Dean Best

On the move: Supervalu's Mr Sales faces tough task

By Dean Best | 3 August 2012

Supervalu chairman and now CEO Sales has a challenge ahead to turn around US retailer

Supervalu chairman and now CEO Sales has a challenge ahead to turn around US retailer

With a name like Wayne Sales, the new chairman and CEO of US retailer Supervalu Inc seems born to be in the industry.

However, the 62-year-old, who this week replaced Craig Herkert as the retailer's chief executive, faces one of the biggest challenges in the US grocery sector: how to revitalise one of its largest operators.

Supervalu, which runs over 4,000 stores in the US, has seen gross profit, revenue and identical-stores sales fall for three years in a row. Like other traditional supermarket operators, Supervalu has suffered from increased competition from big-box retailers like Wal-Mart Stores and the rise of discount outlets like Family Dollar Stores. That said, the likes of Safeway Inc and Kroger have had nowhere near as poor results as Supervalu.

When Supervalu announced the latest annual declines in April, Herkert, the former Wal-Mart Stores executive who had under three years at the retailer, said the company had built a "strong foundation" to push ahead with plans to revitalise the business.

"We will focus on three priorities," Herkert said. "One, improving our value proposition; two, bringing an even greater hyperlocal experience to the neighbourhoods we serve; and three, driving long-term growth. We enter the new fiscal year as a leaner company, committed to a business strategy that will make us a more competitive retailer."

The results in the first quarter of its new financial year suggested anything but. Last month, Supervalu announced it had started a "strategic review" of its entire business. The review, led by then chairman-only Sales, could include a sale of the company, it said.

In the short term, in a bid to revive flagging sales, Supervalu said it would "accelerate" its price cuts, look at fresh ways to lower costs (in May, it announced 2,500 jobs could be under threat as a result of cuts at stores in California and Nevada) and reduce "near-term" capital expenditure.

However, under three weeks later and Sales has added chief executive to his role as chairman. The former vice chairman of Canadian retailer Canadian Tire Corp. is Supervalu's third CEO in three years.

Susan Engel, chair of the leadership development and compensation committee on Supervalu's board, said the retailer was "grateful to Wayne for taking on the chief executive position at this important juncture in Supervalu's history". Sales, she added, has had "an extremely successful career in business and retailing and a strong track record of transforming businesses and driving profitable growth".

As well as being vice chairman of Canadian Tire Corp., he was also its chief executive between 2000 and 2006. During that period, the retailer's earnings per share more than doubled.

Reflecting on his new role at Suprevalu, he said he would continue to lead the strategic review and also outlined his priorities for Supervalu, which has come under the scrutiny of analysts.

"We will take significant cost out of the business, and move with urgency in our retail food business to lower prices and create points of sustainable differentiation for our customers," he said.

"We will work closely and collaboratively with independent retailers to ensure that they continue to receive the superior service they need to increase sales and profitability. 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."

However, it will be very difficult to turn Supervalu around. To some analysts, Herkert's plans to improve Supervalu's "value proposition" were correct but would take years to bear fruit. Meanwhile, there is the belief that Supervalu faces some underlying issues.

"While Herkert's strategies weren't bad, they were never able to get execution at store level. In the meantime, Supervalu had, and continues to have, structural problems - not enough capital, ageing store base and a complicated retail/wholesale model that really hinders their ability to improve," Neil Stern, a senior partner at US retail consultants MacmillanDoolittle, tells just-food.

To turn Supervalu around, Sales needs to address these "structural issues", Stern says. "Sales must provide stability and right the ship - that's job one. In the meantime, the real question then becomes: will they sell all of the company, with a likely private-equity buyer to sort out the mess? Or sell pieces, wholesale, certain banners, Save-a-Lot, and attempt to be an ongoing concern," he says.

Would Supervalu be attractive to buyers in part or as a whole? Competitors could buy parts of the retailer and benefit from synergies and the obvious reduced competition.

Save-a-Lot, Supervalu's discount chain, has long been seen as an attractive asset for buyers. Identical-store sales at Save-a-Lot fell 3.4% in the first quarter of Supervalu's most recent financial year but the chain operates in a segment that has grown in popularity in the US in recent years.

Supervalu's new chief executive certainly has a lot to consider and what he and the retailer's board decides will have an impact on the rest of the sector.

Stern says: "The final resolution could certainly reshape US food retail depending on the outcome."

Sectors: Retail

Companies: Wal-Mart Stores, Supervalu Inc, Family Dollar, Safeway Inc, Kroger

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