2011 Power 50: No. 4 Craig Herkert

2011 Power 50: No. 4 Craig Herkert

Craig Herkert, president and chief executive officer of Minneapolis-based Supervalu [3], is laying the foundation for the company's long-term future through an eight-point turnaround strategy.

“There's a great deal of work ahead, but I'm confident Supervalu is turning the corner,” he told financial analysts at the company's investor conference in early May.

“This is an all-in effort, and we are focused firmly on the future while acting with the greatest sense of urgency. As with any significant change, the foundation must first be built.”

Changes are already under way, Herkert said, to get “everyday base pricing in line with our competition. Our prices didn't get out of line overnight, and they will not be remedied immediately. We're not going to get to where we want to get to until [three] years down the road.”

With Supervalu experiencing negative traffic trends in 11 of the last 12 quarters, “management may need to get more aggressive with price reductions,” said Mark Wiltamuth, an analyst with Morgan Stanley, New York.

The period for price changes to take hold can be slow, Wiltamuth added.

“It takes a long time for customers to notice a pricing change,” he said. “Looking at other grocers who were late to the party at cutting prices, the initial price-reduction period often was accompanied by no immediate volume change and significant margin and cash-flow collapse.

“A&P and Winn-Dixie were prime examples of this [sequence] in 2010, but even Kroger's earnings and cash flows suffered when it was first shifting to its price-reduction strategy.”

Supervalu's turnaround plan, called “8 Plays to Win,” involves a series of initiatives aimed at reversing the company's sales declines “and getting back on the path to growth,” Herkert said.

The eight initiatives encompass the following:

  • Aligning everyday shelf prices to provide competitive value. “Value includes more than just dollars — it's about providing solutions to customers, and one solution is creating and supporting a private-brand program,” Herkert said. Supervalu has already begun that process by replacing banner-branded products with the Essential Everyday label.

  • Delivering high-quality fresh products, using space allocation and tracking tools to improve offerings and drive sales.

  • Leveraging local expertise to create hyper-local stores, including enabling store directors to showcase items that mean the most to their customers to drive sales.

  • Providing a hassle-free shopping experience. “Whether customers are looking to eat well or use technology to simplify the shopping experience, we are finding innovative ways to meet their needs, drive sales and build loyalty,” Herkert explained.

  • Simplifying and improving Supervalu's capabilities by creating appropriate support functions to elevate its responsiveness companywide. “We are streamlining our organization to be leaner and more efficient, so vendors will no longer turn to others because we are too complicated to deal with,” Herkert noted.

  • Funding pricing programs in advance of investments, including improvements in the company's in-stock position and lowering its shrink rate by 50 basis points over three years.

  • Expanding Save-A-Lot on a national basis, with 92 openings last year and 160 new stores targeted for this year. The goal is to have 2,400 locations — operating primarily by licensees — by 2015, up from just under 1,300 currently.

  • Growing the company's wholesale business by strengthening independent retail customers, with a focus on adding new customers and expanding services to existing retailers.