The flagship private brand for Supervalu will double in product size by the end of fiscal 2013. Will it be enough for the struggling retailer?
This summer, Supervalu conducted events on each coast to promote the expansion of its mid-tier private label brand, Essential Everyday, to 2,700 products across more than 100 categories by 2013.
That included an appearance at a blogger’s conference in Seattle and a New York news conference with chef and cookbook author Antonia Lofaso.
Certainly not the typical way a retailer tells its customers about a new private label brand. But Supervalu Vice President of Private Brands Sam Mayberry said it was an opportunity for the company to showcase what will be its flagship of private label for years to come.
“I think typically people do these launches around very narrow brands,” Mayberry said. “We wanted to showcase Essential Everyday as a mega brand in stores. It’s an easily identifiable brand, and you know what to expect from it.”
Mayberry said bringing in Lofaso to the New York conference helped showcase the versatility and utility of the brand.
“That’s what Essential Everyday does is provide support for working moms,” he said. “You tie all those elements together and overall, simplify the shopping experience for our customers.”
The rollout of Essential Everyday is the culmination of years of work at Supervalu, and the national brand equivalent line replaces 15 banner brands across Supervalu’s 3,300 stores nationwide. It began last year with more than 1,200 products across 40 categories, and Mayberry said the choice of which categories to enter early on had as much to do with the calendar as it did with the retailer’s preferences.
“You want to take seasonality into account, when consumers are buying the product, when we had to have them in the stores,” he said. “How can we make this transition as smooth as possible to support consistency.”
“Our goal was to develop a program to allow all 3,300 stores to access the same items and leverage items when necessary. Essential Everyday is a big part of that as the largest brand we have, period. It will provide, for us, the foundation to create new items also to meet the consumers’ expectation for quality and value in a brand that’s easily able to be identified with us.”
With the rollout nearing its halfway point, Mayberry said the company is on track and pleased with the early response from customers.
“The team has done a fantastic job maintaining the original schedule,” he said. “Our commitment is to have it all transitioned by the end of the fiscal year.
Naturally, there is a flow-through model. Depending on the store you’re in, you’ll see different items on the shelf at different times.”
“There’s been very good acceptance. The feedback we’re getting from stores and our calling center, the information coming back is good.”
As new products in the line roll out over the next year, Mayberry said Supervalu would put the initial group of Essential Everyday products under the same scrutiny as other products in the store. That means studying them in a typical category review process and making sure they are the right products in the right mix to meet the needs of shoppers and merchants, he said.
“They have to perform, they have to meet our needs,” he said. “It’s a review process that takes place at a normal rate, tied to the categories.”
But in Supervalu’s three-tier private label platform, Essential Everyday is only one piece of the puzzle. The company’s value brand, Shopper’s Value, and its premium-tier brands such as Wild Harvest, Culinary Circle, and Coldstone Creamery also are growing and expanding.
“We believe there to be a lot of upside and value to providing a value-tier to shoppers, and we’re launching new items and new categories that are needed and wanted by shoppers,” Mayberry said. “Here again, the value-tier has to deliver a good-tasting experience on food and a good functional experience on non-food.”
As for the premium brands, Mayberry said the company’s experience in trying to provide additional customer benefits to Essential Everyday products is being reflected at the high end of private label as well.
“Take a look at the variety and flavors of Culinary Circle pizzas that we’re trying to be first to market with,” he said. “We have a limited-edition strawberry lemonade flavor (Coldstone Creamery ice cream) that is doing very well. We’re providing shoppers with a different experience. We’re very focused on doing things like that just so we can be as fun and exciting as any other new brand offering out there.”
By doing that, Mayberry said, Supervalu can make a stronger connection between consumers and the company’s private label products.
“I think we have to earn shoppers’ trust, and we do so by performing, not only on price, but by providing products that take care of their taste needs and allow them to experiment.
“You look at a lot of the premium products, people want a new taste experience,” he said. “We’re continuing to look for new and exciting flavor profiles, and as authentic as we can make them. We remain focused on a number of brands, and try to grow them and the offerings from them to help consumers meet their busy lifestyles.”
Supervalu’s Future: Will It Survive?
Analysts Question Whether Supervalu Can Make It Through Intact
In its March 2011 cover story, PLBuyer asked: Can Private Label Save Supervalu?
As Supervalu announced in July that it would explore strategic options, including the sale of the company, after sluggish first-quarter sales, the question now is whether the company will be around long enough for its private label program to help steady the ship.
Supervalu has begun a new fair price plus promotion at its Jewel-Osco banner that it said should get half of the company stores in line with competitors’ pricing by the end of the fiscal year, and the remainder in line by the end of fiscal 2014.
The company began to make changes weeks after announcing the strategic review, letting CEO Craig Herkert go and promoting board chairman Wayne Sales to the role of president and CEO.
Jim Hertel, managing partner for Barrington, Ill.-based retail consulting firm Willard Bishop, says the company might have to make more substantial changes — such as suspending its dividend, as the company announced, or selling off parts of the company — to buy time for the pricing changes and private label success to help the bottom line.
“I actually think the likelihood is that major changes are the most likely outcome,” he says. “They may have time, but at this point, they’re not the only stakeholder making the decision. In a publicly held company, when the board tells you it’s time to explore strategic options, the senior management can not feel real comfortable about that. I think we’re at that point.”
But the leader of the company’s private label program says there is time for the company to realize the savings and growth from its transition to a single mid-tier brand, Essential Everyday, and the opportunities from its value and premium-tiers.
“I think we still have a tremendous opportunity,” Supervalu’s Sam Mayberry told PLBuyer exclusively. “We have a lot of opportunity to focus on private brands and grow private brands. I don’t think it’s too late. I think with the economy, where it’s currently at, we’re providing shoppers with ample incentive to look for value and savings. And as long as that exists, there’s always an opportunity to take advantage of the climate.
“I’m still very bullish on private brands.”
But others are not so confident. Analysts watching the company say its competitive disadvantage in pricing has hurt the bottom line, and there might not be enough time to correct that aspect, even with the fair pricing plus rollout and the adoption of Essential Everyday.
“Many of Supervalu’s performance issues stem from it being just too late to the party in terms of strategic shifts in pricing, private label/merchandise, and even store maintenance,” said Sandy Skrovan, Planet Retail’s Research Director for North America. “Supervalu unfortunately finds itself stuck in the middle — and the middle is not a good place to be today.”
Hertel said the pricing issues extended beyond the private label program. He said because Supervalu dug such a hole to its competitors in terms of pricing and image, a refreshed private label program would not have been enough to make up the difference.
“I think that’s too much to overcome that kind of a challenge, from a store base standpoint, when you look at how long it’s been since their last remodel, and in terms of their locations,” he said. “It would have been a big obstacle to overcome.”
Hertel said the fair price plus move, plus the extended rollout of private label products, could start to show gains for the company within six months to a year. But to fully realize the benefits, he said, could take three to five years. And the company has to be careful with how the changes are made, he cautioned.
“It can’t be looked at as a promotion; it really has to be something that’s built in, where there’s a process and management visibility up and down,” he said. “If you think of it from a shopper perspective, all their chains’ shoppers have been there for years, so they’ll know whether it’s something that’s stuck to for six months, or something that has a commitment behind it.”
The move to one main mid-tier private label line was the culmination of years of effort, said Craig Espelien, vice president at Consumer Products Inc. Espelien spent 17 years with Supervalu before leaving in 2006.
“The goal to get to a single brand had been in the works for multiple years, so kudos to them to make it happen,” he said.
But Espelien said he had concerns over the slow rotation of previous banner brands out of stores — “There’s four generations of labels on the shelf at some stores,” he said — and the amount of savings the consolidation has been able to provide for Supervalu.
“I think going through their cost renegotiation, I’m not sure they got the savings they claimed they got,” he said.
That issue was echoed by Jim Wisner, president of Libertyville, Ill.-based Wisner Marketing Group.
“They are moving in a much better direction than they were, and they are paying far better attention to price spreads, but are they moving fast enough?” he said. “I can’t say for sure.”
Mayberry said he was comfortable with the savings being achieved by the consolidation into Essential Everyday.
“It’s meeting our expectations and delivering what we thought we’d see when we consolidated into one brand,” he said. “I see a lot of that coming through (Supervalu’s) value transformation, and private brands are part of that value transformation that we announced.”
Private brands account for $6 billion in annual sales, Supervalu said, and the company has trimmed its private label brands from more than 100 down to 15 across three tiers. Essential Everyday, its mid-tier private label, rolled out last year with 1,200 items across 40 categories, and the company announced this summer that it would add 1,500 products by the end of 2013.
But have the moves come too late?
“They’ve had an impact, but not a sufficient impact,” Hertel says. “I think its issues, it’s fair to say, are more fundamental in terms of price/image and, quite frankly, the store base. And private label could have been, certainly on the pricing side, a real benefit. I think it’s probably necessary, but not sufficient.”
The stores are among the reasons for the slumping sales, Wisner says.
“The one thing they never fully addressed is, while they’ve addressed private label and a lot of other things, they’ve not fundamentally in any sort of major way changed what the shopping experience is,” he said. “One of the reasons consumers are leaving is, maybe they’re finding a better price, but in more cases, they’re finding a superior shopping experience somewhere else than what Supervalu offers.”
Although there are some aspects of the Essential Everyday launch that are not Espelien’s favorite — he says the packaging and name “Essential Everyday” helped make the tier look more like a value brand than it probably should be — he says the private label program was the least of Supervalu’s concerns.
“Quite frankly, Supervalu has much more systemic problems,” he says. “I think its private label is on the right track, and its grand plan is right on consolidating labels, its marketing is better.”
“Private label is kind of like the quarterback on the football team. It shouldn’t get all the credit for a win and it shouldn’t get all the blame when it loses.”
But Skrovan said the benefits might not be enough for the retailer this time.
“Do I think Supervalu implemented some of its new strategies — private label and pricing — too late? Yes,” Skrovan said. “It has a lot of ground to make up, but that’s not to say it’s impossible, it just won’t be an easy road to tow.”
Analysts Say Supervalu CEO Change Was Necessary
Board Chairman Takes Over Helm Of Grocer
The move by Supervalu to replace CEO Craig Herkert with board chairman Wayne Sales was a long time coming, one analyst said.
Two weeks before Supervalu made the decision to let go of Herkert, a former Walmart executive, Craig Espelien, vice president at Consumer Products Inc., 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 line 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 first 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 Planet Retail Research Director for North America Sandy Skrovan.
“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 the investment money is coming from before they do it, decide where they want to disinvest so they can reinvest 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 types of actions, the strategic review, and 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, 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.”