2012 Power 50: No. 4 Craig Herkert

Few would argue that Craig Herkert faces one of the biggest challenges in food retailing as the president and chief executive officer of Minneapolis-based Supervalu [2].

The company, which operates the Albertsons, Jewel, Acme, Shaw’s and other banners, as well as the Save-A-Lot limited-assortment chain and a wholesaling division serving independents, has been struggling to retain sales and market share as the recession caught the company poorly positioned to handle consumers’ increasing focus on value.

Herkert told SN that the company is making meaningful progress, however.

“In the 12 months since we unveiled our business transformation strategy, we developed and rolled out new tools and capabilities to improve the operational side of our business,” he explained.

“Additionally, we implemented ‘hyperlocal’ initiatives to better match our in-store offering to the needs of the communities we serve while investing in price across our traditional retail network.”

In its third fiscal quarter, Supervalu launched what Herkert described as one of the company’s “most visible” investments when it began lowering everyday prices by up to 20% on about 200 produce items.

“While we are still early in assessing trends, I am pleased to report that unit volumes improved by over 300 basis points since implementation and have outpaced unit movements in the rest of the store,” he told SN.

Perhaps the most important effect of the company’s produce investments, Herkert said, “is that it has positively impacted customer perceptions, with our primary customers noting an overall improvement in the freshness of our food. These results serve as an important validation of our strategy.”

Herkert said the company’s long-term strategy is to extend that pricing effort across the store to bring pricing more in line with conventional competitors and to narrow the pricing gap with discounters.

“However, each price investment we make to achieve our sustained competitive strategy will impact ID sales in the near term,” he explained. “We have been keenly aware of this and it is built into our plans. Over time, however, these decisions will improve unit volume as they did in produce and bring incremental traffic, as well as change perceptions of value at our stores.”

Andrew Wolf, a Richmond, Va.-based analyst at BB&T Capital Markets, said Herkert has been doing as well as could be expected.

“I think he has many of the right ideas, but they are starting from a fairly disadvantaged position,” Wolf said. “They are a laggard in terms of bringing value to customers, and they are limited as to how quickly they can address their prices.”

Supervalu’s sales weakness, Wolf noted, is evident in the staff reductions the company has unveiled in markets like Southern California, where it trimmed about 2,000 workers. The company also has unveiled a raft of executive moves, naming a new chief merchandising officer and shifting the presidents of some divisions to new posts.

Herkert said fiscal 2012 was a “foundational year” for Supervalu, as the company managed to meet earnings-per-share projections and reduce its sizable debt obligations — a legacy of the company’s 2006 Albertsons acquisition — despite sales pressures.

“We delivered on our EPS guidance, made meaningful debt reduction, invested capital across our assets, and made great strides to improve operations,” he said.

He also noted progress on sustainability efforts, with 54 stores recognized as “zero waste” locations, diverting 90% of their waste away from landfills, and 491 stores participating in organic diversion or composting programs.