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
plan” negative
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
chain.
“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.
But,
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
we serve.”
Other Supervalu banners include Albertsons, Cub, Farm Fresh,
Hornbacher’s and Shop ‘N Save.
Discussion Questions
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?
Mr. Herkert and his team including Janel Haugarth have their work cut out for them. The move away from low price to “fair price” is a good one. You can’t use the excuse of inflation and the rise in commodity prices as an excuse since this issue effects everyone.
A focus on creating strong value based programs for shoppers with a push to promote Private Label is a very good move. Private Label for SUPERVALU can create a barrier of entry to competitors that pricing can’t.
The wholesale business has some opportunities now that C&S has issues in various parts of the country. Still, I’m seeing one SV independent fail after another. As far as retail, sure it was huge mistake to buy Albertsons. Supervalu overpaid and borrowed money to buy a failing chain. Trying to compete on price is futile. The stores are trying to compete against competitors that are non-union, don’t pay rent, and have no debt. I think their best bet is to unload the low volume, low sales per square foot divisions and get back to a manageable size. Supervalu needs to come to the realization that outside of the Twin Cities, retail is probably not their future. I just don’t think Supervalu could lower prices enough to make an impact.
David Livingston has it right.
As I’ve said before, competing strictly on price is a footrace to the bottom, There is just too much competition out there. Moreover, continuously lowering the price point means you have to sell disproportionately more units just to come back to even dollars. Margins are obviously depressed, so protecting profits means lowering expense, usually through store payroll and service levels, hastening the downward spiral. It’s just plain ugly.
The retailers that are maintaining and/or growing in the current environment are doing so with other strategies than lowering price. If this is SV’s only strategy, David is right–they should just get out.
Unfortunately in most markets, the Supervalu banners have lost their clear point of differentiation against the competition. A great example of this is the Shoppers banner in the Baltimore/Washington marketplace. Shoppers was known for years as a modified EDLP, no frills, low-cost operator that was physically positioned in to serve that core demographic. Over the past several years, the Banner attempted to move to a higher quality, higher price and promotion driven model, putting it in direct competition in that market with Wegmans, Harris Teeter and Whole Foods. That is a battle that Shoppers cannot win. That high quality model requires a strong service commitment in terms of store labor. Labor has been stripped out of most of these banners leaving customers with far too many alternatives for better service for the price.
It is unfortunate but this is not something that can be turned around quickly and with stronger promotions.
One of the biggest failures of the past few years with Supervalu is how they have handled the category management decisions. They have cleaned house and eliminated many roles, demoted key people and left many of the day to day decisions to senior managers who do not have the time or experience making the necessary choices.
They are primarily focused on the operations of their categories, rather than trying to improve and grow their sales. There is no strategy for each category or department. They are trying to survive day to day.
They need to bring back in talent who know how to manage categories; think strategically with their categories and departments rather than another set of price discounts; manage their assortment on a local level; and focus on the stores where they can build a wall of success.
I too agree with David Livingston. Maybe the best way to turn this around quickly is to unload the losers in the East and Midwest. That allows for some breathing space to concentrate on building the profitable banners in the West and other limited areas. How long can Supervalu continue to support a continual losing brand in a highly competitive market? Every competitor pushes value. It will be difficult for former shoppers of a Supervalu brand to return once they have become comfortable shopping at a competitor.
Supervalu has to change their model, cut their costs and reflect today’s consumer’s needs. This means moving their company from good prices to great prices, better customer service and doing more with less. Change will be become a necessity, not an option for Supervalu, and until they initiate this from the top to the bottom of the organization, they can expect the same results; fewer sales, more losses and another quarter of disappointing results.
David has hit the nail on the head. To put it into a more historical context, just look at past performance.
Supervalu is a company that has grown by acquisition not by fueling organic growth. They have make some very good acquisitions and been very good at controlling expenses and draining cash from them while simultaneously neglecting to provide innovative strategies at retail to fuel top line sales growth. As a result, just about every one of the retail chains they have acquired has been left behind when it comes to competitive retail activity. Just look at CUB Foods. Other than the Twin Cities, this once cutting edge price retailer is all but dead. They’re out of WI, Ohio, Indiana, IL, Colorado, Iowa, Georgia and the Pacific Northwest.
Then, there’s Save-A-Lot, the extreme value retail outlet that plays so prominently in Herkert’s turnaround strategy. Save-A-Lot has grown very little since the ill-fated acquisition of “Deal’$–Nothing over a Dollar” and the failed attempt at opening combo stores. [This marriage came to an abrupt end shortly after it began and Deal’s was quietly disposed of just as the Albertson’s deal was being finalized]. Save-A-Lot margins have been pumped up, making the stores noncompetitive with the likes of Wal-Mart and Aldi. New markets have opened with poor to mixed results and the complexities of managing a Save-A-Lot growth strategy in markets where the Supervalu independent retail customers operate will continue to hamper any real aggressive growth initiatives.
In my opinion, Supervalu is not and has never been a retail growth company. Rather, they have been very good at reducing costs, driving efficiencies at wholesale, raising margins and finding ways to make money on the “buy” rather than driving top line sales and making money on the “sell”. I doubt this will change very much in the short run. If this is the case, the road to success could be very long and steep.
Most of the advice being given is not bad. However Supervalu has tried most of it without all out strong commitment and with poor execution. Herkert cleaned house when the problem was structural. Now the people he brought in are departing. If they continue on their existing course they will be the next case study for Jim Collin’s “Doom Loop”.
There is so much bobbing and weaving in the statements from Supervalu that it could easily be likened to a boxer named Ali. The problem is that there is no “Sting like a bee”.
While the comments from Supervalu may not be clear, at least to Scanner, they might have made sense to someone. The comments so far in response all may be true, but advice is just that. To many it may seem obvious, however it doesn’t appear so to Supervalu. What there doesn’t appear to be from Supervalu is a clear and distinct stategy. I couldn’t make one out of it.
They are being hit from every angle and just appear to be trying to hold on to the 15th round. They might not get there, but they are holding on to the ropes tightly and thinking of something, anything, just to make it back to the corner at the sound of the bell.
Pick one. Just one. Hit it hard. I may be missing it in the jargon, but come on!
In the absence of a clear, well defined strategy they are likely to continue to flounder and dwindle. What they put forth seemed like just a whole lot of mumbo jumbo in that lingo we’ve all heard before and will all hear again.
They might make it in this fashion until the 12th round, but not all they way to the 15th round. To get there, they’ll have to “Sting like a bee”. I’m just sayin’ I don’t even sense fighting words, let alone a game plan or strategy.
If you’re raising the prices on meats and produce, why not bring the prices down on isle items? For promos: senior discount days, a holiday promo for free turkeys or chickens, or hot dogs in the summer when spending a certain amount of money. Circulars with clipped coupons inside. Every $100 you spend you get 5 or 10 bags free.