Larger scale pays off with major brands on shelf

With its acquisition of some 1,100 Albertsons properties, Supervalu not only became the nation’s third-largest supermarket chain by revenues with a much stronger foothold in pharmacy, but it also gained much-needed scale in the beauty arena. And to put it simply: “Scale matters.”

That’s how Supervalu executive vice president of merchandising and marketing Duncan Mac Naughton explained it in a recent interview with Drug Store News. “The old Supervalu wouldn’t have shown up on L’Oréal’s or Revlon’s radar screens,” Mac Naughton continued. “But because of the scale that we have now at our corporate retail stores, as well as the opportunity to serve another 2,500 independent stores, we are able to get the best forward thinking out of these companies, as well as real-time releases and investments aimed at determining how best to format our stores and present the products to our customers.”

With a nationwide network of about 2,500 stores, annualized revenues of about $37 billion and about 75 percent of those revenues stemming from retail, Supervalu has risen to the top tiers of the grocery channel. And that is enabling the company to play in a whole other league as it relates to beauty.

“Now that we operate 900 pharmacies, and we’re a little bigger gorilla in the room, [manufacturers] know that we’re serious about the cosmetic business,” added Rich Juliano, group vice president of center-store merchandising.

As the company moves from the planning efforts of year one to the implementation of phase two, the transformation continues.

For fiscal 2008, the company has earmarked $1.2 billion for capital spending, of which about 90 percent will go toward its retail operation. And there’s no doubt that health and beauty ranks high on the company’s to-do list, especially now that Supervalu is a much stronger player in pharmacy. Prior to the Albertsons deal, Supervalu operated approximately 140 pharmacy departments in it stores.

“Because of the strong pharmacy background, it has provided a natural tie-in to the health and beauty care shopper,” Mac Naughton noted. “In some of our [banners], we actually have to teach that learning, while in some of them we’re already there.”

As part of its remodeling effort, the company has not only expanded its offering in health and beauty to better match the assortment offered by a Walgreens or CVS, but it also has implemented a “way-finder” section.

“We’re never going to be a 200-linear-foot cosmetic department, but we do think we can satisfy the basic needs of our customers on a weekly shopping basis,” said Juliano, who noted that one of the things the company did was add to the higher-end mass market beauty brands like L’Oréal.

With less space than the pure-play stand-alone drug chains with which to work, the company has placed a high priority on getting the mix right, which set about a process of “de-selecting” or “de-prioritizing” certain product categories to make more room for health and beauty. Beauty customers shop such categories as cosmetics, nail, hair care and others by color, and that tends to be SKU-intensive. In all, Supervalu has brought in roughly 2,300 new health and beauty SKUs into the store through the new Power Drug format.

“We’re working hard to make sure we convert well in skin, cosmetics and hair care,” said Dan Funk, vice president of home, health and beauty, center-store merchandising. “We’re continuing to look at the assortment in those types of areas, as well as our presentation on the shelf, to make that a relevant experience for the consumer.”

Funk believes there’s a major opportunity to leverage the high-growth skin care market, in particular as it works to bring in additional SKUs. “Based on the growth of skin care needs, there’s an opportunity for us in traditional food.”

And in markets where it makes sense to have an even higher profile in beauty, Supervalu is working to add elements Funk and Juliano refer to as “enhanced beauty,” through the use of different fixtures, softer lighting, different flooring and other elements.

“We are partnering with a lot of the major manufacturers to help us to segment those stores properly…and make sure we’re identifying the right stores,”Funk said. “That’s a big part of our initiative—understanding each of the banners and their roles. It may look a little different across banners, but we certainly will be targeting some of our banners for enhanced beauty concepts.”

Still, this is all a work-in-progress for a company that is still only a year-and-a-half or so removed from an event that completely transformed Supervalu as a company, recasting it no longer as a 50-50 distribution/retail operation but rather as one of the new giants of grocery retailing and a major force in supermarket pharmacy. Mac Naughton, Juliano and Funk are quick to point out that while much progress has been made in terms of its Power Drug makeover, Supervalu is “not quite there yet.” And it might take a while, as no two of its stores are alike, they also noted.

“As we remodel the stores, a great part of our company is that we have no two stores alike,” Mac Naughton surmised. “It does and will vary store by store—but we are raising the importance of beauty in our stores. We have a much keener focus corporately on beauty’s presence and how it is presented to the customer as we do our remodels.”

Clearly, scale matters.