NEW YORK — Supervalu said last week it plans to maintain an aggressive pace of store remodeling next year while sticking to its commitment to pay down debt at a rate of $400 million a year.
“If we can generate additional cash, we will probably try to get more remodels done more quickly rather than paying down more debt each year because the upside is better than we thought,” Jeff Noddle, chairman and chief executive officer of the Minneapolis-based distributor, told an analysts conference here.
He declined to pinpoint how much Supervalu will spend on remodeling efforts in the next year — after committing to spending $1 billion this year — explaining the company has not yet finalized its budget for fiscal 2008, which begins Feb. 25, 2007. “But we're committed to a robust investment,” he declared.
He said Supervalu intends to remodel stores in multiple divisions that need the most attention, rather than going market by market.
“We plan to go after a number of ‘easy wins’ in a market first and then move on to other markets,” Noddle said. “Initially our priorities were [the Albertsons-banner stores in] Southern California and Shaw's [in New England], but as we've gotten deeper into it, we've been able to pick off the best opportunities in all markets and remodel those first, then move on to the next wave.
“The Intermountain region has a lot of stores that haven't been touched in a while, but we plan to do other markets first and then move on to that area.”
Supervalu would like 80% of its stores to be new or remodeled every seven years, he said. He declined to pinpoint the cost-per-store for remodelings, noting Supervalu has spent between $1 million and $1.5 million at some locations and $3.5 million to $4 million at others.
“Albertsons had some great urban real estate, and the opportunity to remodel locations you can't replicate is terrific,” Noddle said. “So we see great opportunities to boost store standards and raise expectations at the same time.”
Boosting standards and raising expectations is Supervalu's goal for all stores, Noddle indicated.
“The in-store experience is the key factor that will drive our success,” he said. “We have to get better at improving that experience, and customers must feel and see it.”
To help Supervalu fast-track its store-improvement effort, Supervalu is seeking to hire a chief merchandising officer, Noddle told the conference, “and within a year we think we can have a marketing competency that far exceeds what either Supervalu or Albertsons had [before their merger last June] and bring us up to speed with the best in the industry.”
Supervalu hopes to develop the desired in-store experience using a concept it calls “premium fresh and healthy,” Noddle said — a customized program that originated with Albertsons that leverages the equity of local banners with upgrades in key departments, including expanded perishables, more natural and organic offerings, international food sections, enhanced and expanded pharmacy offerings and better customer service.
“This is where the business is going, and every remodel and new store will have some, if not all, these components, tailored to fit the banner and the neighborhood,” Noddle explained. “The essence of our vision is to use our national scale and balance it locally.”
According to Duncan MacNaughton, executive vice president, merchandising and marketing, the “premium fresh and healthy” concept also encompasses a strong emphasis on home meal solutions “because food-away-from-home is as big a business as retail grocery, with one-third of meals purchased on the way home from work, so we have to change our business model and make it relevant for customers by offering more prepared foods.
“Extensive research tells us grocery retailing today should provide consumers with products that allow them to ‘turn the dining room lights back on,’ and this [approach] seeks to deliver compelling, timely and localized offers at the right price through combined scale, customer insight and market knowledge.
“‘Premium fresh and healthy’ is all about surprising and delighting the customer. It's all about the food.”
According to Pete Van Helden, president of Supervalu's Western division, focusing on fresh product assortments and presentation will enable Supervalu retailers “to draw customer attention to food displays and enable us to eliminate sign pollution.”
Two programs introduced in Southern California are expected to be rolled out to other divisions to improve the shopping experience, Van Helden said: GOT (Greet, Offer, Thanks), a service initiative that encourages associates to interact with customers by greeting them, offering to help them and thanking them for shopping; and 3's A Crowd, in which any checker can request that another checkstand be opened when more than three people are in a line, “which is the final component in delivering a positive in-store shopping experience.”
Surveys have indicated the two programs have helped boost the level of customer satisfaction in Southern California from 56% in the fourth quarter of 2005 to 64% in the third quarter of 2006, Van Helden said.
Supervalu also hopes its store-level employees understand and buy into the need to improve the in-store experience, Noddle pointed out, “because if the store is the best place to work, then it will be the best place to shop, and we will be very disappointed if, over the next few months, visitors to our stores don't see constant improvements in how customers are treated and how employees feel.”
Dave Boehnen, executive vice president, told the conference the effort to upgrade the shopping experience will be based on the specific needs of each store. “Supervalu has always believed in adapting design elements to fit the needs of local markets, and our remodels won't be a case of one-size-fits-all. Our store development plan will be customized, based on demographics, store conditions, competition and the opportunity to add specialty offerings.”
The goal of its remodeling efforts, he added, is to protect the largely urban market base Supervalu acquired from Albertsons, as well as to drive return-on-invested capital and improve identical store sales.