Wal-Mart's Herkert Brings the Right Stuff to Supervalu

Supervalu, in announcing the replacement of Jeff Noddle as CEO with former Wal-Mart Americas president and CEO Craig Herkert, gets an executive who has built an expertise in driving a multiple format retail operation with efficiency and improving sales.

He may be just what Supervalu needs right now as it begins moving into a new phase of its transition, one that results from the 2006 Noddle-engineered acquisition of several of the best retail operations owned by the former Albertsons company. The transition has been a largely successful integration effort, as what was primarily a grocery distribution business with a large contingent of supermarkets became primarily a food retailer by bringing on board Jewel, Acme, Shaw’s, Bristol Farms and a large contingent of the Albertsons stores that the namesake company operated. It also acquired elements of the Osco and Sav-on drug store chains.

However, timing hurt Supervalu. Competing supermarkets Kroger and then Safeway launched repositioning initiatives around the time Supervalu acquired Albertsons. As a result, they have been investing in store-level improvements, private labels and lowering prices on merchandise while Supervalu had to commit money to consolidating its operations. Then Supervalu ran smack into a recession before its consolidation was complete and more of its acquisition-related debt paid off.

Another problem Supervalu has faced is that most of the chains it acquired, even if well regarded, depend to a significant degree on conventional supermarkets, a format that been under pressure from similar competitors, including revitalized Kroger and Safeway, and alternatives such as warehouse clubs and supercenters.

Supervalu has strengths it can apply. Many of the conventional supermarkets the company acquired are paired with fully functioning drug stores in a combination store arrangement, so that a significant proportion of its Chicago-area Jewel supermarkets combine with Osco drug stores in a Jewel-Osco arrangement. Combination stores provide operational flexibility and the opportunity to attain more non-food sales.

Herkert brings new perspectives to Supervalu. As CEO of Wal-Mart Americas, he helped develop a multiple retail format enterprise that was adapted to various operational circumstances in markets including Canada and ranging south of the U.S. border from Mexico to Argentina. The ability to tailor retail operations is relevant as Supervalu looks to maximize the effectiveness of a sprawling store roster than includes, in addition to conventional supermarkets and combination stores, biggs hypermarkets and Save-A-Lot budget groceries.

Observers have noted that Herkert should be well suited for the task of fine tuning Supervalu’s distribution system and store base.

Citigroup analyst Deborah Weinswig noted that Herkert “was responsible for driving profitable growth in Wal-Mart’s best performing region and capitalizing on new formats that cater to the important low-income consumer in this region.”

But he brings more to the Supervalu CEO position than his Wal-Mart experience. His early career was spent at American Stores, which itself was later acquired by Albertsons. Morningstar analyst Mitchell Corwin, noted:

Wal-Mart operates multiple formats and its distribution efficiency is unrivaled. Supervalu operates a variety of grocery formats as well as Save-A-Lot, its smaller limited assortment food store, and is one of the largest wholesale distributors. In addition, prior to Wal-Mart, Herkert moved up the ranks at American Stores, which housed what are today some of Supervalu’s most successful retail banners, Jewel and Acme. American Stores was also a pioneer in the dual branding of grocery and drug stores.

Noddle plans to stay on for a year as executive chairman, then it’s all up to Herkert.

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