Mac Naughton Tasked With Revitalizing Albertsons

ELLIOT ZWIEBACH

NAME:
Duncan Mac Naughton

TITLE:
Executive vice president, merchandising and marketing, Supervalu

CHALLENGE:
Incorporate Albertsons into Supervalu's merchandising framework while building sales.

MINNEAPOLIS — For Duncan Mac Naughton, executive vice president, merchandising and marketing, Supervalu, it's all about changing expectations at store level at the Albertsons stores the company acquired last year.

“We're committed to ensuring that all banners best meet the needs of their respective customers by enhancing the in-store experience in an atmosphere that's easy to shop, with the right products at the right price,” he told SN.

As the person chosen to lead the effort to improve sales at Supervalu's retail banners, analysts said, Mac Naughton will need to bolster customer perceptions while integrating the stores into a new national distribution framework.

Mac Naughton told SN that an important part of his strategy will be implementation of “Premium Fresh & Healthy” — a store concept that incorporates a high-quality offering with the fresh expertise that Supervalu believes is its specialty — joined to the health benefits of in-store pharmacies in a combination that will be customized for each market's demographics and will reinforce the individual banners' brand propositions.

“Ultimately, we intend to develop solutions that deliver a total store experience — offering products that are healthy, easy to find and easy to prepare — combined with outstanding customer service,” he said. “It's all about building an infrastructure for the new company by marketing to stimulate demand, merchandising to meet that demand and supply chain to fulfill that demand.”

To achieve that goal and to make the model more relevant to customers, Supervalu is committed to investing in its store base, Mac Naughton said.

“At the corporate level, we are putting together a merchandising and marketing ‘center of excellence’ that at once leverages our scale at the national level and allows us to be locally responsive and relevant. At the same time, we plan to invest $1.2 billion during fiscal 2008, after spending $1 billion during fiscal 2007, with much of the capital going directly into the stores,” he said.

Mac Naughton has both retail and manufacturing experience, having spent 13 years with Kraft Foods before moving to H.E. Butt Grocery Co., where he held a variety of positions over six years, including oversight of procurement, merchandising and private label. He joined Albertsons in 2003 as executive vice president, merchandising, and following Supervalu's purchase of the chain in mid-2006, was named EVP, merchandising and marketing, with responsibilities for resetting the various Albertsons banners in a new mode.

CHALLENGES

Perry Caicco, an analyst with CIBC World Markets, Toronto, listed three challenges Mac Naughton faces.

“One huge challenge will be balancing the efficiency of Supervalu's national programs and procurement with local tastes and demands,” Caicco said. “He has to figure out how to leverage the advantages of national procurement at the same time the company is trying to localize the customer experience.

“Another area of concern should be the history of some of the acquired assets, where lack of operational discipline has been a problem,” he continued. “Supervalu has made it a priority to clean up the stores and get them back in shape, but it remains to be seen how well they can execute the new merchandising programs.

“Finally, the company will have to balance the stores' pricing and value issues with the new Premium Fresh & Healthy theme,” he concluded. “Even while implementing new merchandising programs that move the core customer proposition toward better products and a better shopping experience, Mac Naughton can't ignore the damaged value reputation of the assets.”

Jay Whitmer, an analyst with Cleveland Research, Cleveland, said Mac Naughton's biggest challenge will involve “creating a new merchandising platform essentially from scratch, although he will try to assemble it using best practices from both organizations. In addition, there are a lot of inefficiencies in procurement, category management, pricing and promotions and, ultimately, store operations that need some help.”

Whitmer said he also believes the previous Albertsons priorities did not match consumer needs, “but Mac Naughton will have greater freedom and range to be creative by exploring more growth avenues, and Supervalu's information technology and distribution systems should provide better support from the supply side. Further, the vendor community will be far more supportive and excited to invest in this new enterprise because of its different philosophical, operational and financial objectives.”

SOUTHERN CALIFORNIA

John Heinbockel, an analyst with Goldman Sachs, New York, said he believes Mac Naughton's biggest challenge is likely to involve the Albertsons-banner stores in Southern California.

“The other banners Supervalu acquired — Jewel, Shaw's and even Acme — are in generally good shape, but the biggest question mark is the Albertsons stores and what they stand for,” Heinbockel told SN.

“The Albertsons divisions in the Pacific Northwest and the Rocky Mountain region are strong franchises, because they were established under the Albertsons name, whereas Southern California represents a combination of Lucky Stores, which had a very well-defined image and a good reputation, and Albertsons, which did not. In Southern California, Vons and Ralphs stand for something, but since Albertsons converted the Lucky banner in 1999, the chain hasn't stood for anything in the minds of consumers there. Mac Naughton's challenge is to make those stores stand for something.”

Heinbockel said he believes Mac Naughton will be able to meet that challenge, “though it will take a bit of time.

“The stores are in generally good shape, and they're located on some pretty good real estate,” he said, “so the asset base itself gives Mac Naughton a lot to work with, and the Premium Fresh & Healthy format is the right way to go. But the job will involve more than just remerchandising. It will involve changing the physical look of the stores and the image consumers have of them, and that will require a lot of capital investment.”

Given Mac Naughton's previous work at H-E-B and Kraft, Heinbockel said he believes Mac Naughton “has the background to turn those Albertsons stores around.”

However, he said he believes Supervalu would get more benefit if it concentrated its capital investment more heavily in Southern California — especially with Tesco set to begin opening stores there later this year. However, because the company has indicated it will spread its investments across all regions, “it will take time to get the desired results in Southern California — maybe three to four years,” Heinbockel said.