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‘Long road to travel’

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MINNEAPOLIS — Although it just reported a net loss of $1.51 billion for fiscal 2011, management of Supervalu Inc. expects the current fiscal 2012 to be a transitional year, with renewed sales and profit growth in fiscal 2013.

Although it just reported a net loss of $1.51 billion for fiscal 2011, management of Supervalu Inc. expects the current fiscal 2012 to be a transitional year, with renewed sales and profit growth in fiscal 2013.

During the company’s fourth quarter conference call president and chief executive officer Craig Herkert acknowledged that Supervalu still faces “a long road to travel” before its transformation is complete. He went on to detail the strategy and initiatives — now dubbed “eight plays to win” — that are intended to deliver the turnaround.

While Herkert maintained that the overall strategy remains the same one he has reiterated over the past couple of years, the eight plays to win represent specific tactical moves designed to execute the strategy. The strategy essentially involves turning around the company’s traditional supermarket business, most of which was acquired from Albertsons Inc., while looking to its once-core wholesale business and the Save-A-Lot hard discount chain for growth.

Two of the eight plays, Herkert explained, focus on growth, while six tackle the problem of turning around the traditional supermarket business. One growth tactic involves ramping up expansion of Save-A-Lot, which plans to open a net of more than 160 stores this year, compared with 92 net openings in fiscal 2011.

"This hard discount format does well in densely populated urban markets as well as in rural communities," Herkert said. "It caters to households with annual incomes of $45,000 or less, which amounts to roughly half the U.S. population."

Of the 1,280 Save-A-Lot units in operation as of February 26, 899 are operated by independent licensee owners, a strong point of differentiation, according to Herkert. The chain is also pursuing a variety of growth avenues, including co-branding with Rite Aid Corp. drug stores in a pilot program in South Carolina and opening in urban food deserts, initially on Chicago’s South Side.

The second growth play involves expanding Supervalu’s wholesale business through new affiliations.

The six transformative plays consist of:

• Providing competitive value, which means fair prices combined with great promotions.

• Delivering high-quality fresh products.

• Matching the offering to the neighborhood, which means defining assortments, pricing, promotions and services to the neighborhood served. “It also means organizing and operating our business in a way that supports a diverse store network and empowers store directors to offer products and services that meet the unique needs of their customers,” Herkert explained. “Rather than seeking to make every store in our traditional retail network look and feel the same, we will embrace the differences among stores by designing, merchandising and operating them to serve the local community.”

• Providing a hassle-free shopping experience, which sounds deceptively simple but actually requires a high level of execution to ensure that items are in-stock and that stores are clean and easy to shop, with friendly employees.

• Simplifying and improving capabilities, which Herkert says will enable Supervalu to become a more responsive company that is easier for suppliers to do business with.

• Funding in advance of price investment, which is closely connected with pricing and promotions. While, in part, that means — as one analyst bluntly put it — getting more money from vendors, it also involves using new analytical tools to optimize promotions. It is an area where Supervalu is already seeing good results, particularly in gaining control over gross margin.

The eight initiatives, Herkert concluded, are already having a tangible impact. "While there are no quick fixes, progress on our transformation plan is proceeding well and, over time, will improve our price position and customer satisfaction," he said.


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