Supervalu Looks to Grow Organically

Discussion
Oct 20, 2005
George Anderson

By George Anderson


Supervalu appears to be going the way of Trader Joe’s, Whole Foods, Wild Oats and others with a new organic and natural foods store concept under the Sunflower Market banner. The first unit is scheduled to open in January in Indianapolis.


In a released statement, Jeff Noddle, chairman and CEO of Supervalu, said, “Across the nation, we are seeing a growing demand for affordable organic foods with exceptional taste and nutritional quality. Sunflower Market draws on our expertise in small-box formats, and leverages our supply chain expertise, which enables us to deliver outstanding natural and organic products at a price point consistent with consumer expectations.”


Supervalu’s president for corporate retail, John Hooley, added in the same release, “At Sunflower Market, we will offer customers the convenience of a full shopping experience, with access to natural and organic products in all categories. We’ve developed a unique merchandising approach that will highlight our perishables, which include an extensive produce offering, natural, case-ready meats and fresh bakery and deli items. Simply put, our goal is to provide customers with great tasting, wholesome foods at affordable prices.”


The typical Sunflower Market is expected to run 12,000 to 15,000 square-feet and stock between 8,000 and 12,000 skus.


The stores will have a heavy emphasis on private label with the Supervalu’s specialty produce company, W. Newell & Co., providing most of the banner’s fruit and vegetable needs. Sunflower Market will also carry over 100 items under Supervalu’s new “Nature’s Best” brand.


Supervalu will operate all Sunflower Markets as corporate stores and will provide the banner with information technology, merchandising and operations support. 


Moderator’s Comment: What is your reaction to Supervalu’s announcement that it will launch the Sunflower Market banner? What will it find to be different
running this concept compared to others it operates and what must it do to succeed?


Follow this logic and see if it makes sense to you.


On paper, Sunflower Markets sounds a lot like Save-A-Lot but with organic and natural foods.


Trader Joe’s is a lot like Aldi but with natural and organic foods.


Aldi stores generally outperform Save-A-Lot units.


Supervalu should concentrate on opening Sunflower Markets where there are no Trader Joe’s presently operating.


Whole Foods and Wild Oats, on the other hand, are open game if Sunflower Markets intends to keep a tight reign on prices. Can’t tell you how many times,
while doing research at Trader Joe’s, we heard customers comment on how much less expensive it was to shop there than at Whole Foods, aka Whole Paycheck.

George Anderson – Moderator

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13 Comments on "Supervalu Looks to Grow Organically"


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James Tenser
Guest
15 years 4 months ago
When I first read this headline, I assumed that Supervalu had acquired the 11-store Sunflower Markets chain, based in Longmont, CO (http://www.sunflowermarkets.com). The company operates two of its stores here in Tucson – and they may be best described as similar to Whole Foods, but with larger bulk foods selections and a carefully edited assortment of alternative branded packaged foods. Sunflower Markets was founded by Mike Gilliland in 2002, who is also known in grocery circles as the founder of Wild Oats. He later reportedly sold his interest, and opened Sunflower Markets after his non-compete expired. The stores I know (and enjoy very much!) are definitely not small box stores – I’d estimate them at 30,000 square feet at least, with expansive produce displays, rows of bulk food bins, and 8 to 10 checkouts. Now I checked the press release from Supervalu and note that the company claims to have held the registered trademark on the “Sunflower” brand since 1959! The ink-stained reporter in me smells a pending story here. Who is going to sue… Read more »
Ben Ball
Guest
15 years 4 months ago

First the “town market” became the General Store. Then the “flea market” became the Dollar Store. The “green grocer” has become the “Natural Foods Store,” so why shouldn’t the “farmer’s market” become “Sunflower”?

Okay, a tortured analogy perhaps (they don’t call me the king of obtuse analogies around here for nothing!) but put more directly, why wouldn’t a value priced alternative to Whole Paycheck be a natural? And especially in Supervalu’s home turf of always avant-garde Minneapolis? Hey, who wouldn’t go for reasonably priced asparagus and artichokes in March when you haven’t seen the ground since the middle of November?

David Livingston
Guest
15 years 4 months ago

When you see these small Trader Joe’s stores doing $300k to $400k per week it makes any retailer salivate. SuperValu is just trying to play copycat and trying to tap into this lucrative market. How will they do? Probably about as well as Save-A-Lot does against Aldi – less sales per sq. ft. and not as labor efficient. SuperValu will probably do OK, but will never get to Trader Joe’s levels because being a publicly held company will require Sunflower to be distracted by corporate politics. The high rents paid by Whole Foods and Trader Joe’s will keep allowing those two leaders to obtain the best locations. It will be interestng to see what kind of real estate the Sunflower stores go to, if they move beyond one store.

Don Delzell
Guest
Don Delzell
15 years 4 months ago
I am confused by an aspect of the press release. “…draws on our expertise in small box formats.” With all due respect to Mr. Noddle, I’ve never heard anyone outside SuperValu refer to their retailing operations in any box format with the word “expertise.” I HAVE heard and agree with distribution and supply chain expertise. Perhaps these stores are a marketing expense related to establishing critical mass around the organic/natural private label line. And perhaps, if SV can produce some selling success in their corporate owned stores (where they can cook the numbers), they will create a momentum to push through business in the distribution end. At the end of the day, I would hope that all such initiatives are designed to be leveraged into distribution profit centers. Specialized retail formats are not SV’s core competency — Sav-A-Lot to the contrary. No doubt that the pricing strategies of the tier one natural foods chains leaves plenty of room for a different model (Trader Joe’s). But there is much more to the Trader Joe’s experience than… Read more »
Warren Thayer
Guest
15 years 4 months ago
I think this will succeed, but it will be fascinating to watch. Noddle is extremely intuitive and sharp, and the formula makes sense to me. They’ll need to focus on consumer education a lot more than they have, as well as having knowledgeable bodies on the selling floor. Look at how well Whole Foods, Trade Joe’s and Wild Oats do with all their pamphlets and fliers about health and the products they carry. Other supers making efforts in this area would be wise to plagiarize a little. They could even have fun with it, a la Trader Joe’s. What a concept! You don’t have to be boring! Most supers I know seem to be run by risk averse, tensed-up execs who don’t know how to relax. Woops, I am getting off the track. Supervalu. Yeah, they’ll take a few lumps early on, but they’re fast learners. They’ll do fine. I wouldn’t even worry about attacking markets where any of the aforesaid big 3 are already operating. To quote Whole Foods’ CEO John Mackey, in a… Read more »
Michael Richmond, Ph.D.
Guest
Michael Richmond, Ph.D.
15 years 4 months ago

I like the idea and concept. What’s new and different? SuperValu is adding a new value component to the Sav-A-Lot model that is clearly on trend: natural and organic. The store size and skus are right for convenience and time savings. The assortment seems to make sense and the idea of affordable, high quality fresh and organic is right on trend and getting more mainstream every day. How can retailers not move in this direction? I think starting in the Midwest also makes sense and it will offer a new consumer target, since the current Sav-A-Lot model focuses on $35M and below. They had better be sure and have good store layout and decor to match the proposition! And packaging will play an important role in real and perceived product quality. Trader Joe’s is a good example of packaging use to sell the product!

Mark Lilien
Guest
15 years 4 months ago

The Whole Foods locations I’ve seen are twice the size of Sunflower, and three times the size of the Trader Joe’s I’ve visited. Whole Foods emphasizes freshly prepared items, while the Trader Joe’s I’ve seen don’t, and it sounds like Sunflower won’t either. Generally, assortment-driven businesses tend to dominate market share. When the 25,000 square foot book superstores rolled out, the number of 4,000 square foot bookstores declined 75%. Why not try to beat Whole Foods and open a 50,000 square foot superstore with great service, large prepared foods selection, and an organic emphasis?

Gene Hoffman
Guest
Gene Hoffman
15 years 4 months ago
Food retailing continues to change to meet new consumer desires and Jeff Noddle, John Hooley and Supervalu apparently want to go with the flow. Consider where Supervalu is right now: Food wholesaling isn’t a growing sector, low-cost box-store-type stores serve a large niche but a niche, and CUB has established itself solidly but only in a few geographies. Thus, moving into organic and natural foods retailing is a timely and logical opportunity area for Supervalu. Will Supervalu succeed with its Sunflower entry in today’s food retailing race? Don’t underestimate Supervalu. When Supervalu bought CUB Food Stores back in early 80s (yes, I was there), it was a low-price but rather rustic few-store operation. There were potholes in the racetrack to assimilate CUB Foods into Supervalu. But within a decade or so, CUB (with Supervalu’s assistance) had completely taken over the Twin Cities market. Summary thought: The food retailing race does not always go to the swiftest, nor the battle to the strongest, but that’s the way to bet. And those characteristics are applicable to Supervalu.… Read more »
Art Turock
Guest
Art Turock
15 years 4 months ago

Sunflower Markets is designed for a white space in the market… a low price natural/organics retailer. Upscale market leader Whole Foods’ CEO John Mackey says that the natural and organics market has reached a tipping point and become more main stream. As evidence, WFM is opening much larger store formats. With the baby boomers aging and more health conscious, this tipping point should intensify. Sunflower should consider locating its stores near WFM and Wild Oats. Let these upscale retailers create the consumer awareness and education for natural and organic products and then invite these shoppers to get their products at a low price retailer.

I don’t see why a larger store format, say a Natural Foods Depot, couldn’t also work in the right neighborhoods.

Sandy Whicker
Guest
Sandy Whicker
15 years 4 months ago
I live in Indy, and soon a mile from “Sunflower.” When I first saw the announcement I thought “GREAT, another place to shop close to my house”. But then it occurred to me that I have an independent health food store (with great people) a mile away; farmers that come in and provide a “farmer’s market” a mile away; a Wild Oats 2.5 miles away; an Aldi’s a mile from my house; and the two beloved Trader Joe’s (with great people) that range 5-6 miles away. There are several independent bakeries within 1-2 miles, and several chain grocery stores within 3 miles of my house. Do I really need another place to shop? Even if it is “natural”? My personal feeling is if the market is not “natural” yet, then this is a great idea. If the market already provides several offerings – then why bother? There are multiple stores that do a great job in the natural mkt. already. The keys to their success is the quality/assortment of the product, perceived value and the… Read more »
Giacinta Shidler
Guest
Giacinta Shidler
15 years 4 months ago

I agree with the comments made above. A comment about Trader Joe’s…except for Illinois, they really don’t have much of a presence in the Midwest, so if Sunflower starts out in this region they won’t have to deal with competition there. And if their quality is good and their prices lower than Whole Foods, they should have a decent chance.

Race Cowgill
Guest
Race Cowgill
15 years 4 months ago
Real-world testing of this concept seems to suggest it can work. Sunflower Markets (Colorado) has reportedly been doing quite well with its format, pricing, locations, and proximity to competition — all similar to what Supervalu proposes. And there seems to be a market demand for low-priced health food channels. Our firm’s preliminary research data on the health food market segment says that 79% of consumers who shop at health food stores believe the prices they pay are “much higher” than supermarket prices; and 84% of those that believe this say they “mildly want” or “strongly want” lower prices. So it appears the strategy can work. But that doesn’t mean it will. I believe the strategy’s success depends on how it is executed. And execution depends entirely, our research shows, on the effectiveness, culture, and “stance” (i.e. the Master System) of the organization. On one hand, Whole Foods and Wild Oats have profound weaknesses that a more effective competitor could take great advantage of. And on the other hand, Supervalu has its own unseen weaknesses in… Read more »
Mark Burr
Guest
15 years 4 months ago
Being a fan of innovation, this lacks it. Its very much ‘me-too-ish’. I can’t argue with their ability to sustain the Sav-A-Lot stores and grow them. Save-A-Lot isn’t an appealing place to shop. My suspicion is that Sunflower just might not be either. While those that are in the market today for organic may want or desire lower prices, I am not sure they are the market that will give up the atmosphere for the savings. Trader Joe’s and Whole Foods are exciting places to shop. It’s a strong part of their success. Being a ‘me-too’ without the excitement puts you at a distinct disadvantage. I can only base that on the fact that Sav-A-Lot isn’t someplace you go to just walk around. I’d go to TJ or WF to just walk around and enjoy. I’d have been more impressed if there would have been some real innovation announced. Instead, it’s one more, ‘yeah, we’ll do it too.’ There will be limited success on the horizon for Sunflower.
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