Supervalu Eyes New Brands, IT

CHICAGO — Supervalu officials last week detailed a transformation plan involving high-profile new corporate brands, pricing and merchandising strategies, but it was a behind-the-scenes peek at new technologies that had analysts buzzing. A store tour here as part of Supervalu's investor day meeting showcased new tools giving the retailer and its store managers better visibility into in-stock positions,

CHICAGOSupervalu [2] officials last week detailed a transformation plan involving high-profile new corporate brands, pricing and merchandising strategies, but it was a behind-the-scenes peek at new technologies that had analysts buzzing.

A store tour here as part of Supervalu's “investor day” meeting showcased new tools giving the retailer and its store managers better visibility into in-stock positions, promotional effectiveness and velocity at the item and store level. These changes, being rolled out to Supervalu's stores now, should help the retailer gain the sophistication of its peers as it attempts to reverse sales declines and improve productivity as part of its strategic turnaround effort.

“In the critical area of information technology they've hooked up with a vendor who's really giving them aid, insight and solutions,” Andrew Wolf, an analyst with BB&T Capital Markets, who attended the event last week, told SN. “They are moving very fast with their IT. What they are putting in place is more than sufficient, it's necessary to be a modern-day retailer.”

Craig Herkert [3], president and chief executive officer of Supervalu, in a presentation said the technologies would support several initiatives under an eight-point plan to recast Supervalu as a single company committed to growth.

Analysts largely applauded that effort, although some were skeptical if the effort would be enough to reverse 12 quarters of consecutive comparable-store sales declines.

“Many of the tools that we had an opportunity to see firsthand are not likely to move the needle for Supervalu in the near term and may simply represent the cost of doing of business in a highly competitive industry,” Ajay Jain, senior analyst for Hapoalim Securities, said in a research note. “In our view, many of the new analytical tools should already be in place and are not likely to be significant game changers over the foreseeable future.”

In one example noted by Supervalu, the technologies helped to identify where a store was devoting four times the space to green peppers than to red peppers, despite selling only twice as many.

“It was cool,” one analyst, who asked not to be identified, told SN. “Is it going to help them beat Kroger [4]? Maybe not. Will it help them improve their own performance? Probably.”

Supervalu last week also revealed plans for a new national-brand-equivalent private label, Essential Everyday, which will replace store-banner items throughout the chain.

Julie Dexter Berg, Supervalu's chief marketing officer, said the effort would begin shortly in the cereal and pasta aisles at Supervalu stores and continue in phases through next year.

Berg said the company did “extensive testing” on the packaging and Essential Everyday name and found the products beat existing store brands in quality perception and overall appeal. A national platform for a single brand will save expenses, she added, and is part of an effort to increase the company's private-brand penetration by 1% in each of the next three years.

The retailer will also expand its entry price point Shoppers Value brand and expand its premium Culinary Circle and organic Wild Harvest organic lines. The Shoppers Value line will be increased by around 80 new or relaunched SKUs, including expansions into new categories, said Janel Haugarth, Supervalu's executive vice president of merchandising and logistics.

The launch last year of a $1 single-serve frozen-fish offering under the Shoppers Value brand triggered a 176% increase in unit sales and overall category growth, Haugarth said. The effort will be expanded to 4-ounce chicken, pork and beef selections at the $1 price point in coming months.

Haugarth also said the company was making progress behind efforts to source and sell local produce and a new “just baked” program that she said “brings the sensory experience of a neighborhood bakery” to stores with fresh bread and rolls at peak shopping times. The program will be launched in a majority of Supervalu banner stores by the end of the current quarter.

A new tool testing promotional effectiveness is helping the company craft promotions that help sales and margin — and signal when promotional funding or pricing needs adjustment, Haugarth explained. Using this tool so far in 2011 has helped Supervalu run promotions generating greater profit and efficiency than it had previously while reducing the unprofitable “tail” of promotions, she said.

Pete Van Helden, executive voice president of retail operations, provided details of Supervalu's “hyperlocal” initiative. Considered a key driver in Supervalu's strategy to regain sales, hyperlocal is “a strategy that empowers experienced store directors to customize corporate programs to best serve their customers' needs,” he said. “For us, stores will share the same nameplate and service orientation, but will have different points of emphasis depending on their location and character of their local communities.”

Analysts appeared to be taking a “wait and see” attitude toward these changes. Karen Short of BMO Capital Markets, for example, questioned whether the company has lost too many good store managers to execute a hyperlocal strategy.

Officials said Supervalu would also look to drive growth through expansion of the Save-A-Lot hard-discount banner. The company plans 160 new stores this year. The company will also look to win new distribution accounts, as exemplified by the recent addition of C&K Markets [5] in Oregon.