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Multiple banners complex, but play to brand strength

BY Mike Duff

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 demographics. Duncan Mac Naughton, executive vice president of merchandising and marketing, noted that all Supervalu stores may carry prepared meat entrees to meet consumer demand for convenience, but stores serving a less-affluent consumer might only carry two SKUs, while those serving a higher-end customer base might carry eight.

“We may have a specialty cheese case in a high demographic store,” Mac Naughton added, “and a specialty cheese section in a lower demographic store, but we’ll have the offering. Some people define value as low price and some define value as a great eating experience at a fair price.”

Chain particulars play a part, too. Supervalu preserved president positions at the top of chain leadership teams so each would have a strong advocate for individual strengths. “We want to leverage scale where it makes sense,” Juliano said. “But not lose focus on local relevance.”

The Supervalu approach looks to all stakeholders. As with all of its cross-banner initiatives, Premium Fresh & Healthy creates efficiencies, and not just for folks operating within the company, but with those who have to work with Supervalu from the outside as well.

“The model we’re putting together really streamlines Supervalu to be an easier place to call on from a vendor aspect,” Juliano said. “But keeping the local relevance is also important. So when we talk about best-practice sharing, we have numerous calls with what we call the lead merchants in all our banners. The model is set up as a continuum where you’ve got to know how to leverage scale and centralization where it makes sense, but not take that entrepreneurship away from our banner presidents. We want to be somewhere in the middle since we’ve got a lot of creative people with us.”

Juliano said local relevance is a factor that Supervalu regards as critical and, while the leverage provided by consolidation is important, the individual character of each chain is a point of differentiation and an advantage with shoppers in the various communities it serves. Planograms still will be handled at Supervalu’s Eden Prairie, Minn., headquarters, but the banners themselves will reflect the local elements.

“We value the banners and the presence they have in their different markets,” Juliano said. “There is some invaluable credibility and consumer acceptance. Jewel-Osco is almost like a Mastercard commercial: it’s priceless in Chicago. So one of the things senior management and the leadership council believed early on was: ‘Why lose that credibility and value [that] those banners hold in the different markets we’re in?’ We put a high value on that. What makes Shaw’s in Boston unique, for example? We don’t want to lose sight of that.”

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Fred’s reports both monthly and quarterly record sales

BY Allison Cerra

MEMPHIS, Tenn. Fred’s Inc. reported record sales for the five-week and eight-month periods which ended Oct. 6, 2007.

The company said Friday that its total sales for the month increased 2 percent to $161.4 million compared to the same period last year. Total sales for the year-to-date period increased 5 percent to $1.157 billion.

Same store sales for the month rose 1 percent on top of a 5 percent increase in September last year. On a comparable store basis, sales increased 1.3 percent through the first eight months of fiscal 2007 compared with a 2.7 percent gain in the year-earlier period. Same-store sales are a key predictor of how well the company performs in stores that have been open for several years, and how well the newly open stores will do in the future.

“September sales came in at the low end of our forecasted range of a 1 percent to 3 percent increase, affected by unusually warm weather across our markets and the disruption caused by the updating of 98 stores under our refresher program,” said Fred’s Stores chief executive officer Michael J. Hayes. “We look forward to finishing our refresher program in October with the last 60 stores and to a better economic environment for our customers going forward, as the benefits of the minimum wage increase and the focus of Federal Reserve Board on the credit crunch take hold.”

Fred’s opened four stores at the end of September, bringing total store openings to 22 for the year-to-date period. These new store openings have been balanced by the company’s decision to close underperforming stores. In the remaining months, Fred’s Stores said that it plans to open 14 additional stores, with no further planned closings, which will result in a net increase in stores of 2 percent for the year.

Fred’s Inc. operates 702 discount general merchandise stores, including 24 franchised stores in the southeastern United States.

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Target to open another 61 stores nationwide

BY Allison Cerra

MINNEAPOLIS Target announced that it will be opening an additional 61 Target stores, the company said Friday.

The stores, which will all open Oct. 14, will open in 22 different states. The majority of the stores are making their debut in Arizona, California, Ohio and Texas.

In addition to offering the latest in trend-right merchandise, Target also brings a 44-year tradition of community involvement. The retail chain commits itself to local communities donating more than $3 million each week to area nonprofit organizations, becoming involved in local volunteerism efforts through Target Volunteers, and orchestrating other special projects that help meet area social service, arts and education needs.

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