Folks in the financial community appeared to breathe a little easier after Supervalu Inc. revealed it would scale back its plans for expanding its Save-A-Lot banner in favor of more remodels at its conventional stores.

But despite what pundits are calling a better use of capital by the Minneapolis-based distributor and retailer, it remains to be seen whether this move turns out to be the right one for the long haul.

Make no mistake, Save-A-Lot continues to be a key growth driver for Supervalu, as well as for chain licensees such as Houchens and Jim Gipson, and regional licensees like the White family, which is expanding in the Deep South. While the lingering effects of last year's abrupt departure of its well-regarded president, Bill Shaner – a 27-year Supervalu veteran who had run Save-A-Lot since 2006, presiding over significant growth for the brand during his tenure – continue to be felt, they're lessening as time passes, particularly in its corporate stores, which continue to achieve success, including in new urban areas as it builds beyond its traditional geographic regional base.

Responding to Wall Street's concerns over Supervalu's lackluster performance (the 4,300-store chain has posted 16 straight quarters of declining same-store sales), President/CEO Craig Herkert declared in October that the company would spend upwards of $725 million to open as many as 90 new locations of its St. Louis-based hard discounter versus the 160 originally announced in May, and boost its conventional remodels to as many as 90, up from the 55 to 75 mentioned earlier in 2011.

"Our value proposition here, our business transformation," Herkert, the company's CEO since 2009, told investors last fall, "is a long-term proposition to make sure we are a great, relevant local retailer everywhere."

Financial analysts said more spit and polish for the likes of Jewel-Osco, Acme and Shaw's would do more to draw customers than would extending Save-A-Lot's reach. But while it's understandable that Herkert would want to throw a bone to investors in an effort to reverse the trajectory of Supervalu's traditional banners, will it be enough to shore up the middle while current economic conditions are seeing more Midwestern grocery shoppers looking for bargains at the bottom? Value-oriented retailers have been performing quite well, and observers expect them to have a great 2012.

Case in point: Chicago is seeing its populace flock to retailers such as Aldi and Target, while conventional chains like Supervalu's Jewel-Osco or Safeway's Dominick's are treading water, according to a recent Chicago Tribune analysis of the area's grocery market. Save-A-Lot opened new locations – with plans for more – in Chicago's depressed South Side last summer with great fanfare, at a grand opening that featured then Mayor-elect Rahm Emmanuel praising Supervalu for its efforts to slake the thirst in the city's food deserts.

Kroger's hard-discount Food 4 Less banner is making inroads, while Central Grocers' Ultra Foods also speaks to a less affluent demographic. Meanwhile, low-price superstore Meijer continues to gain ground in the Chicago area, most recently with its new, smaller Marketplace format.

At the same time, the Chicago market is turning out to be promising territory for a legion of independent markets like Caputo's and Tony's Finer Foods, as well as Mariano's Fresh Market, the new Roundy's-owned chain created by former Dominick's chief Bob Mariano that has opened four locations and counting in the city and its northwest suburbs.

Ohio-based Heinen's Fine Foods, with 17 stores in the Cleveland area, plans to crack the Chicago market next summer with a store in the affluent northwest suburb of Barrington. And if folks have a little extra money to spend, they're spending most of it not at conventional supermarkets, but at higher-end retailers like Whole Foods, Treasure Island and other specialty stores, which are benefiting from a so-called barbell economy.

So, then, what of Supervalu's move to ramp up improvements at its conventional stores? Will it help brighten the future of the legacy banners, or is it too little, too late? The company's shares are still down since it shifted its strategy from expansions to remodels. It's a balancing act that Supervalu continues to struggle with, and the grocer shouldn't expect its traditional banner revamp to woo back many (if any) shoppers of value chains, where folks have been looking to stretch their food dollars in greater numbers, regardless of their economic status.

Meanwhile, some local observers expect Safeway to divest its sagging Dominick's chain, which has struggled to maintain its once-loyal following since the Pleasanton, Calif.-based giant acquired the Chicago-area mainstay from the DiMatteo family in 1998. Historically in second place behind the 182-store Jewel chain, Dominick's saw its fortunes further erode when shoppers turned up their noses at Safeway's house brands and other changes that many viewed as homogenizing a formerly unique shopping experience. (Safeway faced a similar experience in the East after acquiring Genuardi's, which it's currently in the midst of offloading.)

Down to fewer than 80 stores from nearly 120 when Safeway took over, Dominick's was poised to close more stores in early 2012, suggesting that the chain is further slimming down to make itself more attractive to suitors. The beau most often mentioned is Kroger, which has limited exposure in Chicago through its Food 4 Less banner despite its flagship presence in southern Illinois, Indiana, Michigan and its home state of Ohio. Market observers see Kroger as the best and strongest of the large chains operating in the Midwest, and a Dominick's acquisition could turn out to be the jewel (no pun intended) in its crown.

Elsewhere, Milwaukee-based Roundy's Supermarkets Inc. has filed for an initial public stock offering that's expected to raise about $230 million, which the company says it plans to use to pay down debts exceeding $800 million. Prior to the IPO announcement, some industry observers believed Roundy's (once considered a suitor for boss Mariano's former charge, Dominick's) was putting itself on the block; it's owned by Chicago-based private equity firm Willis Stein & Partners.

Experts have expressed doubt the stock offering will enhance the company's performance in the face of stiff competition. Roundy's operates 158 retail grocery stores under the Pick 'n Save, Copps, Rainbow, Metro Market and Mariano's Fresh Market banners in Wisconsin, Minnesota and Illinois.

Of course, in the Midwest, as in most of the rest of the country, all eyes remain fixed on Walmart. The full impact of its latest experiment – small-format stores in inner-city food deserts – remains to be seen. But even though some observers say the world's largest grocer has been going through an identity crisis in recent years, its sheer size and pricing structure will continue to make it a force to be reckoned with.

As one industry insider observes, when Walmart hiccups, it affects the entire industry and begs the question, "What does this mean for me?"