Herkert Shifting Supervalu to Customer Focus as Sales Slip

Craig Herkert, Supervalu’s new CEO had “unacceptable” results to convey as he conducted his first analysts call but promised a fresh approach at the company, one less focused on store remodeling and corporate integration in the wake of it’s acquisitions from Albertsons, and more focused on the customer.

Supervalu posted sales of $12.7 billion in the first quarter, down five percent from last year’s period. Identical store sales, those in locations open for at least a year and exempting remodeled and relocated units, fell 3.2 percent, while earnings, sans store closing costs, tumbled to 55 cents per share from 76 cents per share in the year-ago quarter. The latest earnings number beat the average Thomson Reuters analyst estimate of 53 cents per share, but Supervalu still lowered its earnings guidance for the year and announced the sale of most of its Utah Albertsons operation, a group of 36 stores Herkert said no longer fit with the company’s strategic plans.

He said Supervalu’s sales and earnings decline was due to the economic climate, investments in lower prices and additional promotions the company is making, and increased competition as more retailers put emphasis on low-cost food and consumables.

Changing Supervalu’s approach to pricing is an immediate goal for Herkert, who plans to follow up on a promotional campaign lowering prices in Chicago and California with a realignment away from the company’s established high/low strategy. It traditionally has held prices relatively high in many of the most important chains it operates, which conduct business under such banners as Acme, Jewel and Shaw’s, enticing customers with deep discounts on specific items. Herkert said consumers weren’t responding well to the strategy, and stated specifically that their price perception was not driving incremental sales or loyalty.

As a result, Supervalu is instituting a change in pricing. It isn’t going to everyday low prices of the kind that Herkert’s former employer, Wal-Mart, specializes in providing. Rather, it is moderating the cost to customers across the board while retaining a discounting element to generate excitement. The process of changing the price structure will be costly and take time, Herkert said, but will be worth it ultimately. He noted:

The magnitude of our price and promotional investments in the first quarter was greater than originally anticipated. As the company discussed in the fourth quarter, our price position had gotten out of line in a number of our markets, and we had actually characterized fiscal 2010 as a year of investment. The Big Relief price cut program in Chicago and southern California was part of this investment, as well as other locally driven activities by the rest of our banners. However in response to weaker sales, heightening competitor activities and the continued dramatic change in consumer spending behaviors, we also increased promotion and sharpened pricing.

While Herkert said he would discuss a new strategic vision for Supervalu in the company’s October conference call, he said he had made 10 observations that were driving his thinking about how the company needed to evolve, which this blog will detail tomorrow.