Published on: July 16, 2012by Kevin Coupe
PORTLAND, Oregon -- By now, the Supervalu story is old news.
Not good news, though. Not for the thousands of good and decent people who work for the company, and not for the many investors who believed that it was worth gambling on the possibility that current management - led by Craig Herkert, the current CEO and former Walmart executive - could pull a retailing miracle out of a hat that increasingly seems worn and thin and not terribly deep.
Here's the top-line information, in case you missed it, or were on vacation and not paying a lot of attention...
Supervalu announced last week that it had not met either its sales or earnings targets for the previous quarter and as a result would be intensify its focus on cost controls, reducing capital expenditures, restructuring its debt, and suspending its quarterly dividend. Perhaps most important, though, the company said that it would explore various options - including a possible sale of all or part of the company - to maximize shareholder value. (This is easier said than done, as the company's share price dropped by more than 50 percent last week.)
In an email to company employees last week, Herkert wrote: "As associates, you all have the most control and impact on that first component. We must focus relentlessly on taking costs out of the business while improving our processes and ensuring quality service for our customers. This was the focus of the Organizational Efficiency initiative we kicked off five months ago. That process, coupled with other projects that will help us be more efficient, will allow us to realize $250 million in savings during the next two years. Continuous improvement must become a way of life for us, just like it is for all successful companies."
And Herkert wrote:
"Critical to our turnaround is improving the results in our traditional retail network, and the way we will do that is through use of the operations tools that have already been deployed and by moving faster to the fair price plus promotion strategy. Our customers are responding to our produce transformation, and we just kicked off a larger-scale price reduction at Jewel-Osco. Our target is to have half of our network priced appropriately to the competition by March 2013. All banners will see sales-driving investments this year and will be executing the fair price plus promotion strategy by the end of Fiscal 2014."
That, to me, was the eye-opener. Let me repeat (with italics added for emphasis):
"Our target is to have half of our network priced appropriately to the competition by March 2013. All banners will see sales-driving investments this year and will be executing the fair price plus promotion strategy by the end of Fiscal 2014."
Think about that for a second. If everything works the way that Supervalu leadership wants it to, everything should be where it needs to be in a year and a half. (The end of Fiscal 2014 is the end of February.)
Now, I know that things take time. I would guess that the argument would be made by Supervalu's leadership that the company was in a real hole, and it takes time to dig out of those kinds of problems. (Parenthetically, can I ask a question here? What must former CEO Jeff Noddle think about all this? When he left the company, to be succeeded by Herkert, he was lauded by just about every association and food industry trade magazine as the executive of the year, if not the decade, in building Supervalu. Did he put the company on an unsustainable path? Did he just get out at the right time? Did he get it right and everyone since has screwed it up? Or did events and circumstances conspire to only make it look like he was guilty of managerial malpractice? I'm just asking.)
Perhaps it actually will take Supervalu - assuming it survives - eighteen months to get everything in place so it can survive long-term.
However, there were two other stories breaking last week that suggested to me that Supervalu probably doesn't have that kind of time...
First, the Financial Times did a long piece about Amazon.com, noting that as the e-tailer accepts the responsibility for collecting sales taxes in more and more states, it is then able to open distribution centers in those states. (Previously, it did not have warehouses in as many locations because a physical presence would have required sales tax collections.) While some suggest that having to charge sales taxes could even the playing field for Amazon and traditional retailers, others say that this is a canard - and that by opening distribution centers in a many new places, Amazon will be better positioned to offer next-day or even same-day delivery to an ever expanding customer base. That kind of speed of delivery, combined with generally lower prices than those offered by bricks-and-mortar stores, could give Amazon increased marketing power that would be tough for many competitors to counter.
As one commentator put it, the result will be this: "Physical retailers will be hosed."
That's one story. Here's the other...
National Public Radio did a story last week about a new study from Jefferies, a global investment bank, and AlixPartners, a business advisory firm, concluding that while "supermarkets have spent decades catering to the needs and wants of baby boomers," the millennial generation - people born between 1982 and 2001 - is finding that traditional supermarkets are a disappointing experience, and "are shopping elsewhere in greater numbers." The report says that "millennials buy only 41 percent of their food at traditional grocery stores, compared to the boomers' 50 percent."
The challenge for retailers, the story suggests, is to figure out how to be more relevant to the millennial generation before its shopping habits become so ingrained that they never find their way back to the traditional supermarket.
It is hard for me to suggest from here what Supervalu ought to do. People far smarter than I tell me that the company would be best served by getting rid of its retailing businesses, assuming it can find anyone willing to buy them at prices it deems appropriate, and get back to the business of wholesaling and serving its independent retail customers.
There also is considerable sentiment out there that current management has "lost the clubhouse," to use a sports metaphor, and that the company's associates simply may not believe that leadership is up to the task of leading Supervalu out of the wilderness. There are concerns that the current leadership believes it can achieve prosperity - or at least some level of salvation - through cutting, cutting and more cutting, when a lot of people believe that when this is done it will leave Supervalu less able, not more able, to compete effectively.
Even though I was off last week when all of this stuff was transpiring, I was still getting emails about it. One former Supervalu employee framed the company's problems this way: "Weak economy, weaker leadership, still weaker strategy and programs, weakest execution and follow through." He is not alone in those beliefs. Not by a long shot.
Whatever Supervalu does, it needs to move fast. It needs to move on 21st century time, not on a 20th century time clock that says you can take more than a year to get your ducks in a row.
The end of Fiscal 2014? Really?
It is like Supervalu is satisfied with just trading water, because swimming anywhere at this point is simply out of the question, and doesn't seem to realize that there is a tsunami coming.
You have to look at what Amazon is doing to change the retail game in fundamental ways. You have to consider all the various moves that more traditional competitors - from Walmart to Costco to Safeway to Walgreen to the many other smart and savvy retailers who are hunting for share of wallet and share of stomach - are making. And you have to realize that old-world models that focus on things like "Organizational Efficiency initiatives" as being the pot of gold at the end of the rainbow may not do nearly enough to compete with a new-world e-business model that looks at the retailing business as a complex chess game, or to cater to a generation that finds old-world business models to be irrelevant.
The world keeps spinning. Retailers keep competing. Consumers keep evolving. And the rules of the game - and even, sometimes, the players - keep changing.
Tough times at Supervalu. I don't envy them.
I hope that the folks there are smart and open-minded enough to realize that what they need now is speed and innovative thinking, and a kind of eyes-wide-open entrepreneurial fervor that will go beyond efficiency and get to the kind of effectiveness that will make the company both relevant and sustainable.
- KC's View: