Herkert Enumerates Observations that Will Change Supervalu's Direction

In his first conference call as Supervalu CEO, Craig Herkert, shared 10 observations about company that are framing the strategic vision he is forming.

In the conference call, he detailed immediate initiatives that he had launched to improve the customer's perceptions of Supervalu. The observations, which represent something of a bridge between the immediate, tactical changes he is instituting and the strategic path he is considering, are:

1. Supervalu must focus on the customer experience.

Every time a customer enters one of our stores we need to deliver a positive shopping experience. We have to and will get this right.

I have been very impressed with the caliber of our independents. They are an integral part of our business, and I look forward to--meeting more of them to understand their growth objectives and the role we can play in their continued success.

Improving our performance is my responsibility, and that of this management team and we're committed to getting it done. We anticipate recent trends and the pressure that the consumer is facing will continue in the near term. In fact, through five weeks of the second quarter, identical stores sales have declined approximately 100 basis points compared with first quarter ID sales.

Briefly stated, our value image is not what it should be. Our retail operations are taking steps to enhance the value position, but it will take time for these actions to gain traction. Customer perception doesn't change on a dime. However, the bar must also be raised in our customer service, in-store conditions, merchandising and customer-centric marketing, as all play critical roles in the customer experience and, ultimately, building loyalty.

Not surprisingly we scored very high -- better than our competitors -- across the majority of our markets on promotions. But in this environment, this characteristic is not influencing our customer's overall price perception of us nor their loyalty to us. We need to be less dependent on deep-discount offerings and be better positioned on everyday pricing. Again, this will take time.

We possess strong marketing capabilities today, and now must better leverage this expertise across the organization to provide more customer specific incentives to shop in our stores as well as increase the effectiveness of our marketing and promotional spend.

We must do a better job building our unique brand identities in various marketplaces and communicating what differentiates us to our customers.

The changes we have made...will create more informed decisions that will be made in a shorter amount of time, and our ability to meet the needs of our customers will be strengthened. This is the first step in generating new roles and responsibilities that will ultimately make us a more focused and efficient operator.

It also produces a lower cost model for the vendor community and will allow both our vendors and ourselves to participate more easily in national programs. We will no longer be selected against because of the complexity of doing business with us.

Our own brands have shown steady growth, but we still fall short of our competitors and must take our offerings to the next level. We are accomplishing growth through new product introductions and greater penetration of existing labels. This past quarter, we introduced Stockman & Dakota, our premium Angus beef brand and Stone Ridge Creamery, our premium ice cream line. Total unit movement of own brands increased in the quarter although sales penetration remained at about 17.5 percent due to the unprecedented deflation we saw in certain commodities including milk and eggs.