Supervalu Aims to Fix Ailing Shaw's Banner

JON SPRINGER

WEST BRIDGEWATER, Mass. — Shaw's Supermarkets, which when purchased by Albertsons four years ago was seen as a source of “reverse synergies,” has become just the opposite for its next owner.

Supervalu, which acquired Shaw's as part of its 2006 takeover of Albertsons, has found the 202-store New England chain in need of attention beyond that which other divisions of Albertsons have required in their respective integration. Citing stores “in dire need of upgrades” and acknowledging the chain had allowed prices to drift too high, Shaw's has been the focus of an ongoing “fast track” capital program at Supervalu, according to Jeff Noddle, chief executive officer of Supervalu, speaking in a conference call earlier this month.

Since acquiring the Shaw's and Star Markets stores 18 months ago, Supervalu has opened five new stores, remodeled 30 locations and closed 14. Last fall, the chain introduced new pricing and marketing initiatives designed to get customer price perception back in line and improve the shopping experience.

Observers and analysts told SN that Shaw's — once well regarded for its profitable stores, leading technology and management talent — was “bled dry” by Albertsons, which sucked management talent to other divisions and executed corporate and store-level layoffs while allowing pricing to drift higher amid hot promotions to drive foot traffic. Those changes helped profits at the chain but failed to position it for growth.

Moreover, they said, Shaw's failure to distinguish itself occurred while Stop & Shop, the leading supermarket chain in New England, was struggling with its own transition to an everyday-low-price strategy and alternative channels were growing. Now, Shaw's must make its comeback against a strengthening Stop & Shop in a marketplace that's become more competitive and more price-sensitive.

“Albertsons' [previous] management may have led Supervalu the wrong way on Shaw's,” Burt P. Flickinger III, managing director of Strategic Resource Group, New York, told SN. “It said it could hold premium prices at a time when Target was expanding its food square footage with prices within a whisker of Wal-Mart. And with Wakefern and Golub/Price Chopper getting more aggressive, Shaw's really got caught in the crossfire. Their prices were so high, shoppers were going to competitors.

“Albertsons' primary focus was profitability,” he added. “And they left Supervalu with a playbook that was not self-sustaining.”

Supervalu's strategy for reviving the Shaw's brand involves a combination of store renovations and new pricing and merchandising initiatives. Supervalu plans 21 major remodels in the fiscal year beginning next month. “By the end of fiscal 2009 we will have touched more than 30% of our store base since the acquisition,” Noddle said.

New merchandising and pricing initiatives telling shoppers Shaw's offers “more ways to save” were launched at stores last fall. The effort includes “fresh low prices” throughout the store, a price-watch program where Shaw's monitors competitors' prices on various known-value items; hot weekly specials; and promotions of private-label goods and loyalty programs such as partnership with Irving Oil offering gas discounts with grocery purchases.

Stop & Shop's transition to an EDLP strategy, though slow to gain momentum, may ultimately prove a particularly difficult challenge for Shaw's, according to Gary Giblen, an analyst at Goldsmith & Harris, New York.

“Stop & Shop had fallen asleep at the wheel, but it's become a much stronger organization over the last six to 12 months,” Giblen told SN. “Shaw's didn't take advantage when Stop & Shop was distracted. But Stop & Shop has generally been an excellent operator, and they look ready to rumble again.”

Giblen said Shaw's also needs to create more excitement in stores. “They have good locations and some consumer equity, but their stores are kind of blah.”

Supervalu is addressing the in-store experience through new customer-service initiatives such as instituting a new dress code companywide and a pilot program where all manned checkout lanes are open Monday through Friday from 4 to 7 p.m. in New Hampshire, Maine and parts of central Massachusetts, said Supervalu spokeswoman Haley Meyer.

Another observer, who asked not to be identified, said Shaw's had little alternative but to try to reestablish a price image.

“They should probably go back to trying to be the price leader, but that's difficult now with BJ's, Costco, and Wal-Mart and Target,” the observer said. “The problem is, I don't think they have the ability and the commitment they need to go upscale. The middle, where they are, is just death.”

Shaw's, which at one time was considered a low-price leader in Massachusetts, was acquired by British retailer J. Sainsbury in 1987. Sainsbury in 1999 acquired the upscale Boston-area Star Markets chain and integrated the two businesses. Under Sainsbury, Shaw's developed a reputation for leading private-label programs and loyalty marketing. It also pursued an unusual renovation strategy whereby certain high-profile stores received heavy investment while others went without physical improvements, observers said.

Sainsbury in 2004 sold the group — then doing around $4.6 billion in annual sales — to Boise, Idaho-based Albertsons for nearly $2.5 billion. Albertsons officials spoke of “reverse synergies” inherent in the deal, and shortly thereafter promoted Shaw's CEO Paul Gannon to be its chief marketing officer in Boise. He left in 2006 when Supervalu took over the chain.

“Shaw's was never integrated into Albertsons' programs or systems,” Noddle told investors late last year. “Therefore our migration of plans and activities at Shaw's are different than all other banners.”