SKU Rationalization Hits Jewel-Osco in Chicago Area

Supervalu, Inc.’s Jewel-Osco chain is testing a new store format in the Chicago suburb of Bolingbrook that cuts up to 25 percent of products.

Jewel plans to take this design to more stores under a directive from Minneapolis-based Supervalu to reduce clutter, cut costs and make room for more of its own brands, Crain’s Chicago Business reported. But Jewel may risk alienating shoppers by removing their favorite brands; after Wal-Mart Stores, Inc. and Walgreen Co. pursued similar initiatives, both chains reported having to restock some items when customers went elsewhere.

Jewel’s share of the market has fallen significantly in the past three years while Walmart, Aldi and others have strengthened their positions, with competition bound to get tougher in the coming years as Walmart’s aggressive Chicago expansion plan gets underway.

Supervalu CEO Craig Herkert told investors in April that scaling back inventory is a central component of a new growth strategy dubbed “Project SHE,” or “Simplify Her Experience.” Under the plan, Supervalu stores have eliminated items such as electronics, motor oil and fragrances, and reduced the number of sizes, brands and varieties of certain products. Plus, Jewel is pushing more of its own store brands, which yield bigger profits than national brands.

Grocery consultant Jim Hertel of Willard Bishop told Crain’s the strategy could expand Jewel’s profits by about $230,000 per store annually, or more than $40 million across the 180-store chain.

The Bolingbrook store features a more open layout with lower shelves and increased signage. Changes include “the removal of repetitive products so the store carries the items we have found to be most popular with our customers,” a Jewel spokeswoman said. “The redesign will be implemented at additional Jewel-Osco stores in the future.”

Shoppers’ reactions to the new layout in Bolingbrook are mixed, according to Crain’s.

“The changes are good, and the lower shelves really help shorter people like me,” JoAnn Wojtecki of Naperville, Ill., told the publication. “I haven’t noticed anything missing that I buy.” Meanwhile, Naperville resident Ericka Wagner said the store discontinued the only juice her son will drink.

“We have worked with shoppers at our Bolingbrook store to ensure they are able to find the products they need for themselves and their families and, overall, our customers have been very receptive and provided positive feedback about the changes to the store,” the Jewel spokeswoman said.

Jewel’s push to promote its own brands appears to clash with the growth strategies of outside food suppliers, which want more shelf space for line extensions. “If the assortment rationalization is done right, it can provide many financial benefits to the grocer,” Hertel told Crain’s. “But if it is not done well, it can end up irritating a ton of shoppers and manufacturers.”