Save-A-Lot Part 3: Private Label Strength Boosts Growth Prospects

(MoneyWatch)  As noted in this blog yesterday, Save-A-Lot has advantages it has been able to leverage during the recession and which it can build on in what looks to be a long and difficult economic recovery.

Store size and the lower costs that accompany that are one advantage and its approach to product assortment, which is tight and carefully tailored to suit its customers, is another. Private label is a third. Save-A-Lot's extensive private label program helps make it as competitive as it is. And it's not just a matter of price, which is low, but of experience as well. While many U.S. retailers only began seriously exploring the opportunities store brands offered over the past six or seven years, Save-A-Lot has grown up with private label, as Aldi, a private-label retailer was an original inspiration. Other retailers continue to look at how to position private label in terms of what prices consumers will find attractive and what quality level will keep them coming back for more. Save-A-Lot is a step ahead, not working on the price/value balance but focusing on building quality into a store brand proposition that's already understood and accepted by its customers. Mike Kemp, the company's vp of procurement, noted:

Every day is an opportunity for us to keep looking at what's out there because the consumer is a lot more savvy about spending in the grocery store. We're watching what they buy and are spending. The value equation we offer is good product at a very low price. But it's not necessarily price first. The first thing is quality at a good value. From our customers' standpoint, they are willing to pay a little more if they know the quality is there.

Save-A-Lot customers may typically have a bit less cash than other consumers, but they want the same things. Increasingly, the chain's customers want healthier products, and, through its private label, Save-A-Lot is answering with, for example, lower sodium and sugar alternatives. Sometimes branded products are the choice. Then, the retailer provides them at the prices it can coax out of competing suppliers who realize that it carries fewer brands in a category than conventional supermarkets and may not need theirs at all.

Save-A-Lot's growth in a small box with a money-conscious customer helped it get out ahead on critical retail trends that became more urgent in the recession. It also forced the chain to deal with the operational issues that those trends created, such as assortment rationalization ?€" by which is meant reduction to the most popular items in each category -- and private label development early and substantially. As such, it is better prepared than a lot of its competitors for a future that's arriving today in the form of a frugal consumer who is looking for money saving shopping alternatives. Because it can better serve that consumer, the chain is in a position to grow. Parent company Supervalu (SVU) certainly believes that Save-A-Lot is the right store format for tomorrow's marketplace. In its last conference call, CEO Craig Herkert said the company planned to significantly accelerate Save-A-Lot's growth, making it easier for licensees ?€" who operate much of the chain ?€" to acquire and operate locations. The process already is beginning. He noted:

While we presently are anticipating opening 50 new Save-A-Lot stores this year, we will have over 100 projects in the pipeline for next year. These projects have been preliminarily approved and are in various stages of due diligence, lease negotiations, permitting and construction. We are working with potential licensees on more than half of these stores. Clearly, we will be looking at ways to enhance our business model to accelerate Save-A-Lot growth in the coming years.