Wiltamuth: Two of the Big Three chains are having market-share losses. Both Safeway and Supervalu are losing market share right now, and I think it's those two, which are trying to play catch-up, that are at greater risk. Both were late to the party when it came to cutting prices, and it's hard to really stimulate and bring that customer back. Now, with an inflating environment, it's even harder to reposition your relative price in the marketplace. How do you get anyone to notice your price gap relative to competitors while inflation is pushing up everyone's prices?
Cerankosky: Supervalu thought it had the economy going in its favor.
Wiltamuth: For Supervalu, it's more of “kick the can down the road and hope the economy saves you.”
Wolf: Definitely. That's why I believe Supervalu is at a crossroads. Look at where we started off, saying the economy ain't what it used to be. Anybody here think it's going to rebound anytime soon? But one positive thing Craig Herkert [Supervalu president and CEO] has done there is, he's found good people to promote internally. He's turned Supervalu upside down, and if that had been done five years ago, Supervalu might be a different story right now.
Adler: Herkert was slow, and he made some big mistakes.
Wolf: Two years later, he's made some improvements in the business.
Heinbockel: The question is, how much damage has been done to the brands? When you've got Jewel comping down 6%, damage has been done to the brand.
Wolf: That's why I say if he had been there five years ago and been effective four years ago — because in the first year he still would have gone the wrong way — things might have been different.
Mushkin: I agree. If you look under the hood and talk to people in the industry, it seems Herkert is doing a better job.
Wolf: Contrast that to Safeway, which has suffered a real talent drain. For example, Rick Dreiling is running Dollar General, where he's bringing fresh merchandising and tighter operations to the whole dollar-store segment. Brian Cornell — he's running Sam's. These guys are talented people and were a tough loss for Safeway.
Adler: One thing Supervalu has going for it is that, although to some extent it has turned primary shoppers into secondary shoppers, it still has phenomenally convenient locations. And even though its price image is bad, I don't think its overall reputation is as bad as Winn-Dixie's was in Florida.
Heinbockel: Well, the beauty of Acme is it doesn't have to compete against a Stop & Shop. Philadelphia is a free-for-all for Acme.
Adler: I am totally on the fence about whether Supervalu can do enough, but I think there are things it could do to surprise people. For example, I think there is a lot of low-hanging fruit there. There are so many things that were done poorly that it has the option to fix, and it may not have to make radical changes to its pricing to show some improvement, even if it's only less sales deterioration. You're not seeing it yet because traffic is still negative on a two-year basis.
Wiltamuth: The big question for Supervalu is, can it recover from negative 4.4% traffic numbers year after year? That's simply very difficult to recover from. Consumers have already voted — they are out of those stores — so how does Supervalu win them back when it's been late to the party on price reductions and the stores are still in need of remodeling? Those are real challenges for Supervalu.
Mushkin: Our sources say the company is already doing a better job at executing, believe it or not.
Adler: But doesn't it take time for consumers to understand that?
Mushkin: It does. We talked to a vendor who said it's not about what you are doing today — it's about what you did last year. So it's going to take a year. And the negative traffic that Mark's talking about is a very big concern.
Adler: One positive thing about Supervalu is the debt deal it did that gave it a lot of breathing room. It now has only $1 billion in debt maturities over the next three years, so it will not have to pay down any debt this year. That relieved a lot of pressure on the company — giving it some liquidity so it doesn't have to go to the markets to refinance again for a while. With that done, Supervalu doesn't even have to think about debt for the next three years. That doesn't necessarily solve its traffic problems, but it gives the company some breathing room.