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    Driving Shared Success

    Returning to its roots as a supplier to independent grocers is paying dividends for a reinvented Supervalu Inc.

    By Jim Dudlicek, EnsembleIQ

    This is not your father’s Supervalu Or maybe it is.

    It could be argued that the Supervalu of today in some ways more closely resembles the company of old than it does the one of more recent history.

    Historically a wholesale distributor serving independent grocers and smaller regional chains, Eden Prairie, Minn.-based Supervalu Inc. changed radically in 2006 when it acquired five regional banners from Albertsons for $12 billion.

    Seven financially rocky years later, the company sold back its Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market stores for $3.3 billion. New President and CEO Sam Duncan and his team set about rebuilding the company, a key component of which has been a renewed focus on its independent business, serving some 2,000 independent retailers in 43 states.

    With EVP Janel Haugarth leading the charge as president of Supervalu Independent Business and Supply Chain Services, the transformation has been dramatic. In its recent third-quarter earnings report, the company posted its best financial performance in years, with increases across all three of its business units.

    Supervalu’s Independent Business net sales in Q3 were $1.96 billion, compared with $1.91 billion in the year-ago period, an increase of 2.4 percent, primarily due to increased sales to existing customers and new accounts; unit earnings were $60 million, or 3.1 percent of net sales.

    Not long before the Q3 earnings call on Jan. 7, Supervalu announced a significant windfall: Its Independent Business would begin supplying an additional 64 stores in the Pacific Northwest operated by Haggen, stores that the Bellingham, Wash.-based regional grocer acquired in the wake of the Albertsons-Safeway merger. As part of that affiliation, Supervalu will be providing transition services to all 164 Haggen stores out of its Tacoma, Wash., distribution center, making Haggen one of Supervalu’s top five independent customers. Additionally, Supervalu picked up some of the Rainbow stores divested by Roundy’s when the Milwaukee-based operator exited the Twin Cities market.

    Duncan declared the upward sales gains in all three of the company’s business units “an important milestone.” Not surprisingly, Wall Street analysts concurred, as evidenced by Supervalu’s elevated stock price and related favorable credit ratings. Major shareholder Jana Partners, a New York-based activist investment firm known for taking large positions in companies to leverage management changes, sold off more than 4.6 million shares in Supervalu.

    “Our employees believe in the direction we’re going. Sam and the board are clearly behind us,” Haugarth tells Progressive Grocer. “We believe we’re the best wholesaler in the industry, and we will continue to prove that. It’s just a great time to be part of Supervalu. We’re very excited about the direction we’re heading.”

    PGs editors agree, which is why Supervalu Inc. has been selected as our 2015 Wholesaler of the Year.

    Operating under the simple philosophy that it’s only as successful as its customers are, Supervalu aspires to live up to its name by providing its diverse base of retail customers with exceptional value, expertise, and help with logistics, merchandising, store operations and professional services.

    With a renewed focus on private brands, perishable foods and better-for-you products, Supervalu is ramping up investments in supply chain enhancements to streamline the path from farm to shelf. And, with a strong focus on how data analytics can more effectively manage all aspects of the business, from inventory to consumer marketing, Supervalu is also investing heavily in professional consulting and customized services that will help its customers and suppliers gain an edge in the marketplace.

    Emerging Stronger

    “They say what doesn’t kill you makes you stronger, and that’s certainly true for Supervalu,” Haugarth says, explaining that the company’s tumultuous experience as a national banner retailer in some ways left it better equipped for its future. In fact, the period of upheaval and subsequent regrouping, she notes, has “brought us a lot of knowledge, expertise and insights” regarding procurement and supply chain efficiencies.

    To be sure, supply chain and logistics competency is among the five key areas Haugarth identifies (whittled down from what she confides is a personal list of dozens) as Supervalu’s competitive advantages as a wholesaler.

    “We take a lot of pride in on-time delivery and dock-outs,” says Haugarth, a PG Top Women in Grocery laureate and winner of the 2014 Trailblazer Award from PG and the Network of Executive Women. “If we couldn’t ship on time and at the right price, we wouldn’t be around.” Supervalu is constantly analyzing logistics and looking into new technologies to improve its upstream, downstream and sidestream operations. “We will continue to invest in our distribution centers and drive these costs down,” she affirms.

    Haugarth also stresses the importance of transparency in vendor funding: “Trade funds are so critical to our customers, and it’s important for them to know how their trade funds are being spent … so customers know trade funds aren’t being skimmed off for operational funding.”

    A strong technology platform has been, and continues to be, crucial to Supervalu’s success. “We were one of the first wholesalers to put all our information online through an online portal,” Haugarth notes. “We continue to make that better and better. It helps us keep our costs low, to keep information flowing.”

    The company’s latest tech move: Supervalu has partnered with Burtonsville, Md.-based iControl Collaboration Solutions to introduce SVInsights, a data exchange portal that houses its retail banner point-of-sale data and provides data access to manufacturers and brokers, as well as enhancing the strategic decision-making process between Supervalu and its suppliers. The data sharing was enacted to improve the working relationship between Supervalu and the manufacturer/broker community. The company also is working to include data from the independent retailers that it supplies.

    Supervalu has been working with iControl since 2013 to develop the data platform and create functionality that best serves manufacturers and brokers. “Supervalu is moving into a new era of providing our banner data to our suppliers, allowing them to work with us on a new level of collaboration and business planning,” says Mark Van Buskirk, EVP of merchandising, marketing and retail.

    Brian Audette, SVP of corporate independent business, merchandising and sales, further notes that “harnessing the power of data … will set us apart in the wholesaling world.”

    Additionally, Audette points to company initiatives like the eConnect content management system and SVLinks, which allows digital coupons to be linked with shoppers’ credit and debit cards.

    Haugarth stresses the importance of actionable point-of-sale data analytics to Supervalu’s helping its independent customers succeed. “My procurement team can do more with front end data than shipment data,” she says. “We’re trying to get product from field to store as fast as we can — this data will let us do that much faster.”

    Commitment to Customers

    Yet another edge Supervalu has, according to Haugarth, is its independent retailer customers.

    “We are only as successful as our customers are, and we have some of the best retailers in the country,” she says. “They continue to challenge us, and we listen. We enjoy growing with them.” (See the sidebar on page 26 for retailer testimonials.)

    Audette, who’s celebrating his 24th anniversary with Supervalu this year, recalls seeing, on his first day on the job, a sign declaring the company’s mission statement: “Committed to serving our customers better than anyone else can.”

    “If we help them grow, their success is our success — that’s the mission the independent team is focused on,” Audette affirms. “This year, we’re being active in growing our core business, helping customers with marketing planning.… We’ve been able to do that better than we have in a long time.”

    That success, Audette continues, rests on three pillars: growing that core business, driving costs down, and offering “market-leading services, differentiated offerings … to help our customers with success.”

    Those core independent retailers are many and varied. “We serve such a broad range of markets and store sizes. We embrace that one size doesn’t fit all,” Haugarth says. “Whether IGA banner stores, or Shop’n Save in Pittsburgh, or Lunds and Byerly’s in the Twin Cities, our ability to understand what these different customers need sets us apart — who they’re serving and what their go-to-market strategy is.”

    It’s what Haugarth refers to as “a big share group.” She elaborates: “We serve a diverse group of customers, and take from each one ways to better serve customers in other parts of the country. We connect people to help each other.” The business unit’s retailer advisory board also furthers the sharing of information, concerns and other issues with its customers.

    Haugarth and Audette both call out the Pittsburgh area’s Shop’n Save group as a shining example of Supervalu’s independent retailer excellence. The 100 formerly corporate stores are now independently owned by 30 owners and are run like a chain. The Pittsburgh independent owners “are highly successful competing in that market,” Audette says. In fact, Supervalu has a dedicated team working with these owners to help develop marketing plans, loyalty and fuel programs, and otherwise keep their locations “focused on promotional excitement.”

    Tipping her hat to Pittsburgh’s formidable market leader, Giant Eagle, Haugarth extols the Shop ‘n Save owners’ tenacity and competitive spirit “for pushing the edges to stay relevant.”

    In another example of its diverse clientele, Supervalu also serves Admax, a retailer-owned cooperative in the Southeast with its own merchandising group that undertakes its own negotiations with suppliers. “Most of what we provide them is logistics services and forecasting,” Haugarth explains.

    Meanwhile, another of Supervalu’s larger independent customers is Jerry’s Foods, operator of Cub Foods franchise stores, Save-A-Lots in Florida and County Markets in rural communities around the Twin Cities. “We offer them multiple solutions for the independent and franchise sides,” says Audette, who was president of Cub Foods for two years before transitioning to his current post. “We have the ability, and designed our model, to serve many different customers.”

    Here again, Supervalu’s experience running the Albertsons banners provided learnings that can be passed on to independent customers, Haugarth notes. “We need to help them compete,” she says, “doing what single stores can’t do on their own.”

    Mark Batenic, president and CEO of Chicago-based independent grocer alliance IGA, says Supervalu has been “a great supporter of IGA for more than 60 years, going all the way back to when they acquired the J.M. Jones Co., in Champaign, Ill. They are always looking out for the independent retailer, and are as committed as ever to the success of those retailers and the success of IGA.”

    More than 200 of IGA’s 1,150 banner stores are supplied by Supervalu, making it one of the top three IGA wholesalers in the United States.

    “During all the turmoil that Supervalu has been through in the last five years,” Batenic continues, “we were never once given reason to be concerned about the company’s commitment to IGA, or to family-owned independent business as a whole. We were assured many times that they would continue to support their IGA retailers and the independent channel, and they always did, both financially and through programs designed to help make family business more relevant in today’s marketplace.”

    Haugarth gives a lot of the credit for the company’s recent Q3 success to its independent customers, and she anticipates further victories. “The momentum was coming from our core business,” she says. “New stores helped, but what took us over the top was the great business we did with our core independents.”

    Audette says it’s important to be flexible to design plans for customers’ specific needs. “We are really blessed — honored — to serve the independent network we serve. They’re among the best operators in retail in general,” he says. “We do a great job bringing them together to learn from each other.”

    Service-oriented Team

    Behind it all, the driving force is Supervalu’s people, comprising the team upon whose shoulders Haugarth places a large measure of the company’s success.

    “Our people make it all happen for us every day We’ve got a tremendous group of talented people,” Haugarth says, noting that Supervalu’s independent business is a “very flat” organization: “We push decision-making down as far as we can.”

    Supervalu has a long-tenured, service-oriented team that “makes us able to give customers what they need to compete, even if it’s some hard news once in a while that they need to step it up,” Haugarth says. “We need to be as lean and mean as we can be to deliver to our customers at the lowest cost so they can compete.”

    The Independent Business team kicks off each fiscal year by rallying the troops at a “top gun” sales conference to work on up to two dozen key initiatives in merchandising and services, Audette explains: “That gets our team focused with all the details we need to bring to our customers and help them succeed.”

    Last summer, Supervalu launched its first national sales expo, Sales 4 All Seasons, bringing retailers and suppliers together with the Independent Business team — in all, some 4,500 attendees. “We took a bit of a risk putting together a national selling show,” Audette acknowledges, but it “led to some really good results with seasonal planning … and got our team focused on that third-quarter holiday selling period.”

    Haugarth confirms that the expo “brought it all to life,” resulting in an experience the company intends to continue for years to come, with the next one slated for August. “It was a tremendous educational environment — great networking for our customers and suppliers,” she says.

    It’s service that forms the bedrock of Supervalu’s corporate culture. “Since the first day I started here, the focus on customer service has been deeply embedded in our company,” says Haugarth, who’s been with the organization for more than 35 years. “It’s not about just saying yes; it’s about taking care of them to make them successful.”

    That ethos is similarly championed by David Young, VP of private brands, an industry veteran but Supervalu newcomer, having joined the fold last spring. “In the short time I’ve been here, I’ve asked people how they feel compared to a year ago,” Young recounts. “They feel so much more engaged and confident in the direction we’re going. Independents really are part of the family, and this way of going to market is really going to get Supervalu into the premium sector of our industry.”

    The Road Ahead

    In addition to the planned investments in private brands, analytics and supply chain, Supervalu is testing the use of compressed natural gas to fuel its truck fleet on the East Coast. Despite currently plummeting gasoline prices, Haugarth says, “We still think there’s a place for natural gas in our fleet.”

    Beyond that, one of the most significant roadblocks to doing business is the speed of change, Haugarth maintains. “It’s always been a challenge in retail — making sure we have meal solutions, the right kind of fresh and organics, and staying on top of that,” she says.

    And in the past six months or so, labor availability has become a bigger issue, Haugarth notes. The supply of truck drivers has tightened due to retirements outpacing new hires, and warehouse labor has reached “critical” levels.

    “When unemployment rates were low, we had a hard time staffing … [and] we’re seeing it tighten again,” Haugarth says, explaining that younger people aren’t flocking to the physically demanding, time-consuming shift work involved with order selection and truck loading. “It’s hard to get 20- and 30-year-olds to do that kind of work, even with good pay and benefits. People’s free time is important to them — they don’t want to work nights and weekends.”

    On the flipside, opportunities cited by Haugarth include providing customers with design services “to help … improve their store experience,” and maintaining the recent momentum of success: “The opportunity to lead the charge is really exciting. I’m very bullish on how Supervalu can play.”

    Audette offers: “Our challenge is to help customers understand what’s coming and provide solutions…. We’ve done a good job in leading change and developing products and services to help customers compete in their marketplace. We’re really focused on keeping customers relevant through all this change.”

    And as the number of players in the wholesaling field continues to shrink through consolidation, staying on top of their game will be paramount for survivors like Supervalu.

    “There’s fewer wholesalers than there were last year, and certainly there will be fewer in the future,” Haugarth says. “The ability to invest in food safety and technology is driving scale…. It’s still a low-margin business.”

    What are the leaders of PG’s Wholesaler of the Year most proud of as they reflect on the hard work and innovation that have turned the company around?

    “The relentless focus on our diverse and successful customers,” Audette says. That includes a “top-notch network of vendors and brokers,” and the “total support to aggressively pursue new business” coming straight from the top.

    “Our employees treat our customers like family. We have a role in how our customers provide food [to consumers], and our team is proud to help them do that, and grow and thrive despite all the competitive channels,” he says. “This is a different time for Supervalu. I couldn’t be more excited and proud to be a part of the team.”

    Young says: “The management team has us back on track as to what our core business is all about — making that shopper experience so people feel good about what they bought and want to come back — a customer service experience that makes them feel like part of the family.

    “You can feel the direction and leadership going on that’s really taking hold,” he adds. “It’s nice when suppliers are starting to come back to Supervalu after having left. That says they believe in Supervalu.”

    Haugarth, meanwhile, is most proud of the folks who make it all happen: “We’ve got people who will walk through fire for our customers. They will do whatever it takes — work overtime because of a weather issue — from truck drivers and order selectors to our private-brand team, to my presidents and their staffs, there is not an obstacle we cannot overcome as a team…. We’re not going to sit on our laurels. You always have to be on the edge of your chair. People make it work.

    “Our customers’ success is our success — it’s why we are who we are,” Haugarth declares. “As they succeed, we will succeed.”

    Brands in Demand

    Among the weapons in Supervalu’s competitive arsenal is a portfolio of private brands designed to satisfy key market demands and offer independent retailers yet another point of differentiation.

    “Our private-brands team continues to do good work around updating packaging and introducing new and meaningful items that our customers want,” President/CEO Sam Duncan said at Supervalu’s Jan. 7 earnings call. “We continue to see increases in our sales penetration, which was up about 30 basis points in the quarter compared to last year’s third quarter. We have increased the number of new items we expect to introduce this fiscal year to over 500 across our portfolio, including about 160 from our recently relaunched Wild Harvest line.”

    Heading up the initiative is David Young, VP of private brands, who joined Supervalu in May 2014, his latest mission in an extensive career that has included stints at Wild Oats and Daymon Worldwide, and as a private-brand consultant.

    “The opportunity for our brands is tremendous,” Young says. “They all have a niche in the categories and demographics we’re targeting.”

    Sales trends support Young’s assessment. U.S. consumers spent $120 billion on private label products in 2014, a 2.1 percent increase over the previous year, according to the IRI Times & Trends report, “Private Label and National Brands: Dialing in on Core Shoppers.”

    “You create destination products that people want and look for,” Young asserts, “destination products you can only get at our independent stores, and you’ve got a success.”

    Essential Everyday is Supervalu’s “workhorse” brand, Young notes, encompassing some 2,500 products across the store, promising quality “as good as or better” than national brands. “We push our manufacturers to create private brands that can be better,” he adds.

    Product development is aggressive for Wild Harvest, Supervalu’s natural and organic brand. “Consumers are looking for cleaner ingredients,” Young says, explaining that the brand has actually dropped the descriptor “natural” in favor of “free-from,” which he says resonates better with consumers. The brand has launched more than 200 items over the past several months, with more on the way.

    Culinary Circle, Supervalu’s upscale gourmet brand, has caught on among independent retailers. “Our customers are telling us they want more of it,” Young says. Meanwhile, the Equaline brand of over-the-counter medications, vitamins and supplements enjoys “good acceptance and distribution.”

    Supervalu is making R&D surrounding its private brands a priority. With a team of 20 product developers, the company is expanding R&D operations at its Minneapolis-area headquarters to include test kitchens — staffed by culinary experts and quality assurance personnel — for the development of private-brand products.

    “Our independents look upon Supervalu to guide and protect them when it comes to our products,” Young says. “We go through a great deal of effort with our manufacturers to make sure our product specifications are exactly what end up on the shelf.”

    Since coming on board, Young has led a reorganization of his department, placing it under a single business manager to eliminate duplication of some roles and responsibilities.

    “Suppliers were getting frustrated because decisions were taking so long,” he explains. “Execution is now much more efficient, and people are accountable. The window of opportunity closes quickly, and we want to make sure to take on every opportunity.”

    Part of that is staying aware of “niche operators popping up around the country,” retailers like Lucky’s and Fresh Thyme. “They’re key competitors to our independents. That’s why we’re pushing our Wild Harvest brand — it keeps our customers in our stores,” Young says. “This is where our customers look to us to defend market share and keep customers in their stores on a regular basis.”

    Young’s team keeps an eye out for new product trends both here and abroad, “not only from a product standpoint, but from a packaging standpoint — the look, style and feel of what attracts customers to our product line,” he notes.

    Among the challenges facing the private-brands team: keeping up with demand for certain products like organics, Young says, a category growing by double digits, in which demand is outpacing supply.

    Meanwhile, Young and his team will keep pushing ahead with product development, especially niche items to give customers a competitive edge.

    “I think there is a gap versus the way we’ve done things in the past. But with the talent we have now, I’m very excited about what we’re going to be bringing our customers,” he says.

    “The thing we emphasize with independents: These are not our brands, these are their brands. We want them to know they own these brands as much as we do — and they’re asking for more.”

    “Our challenge is to help customers understand what’s coming and provide solutions. We’re really focused on keeping customers relevant through all this change.”
    —Brian Audette, SVP, Corporate Independent Business, Merchandising and Sales

    “We believe we’re the best wholesaler in the industry, and we will continue to prove that. We’re very excited about the direction we’re heading.”
    —Janel Haugarth, EVP and President, Super valu Independent Business and Supply Chain Services

    “Since the first day I started here, the focus on customer service has been deeply embedded in our company. It’s not about just saying yes; it’s about taking care of them to make them successful.”
    —Janel Haugarth, EVP and President, Supervalu Independent Business and Supply Chain Services

    By Jim Dudlicek, EnsembleIQ
    • About Jim Dudlicek As editor-in-chief of Progressive Grocer, Jim Dudlicek oversees daily operations of the magazine, spearheads its signature features, produces PG’s monthly Trend Alert newsletter on center store issues, moderates its regular webcast series, and writes and comments about a wide range of grocery issues. A food industry journalist since 2002, Jim came to PG in June 2010 after covering the dairy industry for 7½ years, during which time he served as chief editor of Dairy Field and Dairy Foods magazines. A graduate of Marquette University, Jim is fascinated by how truly progressive grocers inspire consumers to enjoy food, transforming the industry from mere merchants into educators that can take the most basic of all necessities and turn it into something profound and life-enhancing.

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