Safeway chairman, president and CEO addresses promotional pricing bust
PLEASANTON, Calif. It just doesn’t pay to be too promotional anymore.
Last week during a quarterly conference call with investors, Safeway chairman, president and CEO Steve Burd explained that especially during a recession economy, his company’s move to an every-day-low-price pricing strategy is likely to generate more loyal shoppers — as compared with the competition in today’s economy — by conducting heavy promotions across certain categories in an attempt to increase foot traffic.
“We have traditionally been more promotional than virtually anybody we compete with,” Burd said. “Because of our movement to everyday price, we actually see … a lower percentage of our business purchased on promotion, although not much. And then rest of market, we see more of their business purchased on promotion,” he said. But the fact is, “the budget shopper is not very loyal at all,” Burd added.
Shoppers today, particularly the budget shopper, are channel surfing more often, Burd said. So if promotions designed to draw consumers in leaves many of those shoppers walking out only with those promotional items, “that would really hurt you from a P&L standpoint,” he said.
Herkert seeks to turn around Supervalu after grim first quarter
MINNEAPOLIS Two months into his new position, Craig Herkert, Supervalu CEO and former Walmart executive, took action on Tuesday, firmly stating that Supervalu’s current performance metrics “are not acceptable,” and setting out a multi-pronged plan designed to refocus the many-bannered supermarket chain and laying the baseline for long-term growth. “Our issue is execution,” Herkert told analysts Tuesday morning.
And execution is an issue across all facets of the business, Herkert said — customers perceive Supervalu as too high-priced, and only take advantage of the chain’s too-deep promotional items; and vendors perceive Supervalu as too complex, perhaps choosing to focus their retail allotments against easier-to-work-with competitors. “Going forward, roles and responsibilities will be clearly defined,” Herkert said, and operations executives will be held accountable.
For example, now all of the supermarkets operating under the Supervalu umbrella will now report up to Pete Van Helden, EVP of retail operations at Supervalu. “I think just getting clarity [around] reporting relationships … will increase and improve our ability to make decisions efficiently.”
As an example of that, Supervalu two weeks ago brought all of its specialty banners —bigg’s, Cub Foods, Farm Fresh, Hornbacher’s, Shop ‘n Save and Shoppers Food & Pharmacy — all under the guidance of Brian Huff, SVP specialty retail, who reports directly to Van Helden.
Also as part of that operational streamlining initiative, Supervalu sold its Utah-based Albertsons operations on the same day of the call to Associated Food Stores. The move was made because Utah was not a core market, Herkert said.
As part of Tuesday’s conference call, Herkert identified a number of areas where Supervalu will seek improvements. First, the company will be looking to funnel its focus wholly onto the consumer. And beyond actual shoppers, one of those key customers is the independent retailer supplied by Supervalu, Herkert added. Pricing perception among consumers will also be a key focus going forward.
Outside of Save-A-Lot, which operates on an everday-low-price strategy, Supervalu’s banners pursue a high-low price strategy.
“Our price position has hurt us,” Herkert said. “Particularly in this economy.”
Herkert stressed that perception will change, just not right away.
“Customer perception does not change on a dime,” he said. “What were working toward is fixing the value proposition so that our everyday prices are more meaningful to her.”
As part of scaling its high-low pricing structure a bit lower in an effort to better meet customer expectations, Supervalu will also be reviewing its promotional activity. Herkert noted that Supervalu’s current promotional activity doesn’t do anything to improve pricing perception among shoppers, nor does it improve loyalty.
And while Supervalu’s pricing position needs to be adjusted, marketing is a strength for the company, Herkert said.
Supervalu sales, earnings decline
MINNEAPOLIS Supervalu reported that its net sales for the first quarter of fiscal year 2010 dropped 4.5% from the year-ago period.
The grocer said Tuesday its net earnings dropped significantly to $113 million, or $0.53 per diluted share, from $162 million, or $0.76 per diluted share, during first quarter 2009.
“As we noted in our press release of June 24, our first quarter results reflected the continuing difficult economic environment as well as investments we are making in price and higher levels of promotional spending. As a result, sales and margins in the first quarter were weaker than originally expected. We anticipate no near-term change in consumer spending patterns and we will operate our business accordingly,” said Craig Herkert, CEO at Supervalu.
First quarter retail food net sales were $9.9 billion, compared with $10.3 billion last year, a decrease of 4.3%, primarily reflecting the impact of identical store sales of negative 3.2% and previously announced store closures. The identical store sales performance primarily results from a challenging economic environment, heightened competitive activity and additional investments in price and promotions. Retail square footage decreased 3.2% from the first quarter of fiscal 2009. Excluding the impact of store closures, total retail square footage increased 0.8%, compared with the first quarter of fiscal 2009.