It’s an interesting coincidence that there will be plenty of ink in this month’s magazine devoted to the success of dollar stores and their private label programs and the struggles of Supervalu.
We planned for months to write about the impact that dollar stores are having on the retail market in general, but more specifically the private label landscape. Dollar General, Family Dollar and Dollar Tree — the overwhelmingly dominant players in the channel — have continued to see sales rise as the recession has been slow to subside. All three have taken gains at the expense of traditional mass retailers such as Walmart and Target, as well as traditional grocers.
As the dollar stores have expanded their fresh offerings and consumables, both areas where they can make strides and profits in private label products, Supervalu has seen same-store sales continue to slide the past three years. And even as its Essential Everyday rollout has breathed new life into the three-tier private label program run by Sam Mayberry, a change at CEO and a plummeting stock price leave the future of the company in some doubt.
A company that has priced itself so far out of the marketplace that it will take nearly two full fiscal years to fix is not one with a good shot at survival. To make inroads, Supervalu will have to speed the pace of competitive pricing — not discounting the competition, simply getting its price structure competitive. That it has fallen so far out of whack is a failure at the highest levels of the company to not see the changing landscape in its industry.
A changing landscape that includes dollar stores.
Newer stores, bigger stores and remodeled stores have brought a brighter customer experience. An expansion into name brand products has not taken away from sales or the bottom line; rather, it has made Dollar General and Family Dollar in particular focus heavily on better quality and better packaging in their private label products. With a choice between a name brand and a private label product on the dollar stores’ considerably smaller shelves, giving customers a quality option at a lower price has helped increase margins for both retailers.
It’s a strategy that Supervalu has learned from, and that Mayberry has instituted on each of the three tiers in the company’s private label platform. But the savings might not be achieved fast enough to bring back customers who have left old, tired stores for the promise of better prices and better shopping experiences across the street at competitors such as Kroger and Safeway.
Can Supervalu survive? As it is constituted today, the general consensus is no. Any retailer that can’t match the prices of its closest competition for two years probably doesn’t have a chance to survive as a whole. But, analysts have pointed to the strength in individual pieces of Supervalu — Save-A-Lot, Jewel-Osco, Cub Foods, and the wholesale distribution business — as areas that could survive on their own or as the future of Supervalu.
For that to happen, though, Supervalu must follow the example being set by the dollar channel, providing quality and value to consumers at a time they most need it. Whether the grocer can do it quickly enough is anyone’s guess.