Supervalu Arranges Save-A-Lot Joint Venture To Gain a Lot with Latinos
Craig Herkert, CEO of Supervalu (SVU), has worked quickly to act on his agenda to promote the company's discount grocery chain, Save-A-Lot, and take advantage of the talents independent food retailers posses, combining them into a new initiative that's being dubbed Adventure Supermarkets.
A joint venture Save-A-Lot has launched in south Texas, Adventure Supermarkets builds on independent expertise to make inroads with Hispanic consumers, a group that food retailers in the United States have had a hard time satisfying. With its partner Rafael Ortega, Save-A-Lot already has converted six Save-A-Lot stores he operates under license to a hybrid banner, El Ahorro Save-A-Lot. The name derives from the 15-store El Ahorro supermarket chain that Ortega owns along with about 100 La Michoacana Meat Markets in and around south Texas.
The approach has several advantages. Ortega not only will help Save-A-Lot get its Latino-oriented product assortment right, but his presence also will give the operation credibility particularly as it ads more goods and services for Mexican-Americans who might otherwise question if initiatives -- including new stores -- would satisfactorily address their predilections.
In announcing the partnership, Save-A-Lot did mention plans to add services, and, if it has in mind efforts such as Walmart (W) has provided in stores that serve Hispanic communities, such as check cashing and money wire transfers, Ortega can ensure there are instituted with community preferences in mind. Additionally, working with a partner who is part of an extant ethnic community will be a learning experience for the chain both in terms of better integrating with local shoppers and of determining the relative value of dedicated joint venture partnerships.
Although it has had significant success in serving Hispanic consumers, Save-A-Lot could use a little assistance in the Southwest. There it has to compete not against small specialty grocery operations meant to serve specific groups in diverse ethnic communities, as is the case in other parts of the U.S., but also large, well-established supermarket chains developed especially to serve an abundant Mexican American population. And that's to mention major food retailers who are developing their own Latino-oriented initiatives in the region.
Although it didn't provide many specifics about the joint venture, Save-A-Lot has said enough to indicated the direction it would like to take with the deal. Save-A-Lot CEO Bill Shaner commented that the affiliation with Ortega allows the company to "best" serve the regions Hispanic community. He added that the combination of Ortega's "local insights with the power of the Save-A-Lot network of stores and exclusive-label expertise will enhance our ability to provide our Hispanic customers in this part of the country with the products and services they need and want, while positioning the Save-A-Lot brand for growth."
As it's working with a licensee, supplying products and starting off with a limited operating scope, Supervalu is taking a small risk with a big potential pay off considering the rapid growth of the U.S. Hispanic market. If the partnership pays off with better growth than Save-A-Lot might have expected operating on its own, Supervalu can count on additional dollars flowing to its coffers. If it doesn't, the company will get an object lesson it can use to plan future steps in Herkert's plan. For now, it has an experimental combination of Save-A-Lot and an independent supermarket operator that is supported by revenues and that can be let quietly fade if it doesn't provide enough of a pay off with little damage to the chain's reputation.
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