Supervalu is Building on Success -- That of Others

Last Updated Aug 26, 2010 2:46 PM EDT

Examine the two announcements Supervalu (SVU) made this week, and it looks as if the company is preparing to launch all kinds of new store operations.

One announcement detailed changes that will bring broader retail experience to the supermarket operator's board of directors. Supervalu said it plans to name former Canadian Tire president and CEO Wayne Sales as its chairman.

The board also nominated Matthew Rubel, chairman and CEO of Payless Shoe parent Collective Brands (PSS), to stand for board elections at the company's annual meeting in June.

Placing Sales and Rubel on the board will provide additional and extensive knowledge of general merchandise retailing. Rubel's background is in discount apparel, but Sales has broader experience. At Canadian Tire, Sales helped revitalize the operation and introduced housewares into a store concept that had previously stood on three legs, automotive, hardware and sporting goods. Canadian Tire figured out that a lot of the manly goods it sold were being purchased for by women for their men and even themselves. Shrewdly, the Sale-era team saw an opportunity to boost revenues and took it. The company acquired and expanded a specialty apparel operation, Mark's Work Warehouse, and experimented with clothing operations in its Canadian Tire stores.

And before his stint in Canada, Sales was a senior executive with Kmart.

Ironically, just weeks prior to its announcement about Sales and Rubel, Supervalu divested itself of its biggs division, which consisted of hypermarkets that carried an extensive general merchandise assortment. However, the company still has extensive general merchandise operations.
Supervalu bought a big chunk of Albertsons when that company broke up in 2006 and, in doing so, acquired a lot of combo stores, which combine a full supermarket with a full drug store operation. In fact, Jewel, one of the best regarded of the chains Supervalu acquired, was in the forefront of combo store development, branding the ones it operated Jewel-Osco. Namesake stores often had a pharmacy paring as well, operating under the name Albertsons-Sav-on. Supervalu expanded combo-store operations to other of the chains it acquired including Shaw's in New England, which opened a number of Shaws Osco locations.

However, early in the consolidation process that followed the Albertsons acquisitions, Supervalu seemed to cool on combo stores.

Perhaps for good reason. Before it grabbed the Albertsons properties, Supervalu was as much a grocery distributor as retailer. Although it earns almost 80 percent of its revenues from retail today, it still has a big distribution organization, one that posted sales of $2 billion in the fourth quarter. Yet, that total was down from $2.3 billion in the year-earlier period. The overwhelming cause of that decline was Target (TGT).

Supervalu has been Target's primary perishables food supplier, but the customer is doing more self-distribution. The arrangement between the two companies always has been a little odd. In markets such as Chicago, Target â€" with both supercenters and P-Fresh expanded food discount stores -- and Supervalu â€" via Jewel-Osco â€" are big competitors. The arrangement was matter of necessity at first as Target's food operation, until recently, was too small to warrant development of an expensive perishables distribution operation. As Target food operations became more extensive, it became increasingly evident that the two companies would go their separate ways. Supervalu's 2011 guidance calls for a three percent drop in distribution sales, again because of Target.

So, Supervalu is putting itself into a better position to develop new operations and even new store varieties. Keep in mind that it's relatively new CEO Craig Herkert is a former head of Walmart Americas, which, although skipping the United States, operates myriad different kinds of retail stores from Canada to Argentina. Also, Canadian Tire runs an extensive fuel and convenience store operation, which means Sales has a wealth of knowledge on those fronts that Supervalu can use to its advantage. Put it all the pieces together, and it looks as if Supervalu is going to try new things, based perhaps on its combo stores but likely with new general merchandise ideas included.