Sales Takes Over at Supervalu

Sales Takes Over at Supervalu

“As we go forward, time is our biggest enemy and we are accountable for the keys to our success.” — Wayne C. Sales, president, chairmand and CEO, Supervalu

MINNEAPOLIS — Wayne C. Sales, who took the wheel at reeling Supervalu [2] last week, said he would race to prop up the company that he’s also trying to sell.

Sales, Supervalu’s chairman, was named president and chief executive officer last Monday when Craig Herkert [3]was fired. Sales said he would also continue to oversee a review of strategic alternatives that could result in the sale of all or part of the company. Supervalu undertook that review last month acknowledging that declines in sales, earnings and ultimately, share price, had reached crisis levels that led last week to Herkert’s departure.

Wayne C. SalesSales (right) said he would accelerate Herkert’s plan to slash costs and generate profitable sales at Supervalu’s supermarkets, while growing its Save-A-Lot discount division and building upon its strength with independent customers. He’ll do this while also exploring options to sell parts of the company. Financial analysts continued to speculate last week that Save-A-Lot would likely generate the most interest, but quite a bit of uncertainty remains.

“With all that’s been going on, Supervalu really needs a steady hand to say, ‘Here’s what we’re going to do.’ And the things [Sales] said make sense,” Neil Stern, senior partner at McMillanDoolittle, Chicago, told SN last week. “But what’s underlying all of this are the strategic options. The question remains, what will happen? I just don’t know. You’re simultaneously trying to right the ship and you’re also looking at strategic options, and it’s hard to do both.”

In a memo distributed to Supervalu employees last week, Sales was forthright about Supervalu’s struggles, acknowledging the company was suffering not only sales financial pressures, but from a lack of confidence inside and outside of Minneapolis. He also sought to provoke employees to “prove the naysayers wrong.”

“As we go forward, time is our biggest enemy and we are accountable for the keys to our success,” Sales said in the memo. “Many of our customers and investors have lost confidence and patience with Supervalu; I know some of you may have as well. I am excited to be part of the team, and you have my personal commitment to do everything I can to ensure our future.”

Read more: Supervalu Cuts IT Staff [4]

Sales, 62, joined Supervalu’s board in 2006 and has served as its non-executive chairman since 2010. He said he saw “a number of similarities” between Supervalu and Canadian Tire, the Toronto-based general merchandise and gasoline retailer for which Sales served as president and CEO from 2000 to 2006. At Canadian Tire, Sales led a companywide strategic plan for its various divisions and made a key acquisition of Mark’s Work Wearhouse, helping the retailer recover sales and withstand the entry of Wal-Mart and Home Depot to Canada.

“We were faced with high prices, a high cost structure and no defined point of differentiation,” Sales said of his time with Canadian Tire. “But guess what? By all accounts, we were successful.”

A financial analyst who followed Canadian Tire during Sales’ reign described Sales as a competent and pragmatic leader who did a good job restoring the link between the company and its shoppers.

“I wouldn’t describe him as a turnaround expert. But I’d certainly position him as a strong, competent CEO who has an orientation toward merchandising and marketing as a driver to the business, and so if those skill sets match up with Supervalu’s weaknesses, then it’s a good fit,” said the analyst, who asked not to be identified. “He’s pragmatic, and focused, and can address key issues between customer and retailer.”

SN blog: Supervalu Saga as Cautionary Tale on Strategies [5]

The analyst cautioned, however, that the economic environment and competition appears to be more difficult for Supervalu today than it was for Canadian Tire a decade ago. Analysts following Supervalu last week also pointed to the difficult economic environment as a major hurdle to success, with some expressing doubt that revitalizing Supervalu was even possible.

“We welcome a change at the CEO level, but believe challenges may prove to be insurmountable at this stage for even the most exceptional food retail executive given Supervalu’s market share losses, lack of brand equity, and lack of resonance with the customer,” Karen Short, an analyst for BMO Capital, said in a research note. Short also expressed skepticism that Sales would enact heavy price investments in the near-term while still reviewing strategic options.

“While we believe Mr. Sales will focus on differentiating Supervalu, a strategy he employed at Canadian Tire — we believe Supervalu has become so irrelevant with the consumer that recapturing permanent share will be impossible,” she said.

Sense of Urgency

Sales in a meeting with Supervalu employees last week emphasized acting with a sense of urgency as the company pursued its goals of driving sales and reducing costs though additional centralization.

“He displayed a lot of energy and a lot of enthusiasm, and along with that he stressed a sense of urgency, especially as it came to driving sales today,” a source who asked not to be identified told SN last week. “That was a key theme with him. He talked about what can we do to drive sales today? Cutting costs was also of particular importance, especially cutting SG&A out of the banners and emphasizing centralization.”

In the employee memo, Sales said the company could take significant costs out of the business by making “tough decisions” to discontinue doing things that are “not business critical, are of low value or are not focused on driving sales and profitability.”

Read more: Supervalu Cuts IT Staff [4]

“Simply stated, we must implement initiatives that take costs out of our business faster than we can make our price investments.”

Sales also appeared to have acknowledged recent dissatisfaction from Save-A-Lot licensees, who felt struggles elsewhere in Supervalu were beginning to weigh on them in the form of higher costs and less competitive pricing.

“Our go-to-market strategy is unique, and among our greatest assets are our store directors, licensees and independent retailers,” Sales said. “We will strengthen our engagement with our Save-A-Lot licensees — leveraging their expertise, enhancing our collective performance, and ensuring our ability to grow a nationwide network of hard discount stores.”

Jose Tamez, an executive recruiter for Austin-Michaels, Denver, told SN he felt Sales’ experience would be an asset for Supervalu.

“Given Wayne’s experience leading Canadian Tire in similar circumstances, he gives Supervalu the experience needed not only to make the right decisions, but maybe more importantly, not to overshoot,” Tamez said. “His type of experience can many times prevent reflexive actions. To make changes can be necessary, but executives with Wayne’s experience are able to sit back and say, ‘Where are we, in real terms? How much time do we have before our risk profile changes?’”

Craig HerkertHerkert (right) had served at Supervalu since May of 2009, but the company struggled throughout his tenure. Its conventional brands, including Jewel, Shaw’s, Acme, Farm Fresh and Albertsons, lacked distinction in their marketplaces and have been slow to improve pricing.

Observers, however, point out that many of those banners suffered from the same issues when Supervalu acquired them from Albertsons long before Herkert’s arrival in 2006, and the debt service from that $19.9 billion acquisition effectively prevented the company from giving the stores the investment in prices they needed. Albertsons, they point out, was itself a mass of poorly integrated assets at the time of the deal, and fit poorly into Supervalu’s retail profile, which at the time included regional chains Cub Foods, Shoppers Food Warehouse, Farm Fresh and Bigg’s, along with Save-A-Lot.

However, observers last week said that Herkert still moved too slowly. Highlights of his tenure included spending nearly a year developing analytical tools to support a companywide turnaround plan known as “8 Plays to Win” that was introduced in 2011. That plan was based on lower prices, “hyper-local” marketing and improvements in freshness and store experience but also depended on price investments being “fully funded” by expense cuts. The technologies, analysts said, only brought them to the same level of their peers.

SN Viewpoint: Supervalu Saga as Cautionary Tale on Strategies [5]

John Heinbockel of Guggenheim Securities said the shakeup will likely demand more of existing executives, such as newly named head of operations Kevin Holt.

“Although it is hardly ideal to make a CEO change in the midst of such a challenging turnaround effort in a difficult operating environment, we do not regard Herkert’s departure as a meaningful incremental negative,” Heinbockel said in a research note. “We would liken it to a sports team in the midst of a bad losing streak — sometimes the organization needs to hear a new voice in order to improve morale. It is hard for us to see how this change will harm the business.”

Heinbockel reiterated his view that the most likely outcome of the strategic review process would be the sale of Save-A-Lot to a private equity firm, with Supervalu using the proceeds to pay down debt.

Save-A-Lot could fetch up to $2 billion in a sale, analysts said.

Sidebar: Supervalu Wins Legal Victory

MINNEAPOLIS — A federal judge here has denied class-action status to retailers pursuing antitrust litigation against Supervalu and C&S Wholesale Grocers as a result of the wholesalers’ 2003 asset swap.

Plaintiffs in the case alleged that the asset swap agreement between the wholesaler eliminated competition and led to higher prices, but in an opinion published this week, U.S. District Court Judge Ann Montgomery said the retailers failed to provide evidence that prices increased uniformly following the swap in New England or the Midwest, the two areas affected by the swap.

Separately, Supervalu last week said it is laying off 85 technology employees as part of a restructuring of its IT department impacting 390 wrokers nationwide.

The cuts include 50 staffers at its headquarters here, 20 in Boise, Idaho, and 15 in Utah, according to the Minneapolis-St. Paul Business Journal. The layoffs are effective as of the end of July.

Suggested Categories More from Supermarketnews
[16]