Supervalu Struggles, Continues Value Push
Finding more heavy-handed price promotions and price cuts
failing to drive traffic, Supervalu last month reported a “well under
4.9 percent comp decline in its third quarter ended Dec. 4, its 11th-straight
quarter of declining same-store sales. It subsequently reduced its full-year
earnings and revenue guidance.
On a conference call with analysts, Supervalu’s
CEO Craig Herkert said its northeast banners (Shaw’s, Acme and Shoppers)
saw particularly intense price competition in their markets and suffered negative
high-single digit declines. In Chicago, the Jewel-Osco chain saw “heightened
competitive activity” with the
entry of more discounters with comps winding up slightly above the corporate-wide
rate. Comps in all other banners as a group improved almost 200 basis points
from the second quarter, particularly in the west and at its Save-A-Lot limited-selection
“At these banners, we believe our progress was a result of improved
marketing, customer engagement, and price investments,” said Mr. Herkert,
a former executive at Walmart and Albertsons who took over as CEO of Supervalu
in May 2009, on the call.
On the margin side, however, ineffective price promotions
in carbonated beverages, soups and frozen foods failed to drive traffic. Items
sold on promotion were 50 basis points higher than a year earlier and failed
to drive profitable margin dollars.
“Our results continue to reflect a still difficult economic environment
and the fact that it will take more time than originally expected to turn around
our negative operating trends,” he said.
Mr. Herkert noted that November
marked the kickoff of its coordinated program to improve Supervalu’s “price
position and enhance value for our retail customers.” The program includes
advanced promotional analytics and planning tools that are expected to provide
better insight into the extent and timing of pricing and promotions. Janel
Haugarth also assumed the title of EVP of merchandising and logistics; the
hope being that enabling one person to oversee both merchandising organizations
will help Supervalu gain better prices on its buying clout and get its “fair
share of promotional funds.”
The merchandising changes feature a renewed
focus on hyper local assortments, promotion and expansion of private labels,
and a focus on “value with
everyday fair pricing.” The extension of its “Fair Price Plus” promotion
strategy to produce helped fresh departments outpaced overall sales trends.
Mr. Heckert noted the challenge of making targeted “price investments” during
a period of rising inflation. Food inflation rose 100 basis points for Supervalu
in the third quarter, driven by meat, dairy and produce, and it expects food
prices in 2011 to rise from three percent to 14 percent depending on the item.
“A core tenet of our vision is that pricing at Supervalu’s traditional
stores to be fair and no longer serve as a disincentive for customers to shop
our banners,” said Mr. Herkert. “As I have said before, I believe
the thrift consciousness we are seeing in food retail is a secular shift, and
we are positioning Supervalu to be a long-term partner of choice for communities
Other Supervalu banners include Albertsons, Cub, Farm Fresh,
Hornbacher’s and Shop ‘N Save.
- Supervalu Third Quarter Conference Call – Seeking Alpha
- What’s eating Supervalu? – Minneapolis Star Tribune
Discussion Questions: What should Supervalu be focusing on to turn around its traditional retail banners? What is your assessment of Supervalu’s grocery wholesale business?