retail news in context, analysis with attitude

The Wall Street Journal reports that Supervalu, challenged by sales and market share declines, “plans a fresh round of price cuts” that it hopes will reverse what CEO Craig Herkert calls "unfavorable value perceptions" of some of chain's supermarket brands.

According to the story, “Supervalu hopes to offset the impact to profit margins by squeezing out efficiencies and also getting suppliers to chip in on the price cuts, though the process will be painful ... Supervalu has taken a hit due to intense competition from rivals who are fighting for customers by lowering prices. Supervalu, which owns supermarket chains such as Albertsons and Shaw's, has tried to be more measured in spending on promotions and price cuts. The strategy helped grow margins in the quarter at the expense of sales and market share, which some analysts worry will be hard to win back.”

“We must regain our relevance to customers,” said Herkert. “Our prices must be fair ... our stores must be simpler to shop.”

The Supervalu stories come as the company reported a second quarter loss of $1.47 billion, compared to a profit of $74 million during the same period a year ago, a revenue decline of 8.5 percent to $8.66 billion, a same-store sales decrease of 6.4 percent, and a gross margin increase to 22.3 percent from 22.1 percent during the same period a year ago.
KC's View:
The thing is, consumers - the approval and enthusiasm of whom is the goal of any retail enterprise - don’t give a damn about profit margins. They care about price, and they care about the other differential advantages that retailers use to attract them into the store. The extent to which price and other factors are persuasive depends on the store, the brand argument and the community at which it is targeted. And so if Supervalu has been focused primarily on margins, that could explain why things are headed south.

So, sure, a sharper price message probably is called for.

But the company probably also needs to pay attention to the other stuff ... unless, of course, this further cements the feeling at Supervalu headquarters that the Save-A-Lot format and approach is the company’s future.

If the latter is the case, then the question may be when Supervalu begins putting what it views as marginal formats and chains up for sale.