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Supervalu's Herkert out as CEO

July 30, 2012
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The move Monday by Minneapolis, Minn.-based retailer Supervalu to replace CEO Craig Herkert with board chairman Wayne Sales has been a long time coming, one analyst said.

A week before Supervalu made the decision to let go of Herkert, a former Walmart executive, Consumer Products Inc. Vice President Craig Espelien said a leadership change would help the struggling retailer move forward.

“You’ve got a Walmart executive running Supervalu and you’ve got a Walmart executive running Save-A-Lot. They’re smart guys, but they know one way to do things,” said Espelien, who spent 17 years with Supervalu before leaving in 2006. “And that’s not necessarily what a grocery retailer needs.”

Supervalu’s bottom link has sunk the past three years, with sales falling 3.8 percent in the year that ended Feb. 25, according to data compiled by Bloomberg. The news agency reported that sales in Supervalu’s fiscal 2013 could fall an additional 4.2 percent.

Herkert was brought into Supervalu from Walmart’s international division in 2009 and named CEO. In an interview with Bloomberg News, Cantor Fitzgerald analyst Ajay Jain said Herkert “clearly inherited a very bad situation and was not able to turn things around.

“There’s probably more urgency to pursue strategic alternatives, and that includes a potential for asset sales.”

Supervalu announced it would undergo a strategic review when it released fiscal second quarter earnings earlier this month. It also announced plans to speed up its fair-plus pricing program that is lowering prices across its flagship banners through fiscal 2014.

“We will take significant cost out of the business, and move with urgency in our retail food business to lower prices and create points of sustainable differentiation for our customers,” Sales said in a news release announcing the moves. “We will work closely and collaboratively with independent retailers to ensure that they continue to receive the superior service they need to increase sales and profitability. 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.

“As we execute our business plan, the Board will continue its review of strategic alternatives, and I am still leading that process.”

The leadership change could make some of those strategic decisions move more quickly now, said Sandy Skrovan, Planet Retail’s Research Director – U.S.

“They’ve got a tough, tough job ahead, but I think the infusion of new blood might make more people pay attention,” she said. “They’ll be moving at maybe a quicker pace.”

But despite Sales’ emphasis on lowering costs, Skrovan said that dropping prices at the store was not an overnight proposition.

“They have to do step A before they do step B, so those cost-cutting measures aren’t going to happen on Day 1,” she said. “They have to figure out where they investment money is coming from before they do it, decide where they want to dis-invest so they can re-invest in price savings.

“They’ll figure out maybe how to restructure better the system at hand. You’ve got to walk before you can run, but you’ll maybe see some of those type of actions, the strategic review, pick up the pace.”

Sales has been a director at Supervalu since 2006 and non-executive chairman since 2010. The 62-year-old is the retired vice chairman of Canadian Tire Corp., where he was president and CEO from 2000-06.

“We are grateful to Wayne for taking on the chief executive position at this important juncture in Supervalu’s history,” said Susan Engel, chairwoman of the Supervalu board’s Leadership Development and Compensation Committee, in the news release. “He has been a valued member of the Supervalu board, bringing a wealth of executive experience from an extremely successful career in business and retailing, and a strong track record of transforming businesses and driving profitable growth.”

The Wall Street Journal obtained a copy of a letter from Sales to Supervalu employees after the move was announced. In it, Sales detailed the changes detailed in the news release while pointing to his own background and experience in handling salvage projects.

“I see a number of similarities between what I find as I join the Supervalu leadership team today and what I found upon joining Canadian Tire,” he said in the letter. “We were faced with high prices, a high cost structure, and no defined point of differentiation. But guess what? By all accounts, we were successful.”

He closed the letter by asking employees to join in the company’s transformation and “we will prove the naysayers wrong.”

But can Supervalu prove the naysayers wrong? Skrovan said it’s an uphill battle.

“Supervalu really needs to figure out how to regain shoppers it may have lost in recent years,” she said. “It needs to attract new shoppers. It needs to start driving more traffic into its stores.

“As the economy strengthens and shoppers begin opening their wallets again and shopping more, Supervalu must do what it can to get back on shoppers’ grocery list.”

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