July 31, 2012
Herkert Out as Supervalu Chief, Former Canadian Tire CEO In
Craig Herkert said Supervalu’s prices were too high and needed to come down quickly when he arrived as CEO of the company in 2009. He pledged to cut costs and so he laid off headquarters personnel and closed underperforming stores in chains such as Acme, Albertsons and Shaws. Mr. Herkert said there was an opportunity to grow the limited assortment grocery concept Save-A-Lot and new store openings followed.
Ultimately, however, the former Walmart exec failed, as was made clear in the past month when Supervalu announced it was looking to sell all or parts of its business. So, now Mr. Herkert is out and in comes another CEO, Supervalu chairman Wayne Sales who also happens to be the former top executive at Canadian Tire.
So what does Mr. Sales have planned for Supervalu?
"We will take significant cost out of the business, and move with urgency in our retail food business to lower prices and create points of sustainable differentiation for our customers," he said in a statement. "We will work closely and collaboratively with independent retailers to ensure that they continue to receive the superior service they need to increase sales and profitability. We will strengthen our engagement with our Save-A-Lot licensees — leveraging their expertise, enhancing our collective performance, and ensuring our ability to grow a nationwide network of hard discount stores. As we execute our business plan, the Board will continue its review of strategic alternatives, and I am still leading that process."
That sounds pretty much as though Mr. Sales intends to continue the plan put in place by Mr. Herkert. So, what’s up with that?
According to a Star Tribune report, analysts such as Jonathan Feeney of Janney Capital Markets said Wall Street had lost confidence in Mr. Herkert’s ability to turn the company around, and that could dampen interest in acquiring Supervalu assets.
"While this move alone doesn’t inspire confidence, it removes a key perceived hurdle in the company’s review of strategic options," Mr. Feeney wrote in a note to investors.
BMO Capital Markets analyst Karen Short told The Wall Street Journal that it will take more than lower prices to get Supervalu turned around. Based on Mr. Sales’ experience at Canadian Tire, she is looking for him to focus on points of differentiation beyond price.
"The challenges may prove to be insurmountable at this stage for even the most exceptional food retail executive given Supervalu’s market share losses, lack of brand equity, and lack of resonance with the customer," Ms. Short told the Journal.
- Wal-Mart Vet to Take Over as Supervalu CEO – RetailWire
- Wayne C. Sales to Become SUPERVALU President and Chief Executive Officer, Replacing Craig Herkert – Supervalu
- Supervalu ousts Herkert, names new president and CEO – Star Tribune
- Supervalu Replaces CEO in a Bid to Speed Turnaround – The Wall Street Journal
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Discussion Questions
Discussion Questions: Did Supervalu make the right decision in replacing Craig Herkert with Wayne Sales at this time? What would it take to get the company turned around?
Poll
Internal and external stakeholders had lost all faith in Herkert. He had to go. Along with him, the new CEO must get rid of the all Walmart-like thinking (and the execs) Herkert brought along with him. To really get Supervalu back on track, Sales needs to concentrate on four things:
1. Reclaim leadership in logistics
2. Collaborate with the national brands on distribution services
3. Push SAVE-A-LOT and pharmacy growth
4. Sell underperforming and non-essential assets like Acme and Shaw’s.
There really is no such thing as a turnaround in this business. It happens, but not very often. I think the Herkert firing was more for the press release and to please Wall Street. My guess is Wayne Sales will help guide them through a bankruptcy and most likely get a recycled grocery exec to run the company.
Herkert inherited a very difficult situation. Previous management bought and overpaid for the failed Albertsons stores. Poor Herkert takes over a company drowning in dept, inept in running grocery stores, and totally outmatched by the competition.
So far everything Wayne Sales has said is what you would expect any robot to say at this point. Lower prices? Yeah right. How about just take off 10% at the register today at all stores? Not going to happen. They won’t ever lower prices and can’t. What they mean to say is they are trying to come up with an idea to make consumers think they have lowered prices and so far they haven’t come up with anything.
Supervalu’s fundamental mistake years ago was to “go vertical” in the first place, and to extend its reach from its core distribution business to buy up several underperforming grocery chains nationwide. (And anyone who has shopped at Star Market in Boston or Jewel in Chicago knows that these stores have slipped considerably from their heyday.) As I noted in my last comment about Supervalu, its biggest return to its investors at this point might be an asset sale to better operators — not another round of price cuts, which will invariably be beaten by Walmart and others. Time will tell whether Mr. Herkert was standing in the way and whether Mr. Sales is the man for the job.
Mr. Sales previous stint at Canadian Tire will serve him well in his new role. The Canadian market can be portrayed either as a complete anomaly or as similar enough to the U.S. market. The truth lies somewhere in the middle. Canada is diverse and dispersed, making it the ideal learning lab for localization strategies (wisely, one of Supervalu’s go-forward initiatives). Canadian Tire, like Supervalu, is a multi-format, multi-banner corporation and it has experience selling a mind-boggling variety of categories and products, both in its deceptively-named Canadian Tire stores and in its other divisions such as its Mark’s Work Warehouse apparel stores. Great choice.
I believe that a change had to be made at the top at Supervalu. Whether Wayne Sales can turn this big ship around is very questionable. The reality of older stores, non competitive pricing, bad employee morale, etc. may be too much to overcome. I see a return to the “old” Supervalu that was a very good wholesaler and independent grocer supporter and a strong Sav-A-Lot business as the only way to survive.
Did SVU make the right decision in replacing Herkert with Wayne Sales at this time? In regard to timing, like the rabbit in Alice in Wonderland, Supervalu is late, awfully late, for a mighty important date with destiny. SVU has been floundering for over 4 years.
With the latest board action, we will now see if Wayne Sales — who as Chairman of the Board approved Jeff Noddle’s debt-laden purchase of Albertsons and its accompanying strategy, then 3 years later oversaw Noddle’s gentle removal and the hiring of Craig Herkert — can successfully accomplish what wasn’t accomplished when he bore witness to the strategy of the two previous CEOs. And still to be answered, is, will Wayne Sales, 62, be interim or long-term?
Bottom line: What Supervalu needs now is a miraculous reinvention enlightenedly-led by someone innovative.
“There’s a difference in saying a thing and actually getting it done.”
Pop Flynn — (repeatedly to us as youngsters)
Every organization and especially financial markets have limited patience. Saying the right things is of little value once it is clear that results are not following. That is when leaders are changed, even if the leader is not the sole source of fault. Welcome (back) to the jungle.
Well SVU made the change that it HAD to make, based on results. Bravo.
The jury will be out for a while on Mr. Sales. Given he was COB at the time of failing strategies and/or execution from the two previous CEOs, the picture does not look bright.
There are a lot of moving parts at SVU and it would seem getting the core business right and prioritizing the rest would be a first/major step. There are other successful models to learn from here.
I can hardly say what would turn the company around, as the board doesn’t seem to know. In my experience, manufacturers sometimes convince retailers that there is a change in strategy by changing their packaging. It doesn’t necessarily help the brand, but buys the brand manager some time before their brand loses shelf space. It would seem that the Supervalu board has embarked on the same plan.
A lot of of this firing was to please Wall Street, independent retailers, and to try to maintain morale. That letter sent to employees was just done to try to keep them from bawling their eyes out in their cubicles. Mr. Sale’s experience at Canadian Tire will be helpful, just like Mr. Herkert’s experience at Walmart was helpful. Knowing how to steer the ship doesn’t mean much when it is sinking.
Differentiation is not a plan or method, it is a goal for the forever changing present day market. In order to differentiate, it is necessary to objectively describe a business with a clear understanding of the businesses strengths and weaknesses. The company must simultaneously describe the market as it exists in the present location(s) and and what its needs are. Managing this information to create a means of bringing the market what it wants the way it wants is put to the public as a mission statement or mission critical plan. These ideas are presented in an easy to understand message to the market that creates the public’s awareness and a desire to investigate and participate. Supervalue didn’t do this as we see in their recent announcements. So I guess the problems might still exist.
I am still a loyal Jewel shopper. I live in the city of Chicago near the famed LEED Jewel built at Kinzie and Des Plaines and it’s a wonderful energetic store to shop at. The prices have come down on some key items as well, especially the deli counter.
Out in the suburbs in Munster, IN, where my parents live, the Jewel dates to the late 1970s, has recently been renovated and is still a very reputable and good store in town, even though Ultra, Stracks and Meijer sit nearby. People go to Jewel for its really fresh produce, quality and tasty Bake Shop and friendly employees.
Also, unlike Dominick’s where Safeway completely massacred the stores, Albertsons and Supervalu did leave a lot of product selection locally and the store’s logos and packaging relatively stayed the same.
I’ll still shop Jewel through and through.
Based on the comments by both the outgoing and incoming CEO, it’s difficult to say whether they have their strategies aligned in the proper manner. Supervalu has a need to have separate strtegy for their independent retailers. And, pointing out that they will properly service them is essential.
However, on the chain store operations, Supervalu has to give the operations teams the proper focus — look to your customers and the customers of your competitors. What are they asking for? Then walk their stores and your stores.
Based on the BIGinsight Monthly Consumer Survey, the U.S. Consumer consistently ranks the Top 10 Reasons that they shop a grocery store are: 1. Location, 2, Price, 3. Selection, 4. Quality, 5. Fresh Produce, 6. One-Stop Shopping, 7. Service, 8. Meat / Seafood Dept, 9. Store Layout, 10. Trustworthy Retailer.
The same BIGinsight survey of 8,500+ Consumers points to the Net Promoter Score (NPS)that various grocers enjoy, or perhaps should stop them in fear. The Net Promoter Score asks consumer “How likely are they to recommend a grocer to a friend or family member.” The average grocer in the U.S. has an NPS of +31.3%. Albertsons shows up as +28.1%, Acme is 13.6%, Shaw’s is +5.1%, and Sav-a-Lot is +35.9%.
Contrast those figures with Kroger’s +42.1%, Fry’s +47.5%, and Wegmans +77.9%, and you can see some of the hurdles that Mr. Sales is facing.
If Sales and the board can’t make the difficult decision to make changes within the chain stores, then it’s time to split up the company on a piecemeal basis.
With multiple banners and both the wholesale and retail business to manage, it would seem to me that simplifying SVU through closings and consolidation would be a likely first step for Mr. Sales. As many have done in the past, getting back to what made SVU prominent, namely wholesaling, is one possible recourse.
For the stores that SVU does continue to operate corporately, I would recommend a hard look at both promotions and pricing, but also know that if they are going to make a recovery, SVU cannot just lower prices, whack hundreds of jobs, freeze salaries, and cancel bonuses. The employees must be a part of the plan. If they believe they are working for a company that cares about their future, SVU just might have one as well.
The decision to bring in Wayne Sales was designed to advise stakeholders the necessary changes would be made. The challenge to differntiate against other traditional retailers is mighty in this changing economy. Canadian Tire has performed well, but it has been the market leader in Canada for a very long time, with a well established customer base.
Cost/pricing management is only part of the solution for Supervalu. There has to be a clear value proposition to win the loyalty of shoppers today; there is a lot of ground to cover, with other grocery chains working aggressively to maintain position.
Isn’t the board that hired Herkert the same one that is now dumping him? Maybe THEY should be “fired”?
I think pretty much everyone who watched the 400m freestyle on Saturday came to a realization at some point: Phelps isn’t going win this…just not gonna’ happen. The same can be said for SV’s “turnaround.”
I agree entirely with Ben on this one. Losing baseball teams don’t fire their players when they are losing, they fire the managers, even when the talent is there to win.
It is all about execution and results. Mr. Sales may be expounding nearly the same strategy, but he will have the same task — results. It will take more than the same strategy. It will take those working for SV to believe in it and Mr. Sales to carry it out.
The point of differentiation may only need be leadership.
The Supervalu brand is tarnished. How to resolve the issue is by cutting away some of the divisions, and concentrating on others. Cub still has life, and must go back to its roots. Shaw’s should be sold, because I don’t think price alone will help it. Jewel is worth salvaging, Acme should be sold off along with Shoppers and Farm Fresh. Save-A-Lot is the elephant in the room.
It has potential along with the Shop ‘n Save franchises in Pittsburgh. They need supplier support, not interference from the top.
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Internal and external stakeholders had lost all faith in Herkert. He had to go. Along with him, the new CEO must get rid of the all Walmart-like thinking (and the execs) Herkert brought along with him. To really get Supervalu back on track, Sales needs to concentrate on four things:
1. Reclaim leadership in logistics
2. Collaborate with the national brands on distribution services
3. Push SAVE-A-LOT and pharmacy growth
4. Sell underperforming and non-essential assets like Acme and Shaw’s.
There really is no such thing as a turnaround in this business. It happens, but not very often. I think the Herkert firing was more for the press release and to please Wall Street. My guess is Wayne Sales will help guide them through a bankruptcy and most likely get a recycled grocery exec to run the company.
Herkert inherited a very difficult situation. Previous management bought and overpaid for the failed Albertsons stores. Poor Herkert takes over a company drowning in dept, inept in running grocery stores, and totally outmatched by the competition.
So far everything Wayne Sales has said is what you would expect any robot to say at this point. Lower prices? Yeah right. How about just take off 10% at the register today at all stores? Not going to happen. They won’t ever lower prices and can’t. What they mean to say is they are trying to come up with an idea to make consumers think they have lowered prices and so far they haven’t come up with anything.
Supervalu’s fundamental mistake years ago was to “go vertical” in the first place, and to extend its reach from its core distribution business to buy up several underperforming grocery chains nationwide. (And anyone who has shopped at Star Market in Boston or Jewel in Chicago knows that these stores have slipped considerably from their heyday.) As I noted in my last comment about Supervalu, its biggest return to its investors at this point might be an asset sale to better operators — not another round of price cuts, which will invariably be beaten by Walmart and others. Time will tell whether Mr. Herkert was standing in the way and whether Mr. Sales is the man for the job.
Mr. Sales previous stint at Canadian Tire will serve him well in his new role. The Canadian market can be portrayed either as a complete anomaly or as similar enough to the U.S. market. The truth lies somewhere in the middle. Canada is diverse and dispersed, making it the ideal learning lab for localization strategies (wisely, one of Supervalu’s go-forward initiatives). Canadian Tire, like Supervalu, is a multi-format, multi-banner corporation and it has experience selling a mind-boggling variety of categories and products, both in its deceptively-named Canadian Tire stores and in its other divisions such as its Mark’s Work Warehouse apparel stores. Great choice.
I believe that a change had to be made at the top at Supervalu. Whether Wayne Sales can turn this big ship around is very questionable. The reality of older stores, non competitive pricing, bad employee morale, etc. may be too much to overcome. I see a return to the “old” Supervalu that was a very good wholesaler and independent grocer supporter and a strong Sav-A-Lot business as the only way to survive.
Did SVU make the right decision in replacing Herkert with Wayne Sales at this time? In regard to timing, like the rabbit in Alice in Wonderland, Supervalu is late, awfully late, for a mighty important date with destiny. SVU has been floundering for over 4 years.
With the latest board action, we will now see if Wayne Sales — who as Chairman of the Board approved Jeff Noddle’s debt-laden purchase of Albertsons and its accompanying strategy, then 3 years later oversaw Noddle’s gentle removal and the hiring of Craig Herkert — can successfully accomplish what wasn’t accomplished when he bore witness to the strategy of the two previous CEOs. And still to be answered, is, will Wayne Sales, 62, be interim or long-term?
Bottom line: What Supervalu needs now is a miraculous reinvention enlightenedly-led by someone innovative.
“There’s a difference in saying a thing and actually getting it done.”
Pop Flynn — (repeatedly to us as youngsters)
Every organization and especially financial markets have limited patience. Saying the right things is of little value once it is clear that results are not following. That is when leaders are changed, even if the leader is not the sole source of fault. Welcome (back) to the jungle.
Well SVU made the change that it HAD to make, based on results. Bravo.
The jury will be out for a while on Mr. Sales. Given he was COB at the time of failing strategies and/or execution from the two previous CEOs, the picture does not look bright.
There are a lot of moving parts at SVU and it would seem getting the core business right and prioritizing the rest would be a first/major step. There are other successful models to learn from here.
I can hardly say what would turn the company around, as the board doesn’t seem to know. In my experience, manufacturers sometimes convince retailers that there is a change in strategy by changing their packaging. It doesn’t necessarily help the brand, but buys the brand manager some time before their brand loses shelf space. It would seem that the Supervalu board has embarked on the same plan.
A lot of of this firing was to please Wall Street, independent retailers, and to try to maintain morale. That letter sent to employees was just done to try to keep them from bawling their eyes out in their cubicles. Mr. Sale’s experience at Canadian Tire will be helpful, just like Mr. Herkert’s experience at Walmart was helpful. Knowing how to steer the ship doesn’t mean much when it is sinking.
Differentiation is not a plan or method, it is a goal for the forever changing present day market. In order to differentiate, it is necessary to objectively describe a business with a clear understanding of the businesses strengths and weaknesses. The company must simultaneously describe the market as it exists in the present location(s) and and what its needs are. Managing this information to create a means of bringing the market what it wants the way it wants is put to the public as a mission statement or mission critical plan. These ideas are presented in an easy to understand message to the market that creates the public’s awareness and a desire to investigate and participate. Supervalue didn’t do this as we see in their recent announcements. So I guess the problems might still exist.
I am still a loyal Jewel shopper. I live in the city of Chicago near the famed LEED Jewel built at Kinzie and Des Plaines and it’s a wonderful energetic store to shop at. The prices have come down on some key items as well, especially the deli counter.
Out in the suburbs in Munster, IN, where my parents live, the Jewel dates to the late 1970s, has recently been renovated and is still a very reputable and good store in town, even though Ultra, Stracks and Meijer sit nearby. People go to Jewel for its really fresh produce, quality and tasty Bake Shop and friendly employees.
Also, unlike Dominick’s where Safeway completely massacred the stores, Albertsons and Supervalu did leave a lot of product selection locally and the store’s logos and packaging relatively stayed the same.
I’ll still shop Jewel through and through.
Based on the comments by both the outgoing and incoming CEO, it’s difficult to say whether they have their strategies aligned in the proper manner. Supervalu has a need to have separate strtegy for their independent retailers. And, pointing out that they will properly service them is essential.
However, on the chain store operations, Supervalu has to give the operations teams the proper focus — look to your customers and the customers of your competitors. What are they asking for? Then walk their stores and your stores.
Based on the BIGinsight Monthly Consumer Survey, the U.S. Consumer consistently ranks the Top 10 Reasons that they shop a grocery store are: 1. Location, 2, Price, 3. Selection, 4. Quality, 5. Fresh Produce, 6. One-Stop Shopping, 7. Service, 8. Meat / Seafood Dept, 9. Store Layout, 10. Trustworthy Retailer.
The same BIGinsight survey of 8,500+ Consumers points to the Net Promoter Score (NPS)that various grocers enjoy, or perhaps should stop them in fear. The Net Promoter Score asks consumer “How likely are they to recommend a grocer to a friend or family member.” The average grocer in the U.S. has an NPS of +31.3%. Albertsons shows up as +28.1%, Acme is 13.6%, Shaw’s is +5.1%, and Sav-a-Lot is +35.9%.
Contrast those figures with Kroger’s +42.1%, Fry’s +47.5%, and Wegmans +77.9%, and you can see some of the hurdles that Mr. Sales is facing.
If Sales and the board can’t make the difficult decision to make changes within the chain stores, then it’s time to split up the company on a piecemeal basis.
With multiple banners and both the wholesale and retail business to manage, it would seem to me that simplifying SVU through closings and consolidation would be a likely first step for Mr. Sales. As many have done in the past, getting back to what made SVU prominent, namely wholesaling, is one possible recourse.
For the stores that SVU does continue to operate corporately, I would recommend a hard look at both promotions and pricing, but also know that if they are going to make a recovery, SVU cannot just lower prices, whack hundreds of jobs, freeze salaries, and cancel bonuses. The employees must be a part of the plan. If they believe they are working for a company that cares about their future, SVU just might have one as well.
The decision to bring in Wayne Sales was designed to advise stakeholders the necessary changes would be made. The challenge to differntiate against other traditional retailers is mighty in this changing economy. Canadian Tire has performed well, but it has been the market leader in Canada for a very long time, with a well established customer base.
Cost/pricing management is only part of the solution for Supervalu. There has to be a clear value proposition to win the loyalty of shoppers today; there is a lot of ground to cover, with other grocery chains working aggressively to maintain position.
Isn’t the board that hired Herkert the same one that is now dumping him? Maybe THEY should be “fired”?
I think pretty much everyone who watched the 400m freestyle on Saturday came to a realization at some point: Phelps isn’t going win this…just not gonna’ happen. The same can be said for SV’s “turnaround.”
I agree entirely with Ben on this one. Losing baseball teams don’t fire their players when they are losing, they fire the managers, even when the talent is there to win.
It is all about execution and results. Mr. Sales may be expounding nearly the same strategy, but he will have the same task — results. It will take more than the same strategy. It will take those working for SV to believe in it and Mr. Sales to carry it out.
The point of differentiation may only need be leadership.
The Supervalu brand is tarnished. How to resolve the issue is by cutting away some of the divisions, and concentrating on others. Cub still has life, and must go back to its roots. Shaw’s should be sold, because I don’t think price alone will help it. Jewel is worth salvaging, Acme should be sold off along with Shoppers and Farm Fresh. Save-A-Lot is the elephant in the room.
It has potential along with the Shop ‘n Save franchises in Pittsburgh. They need supplier support, not interference from the top.