Multiple banners complex, but play to brand strength

Supervalu has developed a complex strategy in the wake of its acquisition of its piece of the former Albertsons, betting on the strength of the banners it acquired and the power of its existing distribution business to turn a challenge into a strength.

Supervalu has determined that it will continue to maintain the separate brands it has acquired to differentiate and localize its retail business, while it consolidates corporate operations and logistics functions and identifies and looks to share best practices across its many retail brands. The plan is to grow the total business by preserving the character and local relevance of its various regional brands by making them more productive through the introduction of new systemwide efficiencies. And that is something that is as new for the pre-existing, core Supervalu stores as it is for the banners it acquired from Albertsons.

When Supervalu acquired what it identified as the “premier” properties available in the Albertsons breakup, it was a transformative moment for the company in several ways.

For one thing, the retailer shifted from being primarily a distribution business with a significant retail element—including company-owned supermarkets, such as Cub Foods, hypermarkets under the bigg’s banner and licensees in the Save-A-Lot system—to a company that is primarily a retail operation with a strong distribution business at its core. And that has brought with it a much greater range of supermarket operations, both in numbers and in kind.

Probably the biggest change for Supervalu, besides those that come along with a sizable acquisition, is the adoption of Albertsons food and drug combination store formats. Combo stores had been a big initiative for Albertsons. Mainly comprised of Albertsons-Sav-on and Jewel-Osco units, the former Albertsons had been expanding its combo store base for years—and not only under those banners.

In 2004, just about two years before it was acquired, Albertsons purchased Shaw’s—a New England supermarket chain that also included a smaller number of Star Markets stores, which Shaw’s had acquired a few years prior to that—and it began pushing combo stores there, too. Shaw’s-Osco is another sign of how much stock Albertsons had put in the combo store concept. Today, out of about 204 Shaw’s stores, about 105 have Osco-branded pharmacy operations.

But Albertsons never did get over its own acquisition of American Stores, one that, while providing initial synergies, just never generated sufficient returns. In part, that had to do with the differences in quality between the banners.

Observers have credited Supervalu with learning from Albertsons’ troubles. It cherry-picked better properties in its acquisition and walked away with a strong portfolio. Jewel-Osco and Shaw’s are considered premier supermarket chains. Acme, another former Albertsons banner and now part of Supervalu, may not have had quite the reach as the other two, however it was an area of the business in which Albertsons was driving some innovation, particularly in regard to ethnic initiatives to serve its mid-Atlantic region clientele.

Yet, Supervalu still faces similar challenges. The Albertsons Southern California division that Supervalu picked up is a mixed bag. The division includes Albertsons stores in rapidly growing Las Vegas that tend to be newer and operate in an expanding market.

Many of its Southern California stores, however, are older and will be a major focus of the company’s efforts to get into the stores with remodels and relocations aimed at bringing down the average age of its store base. In the meantime, some of its competitors, including Safeway and Kroger, have freshened their stores in the region, and with new competition in the form of Wal-Mart, Target and next Tesco, Southern California poses both an ongoing challenge and a major opportunity for Supervalu to accomplish there what Albertsons could not. Certainly, one could speculate that a substantial proportion of Supervalu’s capital expenditures over the coming years will be dedicated to remodeling the Southern California stores, which include lots of Albertsons/Sav-on combo units.

The remodeling will be accomplished under an initiative dubbed Premium Fresh & Healthy. Almost from the time the Albertsons acquisition was completed, Supervalu began identifying best practices among the various banners it operated that it could diffuse throughout its retail system. Supervalu executives determined early on that driving merchandising and marketing research and strategy from its headquarters—via what the company has christened “Centers of Excellence”—would capture synergies and be a major benefit for the new company going forward, and it began building on those as quickly as possible.

One fast-tracked initiative was the introduction of Wild Harvest—a boutique natural and organics food department developed by Shaw’s—to other Supervalu banners; first to those from the Albertsons purchase and then, going forward, the company’s legacy nameplates. Borrowing from the pages of Whole Foods and Trader Joe’s, the Wild Harvest aisles include an extensive selection of private-label and national brands in grocery, refrigerated and frozen displays.

Supervalu customers have responded well to the Wild Harvest concept across banners, said Rich Juliano, group vice president of center-store merchandising. “We get extremely high marks from the consumer-satisfaction reports that the marketing department feeds us, as well as on the sales lift side, by expanding—where appropriate—the entire Wild Harvest experience,” he said. “Now, we think we can bring it up a notch from maybe what we have today, but even if we roll out what we have today, it’s a vast improvement.”

Premium Fresh & Healthy incorporates several such initiatives, as well as more general efforts, such as a significant expansion of fresh food and reorganization of merchandising into more solution-oriented parcels that can fit in various store environments. The result is a remodeling package that comes in multiple sizes to work in the range of Supervalu boxes and address specific demographic needs across its markets.

This reorganization takes on different aspects, depending upon which departments are considered.

On the non-foods side, OTC and HBC have been organized and color-coded for ease of shopping, with specific sets developed for solutions that address diabetes and other health issues.

In the center of the store, general merchandise and grocery, the retailer has developed several sub-sections identified by banner, again with a solution strategy in mind. For example, the company has organized a pets’ needs section and a section devoted to baby care. Assortment is focused on products to make it easier for customers to shop to a particular purpose, but it still is related to the surrounding merchandising.

General merchandise is being reworked in other ways, as well. Supervalu is editing its everyday assortment to better pair the product segments it carries with food. Some products that are far afield from food—home decor and cooling, for example—may continue to have a place in seasonal assortments, but in general are being de-emphasized.

Ultimately, the idea behind Premium Fresh & Healthy is to develop solutions that link the store, from pharmacy to fresh foods, so consumers with specific issues, whether they be disease states or lifestyle considerations, can conveniently shop according to their agendas, rather than conforming to presentations that make it easy on the retailer.

While Premium Fresh & Healthy will be a cross-banner effort to promote merchandising effectiveness, the initiative is intended only as a framework upon which merchandising to local preferences will be built.

Various factors will play into what Supervalu refers to as local relevance, among them demog