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Supervalu reports strong earnings, ramps up remodels

BY Doug Desjardins

EDEN PRAIRIE, Minn. —Despite a lower-than-expected increase in same-store sales—due in part to its pharmacy division—Supervalu recorded strong earnings for its second quarter and said it’s on track to remodel up to 120 stores by the end of the year.

The 2,463-store chain reported sales of $10.2 billion for the quarter that ended Sept. 8 and earnings of $148 million compared with $132 million during the same quarter last year. The strong earnings came in spite of a 0.5 percent jump in same-store sales during the quarter. “We’re not pleased with the identical store sales reported for the quarter,” said Supervalu chief executive officer Jeff Noddle.

He said the nearly-flat sales were the result of a late summer slowdown in customer traffic, underperforming stores that are in need of remodels and an increase in sales of generic drugs at its 877 food and drug combo stores. As usual, Supervalu did not break out pharmacy sales, but Noddle said they were impacted by “deflationary pressure due to the increased role of generic drugs.”

Overall, Noddle predicted conditions would improve each month as Supervalu continues remodels across all of its banners, including the 1,100 stores it acquired in its 2006 purchase of Albertsons. So far this year, Supervalu has completed 100 major remodels and 35 minor remodels to its Premium Fresh & Healthy format and expects to complete up to 120 remodels by the end of its fiscal year next February, about 10 more than it originally planned.

“From day one, we said this was going to be a three-year effort, and we’re already about halfway through it,” said Noddle, noting that remodeled stores have reported a consistent increase in same-store sales.

Supervalu also reported some major developments in October. On Oct. 24, it appointed Sue Klug as the president of its Southern California division. She replaced Pete Van Helden, who resumed the sole role as executive vice president of retail West after holding both positions since May 2006.

Klug, who most recently served as senior vice president of sales and marketing for retail West, now oversees operation of Supervalu’s Albertsons stores in the region. During her 29-year career, Klug initiated a number of key programs, including the creation of “3’s a Crowd” at Albertsons and the relaunch of the Lucky store banner in California.

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Big crowds greet Tesco debut in Los Angeles

BY Doug Desjardins

LOS ANGELES Tesco wanted to make a good impression with its Nov. 8 Fresh & Easy debut in Los Angeles—a city where image is everything—and it did just that with a huge crowd jamming the aisles on opening day. Company officials reported similar turnouts at five other grand openings in Southern California and acknowledged customer response exceeded expectations.

More than one hundred people stood in line waiting to get into the Los Angeles store, with employees letting customers in as others left. And what they saw inside was a Tesco’s new hybrid combining elements of Trader Joe’s, Whole Foods and 7-Eleven with some borrowings from its stores in Europe.

The basic concept of Fresh & Easy is a convenient shopping experience with an emphasis on healthy food and prepared meals from its Fresh & Easy private label. During a brief tour of the crowded store, Uwins explained that 50 percent of its food offerings are from its private label and that everything is created, cooked and packaged at its own state-of-the art “kitchen” in Southern California, including all of its prepared meals.

“We expected pre-prepared meals to be a massive hit here in the U.S.,” said Simon Uwins, Tesco’s chief marketing officer. “And so far, judging from the gaps we see in our refrigerated cases, they’re being cleared out rather fast.”

Several things set Fresh & Easy apart from other grocery retailers like Trader Joe’s and Whole Foods, the two it resembles the most. As Uwins mentioned, its Fresh & Easy private label has a 50 percent penetration rate and is represented in nearly every major food category including produce, meat, prepared meals, juice, coffee and mixed nuts.

And that reliance on private label allows it to offer some very competitive prices. Overall, Tesco says its prices are well below its main rivals at standard supermarkets. “We estimate our prices are about 20 percent lower than most supermarkets in the area,” said Uwins.

Its selection general merchandise, health and beauty and over-the-counter medications is small supermarket standards and runs more along the lines of a convenience store, though with a broader assortment. Basics like paper towels, diapers and pet food are stocked in a single aisle and its HBC and OTC products are located on one long shelf toward the back of the store capped with a section for greeting cards and magazines.

The rather small selection—and the complete lack of private label products—shows Fresh & Easy is primarily about the food, though that could change. “There are no private label products outside of food right now but that’s not to say that won’t change,” said Uwins.

The in-store signage is also unique and stamps Fresh & Easy as an organic and eco-friendly retailer, a good image for Southern California. Nearly every green, cardboard endcap features a message about its products including “all our bagged coffee is certified organic” and “our desserts contain 0 percent trans fats.” LED lighting is also used in the store, something else pointed out in its signs. The store doesn’t sell cigarettes but do carry a large selection of wine along with liquor and beer.

The checkout system is completely automated with 100 percent assisted self-checkout. Five checkout stands are small and designed for 15 items or less and the rest are a bit larger with scanners and self-pay systems (though there were plenty of employees nearby to help out people not familiar with the concept).

As expected, Tesco had some detractors at its grand openings in the form of labor unions and neighborhood groups. The Carpenters Local 1506 picketed in front of the Los Angeles store and handed out fliers claiming that a group hired by Tesco to help build its stores “does not meet area labor standards, including paying for health care and pension for all its employees on all projects.”

Tesco has a second wave of five openings planned for Las Vegas on Nov. 14 and plans to have stores open in the San Diego market in late November and Phoenix in early December. It expects to have 50 stores operating in California, Nevada and Arizona by next February.

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Costco announces October sales figures

BY Doug Desjardins

ISSAQUAH, Wash. Costco reported a big 9 percent jump in same store sales in October.

Leading the way was a 17 percent increase in sales at its international stores with U.S. sales jumping 7 percent. The increase beat the 5.7 percent average predicted by analysts for the month.

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