Supervalu using local strengths to boost national appeal

EDEN PRAIRIE, MINN. —At a time when major supermarket operators are homogenizing their operations, Jeff Noddle, chairman and ceo of Supervalu, told shareholders at the company’s annual meeting on May 24 that its several banners would continue to be run as independent operations based on local strengths.

From Kroger to Safeway to Ahold USA to regionals such as A&P, major supermarket chains are increasingly pushing store design and merchandising initiatives across banners as part of a core operational strategy. The example of Safeway and its Lifestyle store program is probably the most thoroughgoing, but, in a somewhat similar effort, Ahold USA has been winnowing down its assortment as part of a limited SKU strategy that affects all its stores.

With its Marketplace and Food & Drug prototypes rolling across various banners, Kroger has taken up somewhat of the same strategy, as has A&P with its Fresh store concept. Both A&P and Kroger continue to offer banners that operate very differently outside the core, such as Food Emporium and Food-4-Less, respectively, but the core business has become increasingly singular in both cases.

Success has driven the strategy, with Kroger and Safeway posting particularly strong numbers. So, Noddle’s emphasis on the local strengths of Supervalu’s banners is noteworthy.

Supervalu is integrating the chain, particularly as regards its recent Albertsons acquisition, to leverage efficiencies, and Noddle promised that the company would centralize functions such as marketing that benefit from a singular organization at headquarters. In a move similar to efforts at Ahold and Kroger, Supervalu is taking best practices developed in one banner and spreading them to others, as it is doing with Wild Harvest, which was developed at Shaw’s.

Yet, Noddle told shareholders that Supervalu’s various properties would build on their local identities to achieve success.

“New England People Who Care” has been set as the slogan at the core of Shaw’s/Star Markets positioning and, to deliver on that, the banner is enhancing produce operations to better serve a nutritionally conscious clientele.

In another example, Jewel-Osco’s positioning pivots on the benefits of having two strong brands under one roof, with marketing driven by the slogans, “Fresh to Your Family” from Jewel and “Count on People Who Care” for Osco.

“By utilizing two themes focused on the dual-branded advantages of these stores, Jewel-Osco targets both the grocery shopper and pharmacy customer with an image of quality service and compassion. It is a powerful combination,” Noddle said.

What Supervalu seems to be counting on as it undertakes its localized strategy is distribution expertise. Supervalu built its business as a distributor to independent supermarket operators. Retail now represents about 80% of Supervalu’s $40 billion in annual sales, but distribution continues to enjoy all the resources of an $8 billion business. Supervalu’s distribution system is credited with superior technology, ensuring that it can understand what is selling in the various retail outlets it serves as a function of getting stores the products they need.

Thus far, analysts have been supportive of Supervalu’s localized strategy. Standard & Poor’s analyst Joseph Agnese said in a research note, “We believe Supervalu is well positioned, with strong regional market share positions despite an intensely competitive environment.”

Meredith Adler, a Lehman Bros. analyst, said that through this spring, Supervalu may even have done better faster with its focus on local operations than it expected. In a research note of her own, she asserted, “When Supervalu reported first-quarter earnings results in July 2006, it indicated that identical-store sales in its core store base declined by 1.8%, while the Albertsons stores experienced ‘slightly positive’ identical-store sales.” As of the fourth quarter, total company identical-store sales were up by 1.4%, aided in part by Supervalu’s sale of 18 Scott’s stores in Fort Wayne, Ind., to Kroger. This sales improvement came faster than management had expected.”

If Supervalu can balance efficient centralized functions with uniqe local in-store attributes, the company could function as a regional supermarket chain in markets of various particularities and preferences while capitalizing on the efficiencies of scale that a national business enjoys.