Viewpoints

Supervalu Saga as Cautionary Tale on Strategies

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It will be a long second half of 2012 for Supervalu.

The distributor’s announcement earlier this month that it’s reviewing strategic options and considering a possible sale of the company has taken its situation to a new level and generated lots of opinions on what’s ahead (much of it not too optimistic).

Everyone connected with the industry seems to have a take on what brought Supervalu to this point in the first place. SN has received a flood of online reader comments, and they include some common themes on what led to the company’s problems:

1. Reaching beyond its core wholesaling segment into retail (especially with the acquisition of Albertsons in 2006), a business it didn’t know as well.

2. Losing touch with customers and the value proposition.

3. Bringing in Craig Herkert to run the business back in 2009.

SN doesn’t track the identities of those commenting, but many describe themselves as employees, and they clearly see this saga as a cautionary tale.

For a reality check, I contacted Andrew Wolf, a Richmond, Va.-based analyst at BB&T Capital Markets, who closely follows Supervalu.

He agreed with the critique that Supervalu wasn’t prepared for embracing retail in a big way. “Supervalu knew how to be a good wholesaler, but it had little inherent retail acumen,” he said.

The criticism about losing touch with customers and the value proposition is also true, he said, but he pins most of the blame on predecessor managements at  Albertsons and Supervalu.

More on the story: Supervalu Eyes Potential Sale, Slashes Spending to Cut Prices

Wolf is mixed about criticisms of Herkert, contending that this executive had some good ideas but should have been brought in earlier, before the situation deteriorated futher. Still, Herkert himself may have waited too long to make heavy price investments, Wolf added.

So if Supervalu’s is a cautionary tale, what does Wolf believe are the key lessons?

First, that acquisition prices need to be in line, which wasn’t the case with the Supervalu-Albertsons deal, he said. Second, and possibly most important, that it’s crucial to “maintain market share first, rather than earnings, because eventually you’re going to have to maintain market share anyway.”

That last comment represents particularly sound advice that applies well beyond the Supervalu situation. But like a lot of things, maintaining market share is easier said than done, especially for a company with squeezed financial resources.

Discuss this Blog Entry 4

Anonymous (not verified)
on Jul 23, 2012

Supervalu...you can't distribute product to your competition. It's that simple. Supervalu supplies other supermarkets, often to stores which operate and compete with Supervalu stores.

Anonymous (not verified)
on Jul 26, 2012

There's a reason WinCo bailed from using SVU. St Louis, for example, SVU owns Shop & Save and sources Dierbergs, if that isn't a conflict of interest, I don't know what is.

Anonymous (not verified)
on Jul 24, 2012

Many of the Albertson stores need updating to attract consumers. As a supplier my opinion is that their interdivisional communication is a major problem. The chains lack identity. Are they an upscale or a value retailer? Being in the middle leaves you easy pickings for your competition. To survive Super Valu needed clear direction and an efficient operation. They lack both.

Anonymous (not verified)
on Jul 26, 2012

Working at a store that WAS supplied by Supervalu, I can say that the conflict of interests is spot on. Supervalu would place a hot price in our ad, then be out of it midweek. At the same time they supplied our competitors with the sale items, causing less sales and a stronger competitor. Product quality from W.Newell was always suspect and the prices were much more than local supplliets. Good riddance to Supervalu

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David Orgel

David Orgel is executive director, content & user engagement, of Supermarket News (SN) and its website, SupermarketNews.com. Orgel delivers his opinions on industry trends through a bi-weekly...

Jon Springer

Jon Springer has been writing about food, food retailers and food retailing for more than 10 years, and is in his second tour of duty with Supermarket News. His prior experience includes covering the...
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