider range of selection. That seems to be the place where an Aldi’s shopper could be encouraged to shop multiple channels. Supervalu banners could solve that with depth of assortment and convert shoppers.

Ryan Mathews
Guest
10 years 12 days ago
I think it is important to remember that Supervalu’s big retail push came at a time when the traditional wholesaling model was collapsing; when there was a great deal of consolidation at retail; when many wholesalers looked to retail expansion as a necessary evil to maintain warehouse volume and satisfy the analysts insatiable hunger for increased sales; and when conventional operators were attempting to answer the challenge of the superstores (which Gene so ably helped to spread) and the migration of the mass merchandisers into the food arena. From that perspective the company’s multiple format expansion program can be seen as a giant exercise in corporate risk mitigation and hedging its financial bets. If limited assortment stores emerged out the other end of the retail evolution wormhole, it was covered. If traditional supermarketing triumphed, it was covered. On its face, not a bad interim strategy — just not one you can, or should, maintain forever. Gene is correct in recalling the company’s salad days of the Seventies, but the customers Supervalu was so dedicated to… Read more »
Ben Ball
Guest
10 years 12 days ago
Ryan does a great job of making the broad strategic case for why Supervalu pursued(s) its multi-pronged approach into retailing. As is our usual way, I will in contrast try to make the simplistic case for why they were dead wrong. Over a decade ago we began to describe what we called “the New Face of Competition” in the CPG world in terms of four core competencies. “Brand Franchise Owner” = anyone who could build a brand that commanded a premium price over its generic product equivalent. Could be manufacturers, retailers or Joe Schmoe’s brand-building company. “Outlet Franchise Owner” = anyone who could build a direct connection with consumers. Could be brick and mortar, web based, catalog, etc. “Converter” = anyone who transformed raw materials into a value-added product. Could be for their own brand or as a co-packer for anyone else. “Facilitator” = anyone who made money by performing any task usually performed by one of the first three more efficiently. But the trick is that their margin is entirely driven by the degree… Read more »
Ryan Mathews
Guest
10 years 12 days ago
Ben’s points are well taken and cause me to add a note of clarification. I don’t think now — nor did I think then — that fighting a multi-front war is the most efficient path to success. But, hindsight is always 20/20. It’s easy now to forget how Supervalu’s Save-A-Lot strategy was ballyhooed as brilliant at the time it was rolling out. It’s easy to forget how desperate conventional wholesalers were for survival and how they were overly eager to embrace any strategy du jour whether it was club packs or dollar aisles. It’s also increasingly easy to forget the days when Fleming vied with Supervalu for wholesale dominance — a virtual oxymoron today. The point here is the company took a series of expedient hedge strategies and was rewarded for a time — or from a more cynical perspective stumbled its way to survival. Now it’s clearly past time to move on. I haven’t thought about it enough to know if I agree with Ben on the “Facilitator” question, but I do know you… Read more »
W. Frank Dell II
Guest
10 years 12 days ago

Historically, American retailers have had trouble managing multiple formats. Over time, many retail elements blend together resulting in a neither fish nor fowl format. Europeans have successfully managed multiple formats for years. Partly due to this is how these retailers grew up.

The issue for Supervalu is the ever declining size of the wholesale market. To be successful they must grow their retail divisions. Save-A-Lot looks good and all Supervalu wholesale should do is provide the very best service. Save-A-Lot should do all the merchandising and item selection. Wholesale should supply product.

The problem is with Albertsons. It does not know what it is or what it stands for today. The days of all things for all people are gone. Once Albertsons is figured out, use the same business model as Save-A-Lot, meaning Albertsons decides and wholesale supplies.

Dennis Serbu
Guest
Dennis Serbu
10 years 12 days ago

The varied formats and geographical complexity of the Supervalu banners is a major obstacle. They have some very bright and talented category managers, but that is a lot of hats to wear. There is always the tendency to move to “sameness” as retaining individual retailer identities is just too darn hard to do sitting at a desk in Minneapolis. Sameness doesn’t win the day in a competitive market.

Compounding the issue is the Uber Vendors who drive a lot of the category decisions that rarely are in the best interest of Supervalu, their customers, or their stockholders.

My suggestion is to allow more decentralization, and capitalize on Supervalu’s core competency which is supply chain. Allowing the banners to determine local strategy and response to consumer needs will make the giant more nimble, and more profitable.

Gene Hoffman
Guest
Gene Hoffman
10 years 12 days ago

In posing the challenging question, “What must Supervalu do to grow successfully between now and 2015,” I acknowledge that the world has irreversibly changed in the past three decades just as it is continues to change today.

But one change leaves the way open for the introduction of others that are well-tuned to the rhythms of today’s marketplace, as Ryan pointed out, not just lip-service changes that throw a patch quilt over Albertsons’ past. Some think that is what SVU is doing today as it awaits the sunrise of a possible savior, Save-A-Lot. In the meantime, $36+ billion in retail sales and S.O.M. are in jeopardy of further erosion in the next four years.

So let’s get as helpfully specific as possible. If you were in a private discussion with SVU’s CEO Mark Herkert today, and I haven’t been, what would you SPECIFICALLY tell him he must do today to grow SVU between now and 2015?

If you would prefer not to tell the world via RetailWire, then why not give Mr. Herkert a call?

Bill Bittner
Guest
Bill Bittner
10 years 12 days ago
I don’t know enough of the specifics to give an assessment of Supervalu, but given their objectives I can think of a few things that are particularly difficult but necessary for their success. Communications Infrastructure – The fundamental requirement for the success of a widely dispersed organization in today’s world is a solid data, voice, and video communication infrastructure. This infrastructure must be able to carry the central message down to the shelf edge and the real time operating results back to headquarters. It is a corporate culture decision how much access suppliers will be afforded. Develop Robust Internal IT Systems – For them to achieve the benefits of size, they must be able to operate internally as efficiently as possible. This means good internal IT systems that also foster communication within the organization and with suppliers. Maintain Separate Merchandising Departments For Banners – Critical here is to have accounting and performance measurement processes that properly allocate supplier costs and discounts so that gross margins reflect promotional activity. This is especially true if you are… Read more »
Tony Orlando
Guest
10 years 12 days ago

All of the great wholesalers from the ’70s and ’80s are struggling or out of business completely. The successes came before the Walmart people decided to get into the food business. It only took ten years for them to dominate the USA, and then the dollar store, and Aldi’s format kicked in, leaving a dust bowl for independents, and voluntary wholesalers wondering what happened.

For us to survive, we must partner up with good regional suppliers, and change how we operate, and I depend more on the niche wholesalers, than I do the super big suppliers of yesteryear. Ten years from now, someone else will evolve (probably internet related) which will force all of us to reinvent ourselves again. I just hope there is enough room for the local independent to grab some of the pie, because consumers rely on our ability to serve the communities we all live in.

robert spizman
Guest
robert spizman
10 years 11 days ago

The answer is simple–the paradigm of the supermarket has changed rapidly and Supervalu needs to be more open minded and listen to the innovative ideas from their current vendors and prospective new vendors whom are progressive. Take a chance!

Kai Clarke
Guest
10 years 11 days ago

Change. Adapt or perish should be Supervalu’s mantra. Its old model and all of the wasted words it puts on customer service just don’t work in today’s retail environment. Oh yeah, and the numbers support this. What Supervalu is doing now is simply not working. The quicker that this is recognized, and the continual focus put on the past is remembered (and avoided), the faster SV will be able to move on. Modern retailing means getting out of the high-touch, distribution model and moving into a low-touch, quick-turn model. Products change, prices change, and costs change all of the time. This requires a modern model that reflects this rapid turn approach. Low costs, faster turns, and less-focus on distribution will enable SV to change into a true retailer instead of the supplier/retailer that they are.

Ronald Lunde
Guest
Ronald Lunde
10 years 11 days ago
Looking back over the last few years, 3 major chains adopted 3 different strategies for growth at about the same time. Supervalu adopted retail acquisition. Safeway adopted ‘assumed’ life style marketing and store upgrades. Kroger went the route of heavily investing in consumer data through the acquisition of dunnhumby and then acting on that data to deliver marketing, store upgrades and operations programs that were appropriate and data-based. The financial reports pretty well document the success of each strategy. [And … in today’s ‘tough environment’ note Kroger and Publix’s latest financial reports. Kroger competes in very diverse markets against a wide range of very good competitors and Publix operates primarily in Florida which is one of the worst economies in the country.] Although each CEO had a strategy articulated, my career experience indicates that the gap between thought, word and deed is often a large one. Bridging it successfully is an unending task requiring understanding, skill and constant attention. Credit should be given to those who succeed. To that end the board of directors has… Read more »
Thomas Loo
Guest
Thomas Loo
10 years 11 days ago

I believe Supervalu is on track to do well today, tomorrow and in the future. Tailor the stores for the region. Get back to basics, offer better customer service, be visible on the sales floor. The big issue with a lot of the stores (Jewel Stores in particular)is when you advertise an item make sure each store has it. People in the Illinois/Indiana areas get very upset when a store doesn’t carry an item that was advertised in the local newspaper. This is the main problem for this chain. Why do you think major manufacturers come in and audit their product that they paid shelf space for, and it’s not on the shelf? Improve the communication between retail and buyers. Too much guess work. If Supervalu follows their core values and customer values, they will hear the registers ring more often.

Susan Rider
Guest
Susan Rider
10 years 11 days ago

Supervalu needs to go back to core basics: execution and delivering, providing value and customer service. They lost some key associates while new ones don’t seem to be following the old Supervalu mantra. The supply chain in the grocery world should be the focus, perfecting the supply chain while reducing cost in this area will keep them competitive.

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