Sense of Urgency
Sales in a meeting with Supervalu employees last week emphasized acting with a sense of urgency as the company pursued its goals of driving sales and reducing costs though additional centralization.
“He displayed a lot of energy and a lot of enthusiasm, and along with that he stressed a sense of urgency, especially as it came to driving sales today,” a source who asked not to be identified told SN last week. “That was a key theme with him. He talked about what can we do to drive sales today? Cutting costs was also of particular importance, especially cutting SG&A out of the banners and emphasizing centralization.”
In the employee memo, Sales said the company could take significant costs out of the business by making “tough decisions” to discontinue doing things that are “not business critical, are of low value or are not focused on driving sales and profitability.”
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“Simply stated, we must implement initiatives that take costs out of our business faster than we can make our price investments.”
Sales also appeared to have acknowledged recent dissatisfaction from Save-A-Lot licensees, who felt struggles elsewhere in Supervalu were beginning to weigh on them in the form of higher costs and less competitive pricing.
“Our go-to-market strategy is unique, and among our greatest assets are our store directors, licensees and independent retailers,” Sales said. “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.”
Jose Tamez, an executive recruiter for Austin-Michaels, Denver, told SN he felt Sales’ experience would be an asset for Supervalu.
“Given Wayne’s experience leading Canadian Tire in similar circumstances, he gives Supervalu the experience needed not only to make the right decisions, but maybe more importantly, not to overshoot,” Tamez said. “His type of experience can many times prevent reflexive actions. To make changes can be necessary, but executives with Wayne’s experience are able to sit back and say, ‘Where are we, in real terms? How much time do we have before our risk profile changes?’”
Herkert (right) had served at Supervalu since May of 2009, but the company struggled throughout his tenure. Its conventional brands, including Jewel, Shaw’s, Acme, Farm Fresh and Albertsons, lacked distinction in their marketplaces and have been slow to improve pricing.
Observers, however, point out that many of those banners suffered from the same issues when Supervalu acquired them from Albertsons long before Herkert’s arrival in 2006, and the debt service from that $19.9 billion acquisition effectively prevented the company from giving the stores the investment in prices they needed. Albertsons, they point out, was itself a mass of poorly integrated assets at the time of the deal, and fit poorly into Supervalu’s retail profile, which at the time included regional chains Cub Foods, Shoppers Food Warehouse, Farm Fresh and Bigg’s, along with Save-A-Lot.
However, observers last week said that Herkert still moved too slowly. Highlights of his tenure included spending nearly a year developing analytical tools to support a companywide turnaround plan known as “8 Plays to Win” that was introduced in 2011. That plan was based on lower prices, “hyper-local” marketing and improvements in freshness and store experience but also depended on price investments being “fully funded” by expense cuts. The technologies, analysts said, only brought them to the same level of their peers.
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John Heinbockel of Guggenheim Securities said the shakeup will likely demand more of existing executives, such as newly named head of operations Kevin Holt.
“Although it is hardly ideal to make a CEO change in the midst of such a challenging turnaround effort in a difficult operating environment, we do not regard Herkert’s departure as a meaningful incremental negative,” Heinbockel said in a research note. “We would liken it to a sports team in the midst of a bad losing streak — sometimes the organization needs to hear a new voice in order to improve morale. It is hard for us to see how this change will harm the business.”
Heinbockel reiterated his view that the most likely outcome of the strategic review process would be the sale of Save-A-Lot to a private equity firm, with Supervalu using the proceeds to pay down debt.
Save-A-Lot could fetch up to $2 billion in a sale, analysts said.