Supervalu Leverages Technology in Merchandising

JULIE GALLAGHER

Colorado Springs — Supervalu last week began piloting new technology designed to serve as the foundation for its merchandising and marketing function and the “toolbox” for its category management team.

The test marks the latest in a series of steps the retailer/wholesaler is taking to help deliver to shareholders some of the estimated $150 million to $175 million in synergies it hoped to achieve when it acquired Albertsons, according to Duncan Mac Naughton, executive vice president of merchandising and marketing for Supervalu. Speaking here at the Grocery Manufacturers Association/Food Products Association's Merchandising, Sales and Marketing Conference last week, he outlined plans for the retailer's collaboration paradigm that centers on leveraging scale while remaining locally relevant.

“We have this big elephant called a company we purchased on June 2, 2006, and as we try to move it through the digestive tract that is Supervalu, we have a great opportunity,” he said. “Given its newness, we're in a unique position to build a new business model here. The key is maintaining our equities while we change it.”

Supervalu is confident the new database system from Oracle — whose test will deliver preliminary results in January and will run through spring or summer — will ensure a smooth transition to its corporate-led merchandising and marketing model.

“Functions like sourcing, assortment, placement, presentation and all those things we have good data for, we can manage further away from the customer,” said Mac Naughton. A more segmented approach will be applied to promotions, advertising, displays and pricing.

“I can't tell when someone changed the price of a banana fast enough being that far away from the decision,” he said. “What we can do is have smart people in a dark room running modeling across different SKUs and feed price files to our banners to optimize at a local level.”

The system might also help bring Supervalu closer to its five-year goal of developing best-in-class product mixes.

“We've got every SKU known to mankind in our stores, and that creates out-of-stocks,” said Mac Naughton.

Now the third-largest traditional supermarket operator, Supervalu went from $20 billion in sales to $44 billion post-acquisition while tripling its retail square footage and quadrupling its employee base. It's also added 710 pharmacies, making it the eighth-largest drug store chain in the nation.

Formats range from its limited assortment Save-A-Lot stores and Shoppers Food & Pharmacy, which has an everyday-low-price strategy, to the premium, prepared-food focus applied by Bristol Farms.

Its product sets will no doubt be affected by the $1.2 billion in capital Supervalu has earmarked for “premium, fresh and healthy” remodels in fiscal year 2008.

“The strategy is focused on high-growth, high-margin categories, including perishable prepared foods, natural and organic items, specialty beverages in Center Store and health and wellness” in pharmacy, he said. “Boomers need smaller package sizes, and other folks want to cook but they don't know how — it's all about convenience.”

Much of the efforts will focus on building “world-class” private-label offerings throughout the stores' perimeters, while leveraging common brands across its portfolio. Supervalu plans to pare its 103 store brands to 20.

“We pale in comparison to the industry when it comes to own-brand sales share, but we see this as an opportunity for incremental profit, loyalty and ultimately negotiations,” noted Mac Naughton.

Potential private-label products will be tested and focus groups hosted in the retailer's Eden Prairie, Minn., Marketing Center of Excellence test facility.

“We had 50,000 extra square feet, so we built a lab store with refrigeration for fresh foods and gondola shelving for grocery and health and beauty care products,” he said. “When I worked for Albertsons we didn't have this great position, but now we're in a place to understand what people eat.”

Andrew Wolf, an analyst with BB&T Capital Markets, Richmond, Va., who was also a presenter at the conference, said that after hunkering down for a year to get its systems in order, Supervalu seems to be opening itself up again to discussion with its trade partners about strategies going forward.

“This was their way of saying, ‘Hey, we're back in the game,'” he said.