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Continued: New CEO says his plan is to fix Supervalu

  • Article by: MIKE HUGHLETT , Star Tribune
  • Last update: August 4, 2012 - 5:25 PM

Supervalu's new CEO, Wayne Sales, is aiming to recapture that old turnaround magic.

He made his name in the 2000s by energizing a Canadian retail icon, Canadian Tire. But Eden Prairie-based Supervalu Inc., which ousted former CEO Craig Herkert last week, will pose a special challenge.

Canadian Tire needed the business equivalent of new tires and a good tune-up. Supervalu is like a blown engine requiring a rebuild. Indeed, the company is up for sale, whole or in parts.

Supervalu announced possible asset sales -- a "review of strategic alternatives" -- on July 11, after yet another rough quarter. That capped four years of falling sales and a descent in the firm's stock to lows not seen in at least 30 years.

Sales, Supervalu's nonexecutive chairman, is leading the strategic review. So, is he just a caretaker while Supervalu sells off its myriad grocery chains, including Cub Foods in the Twin Cities? Or is he out to rescue a U.S. supermarket giant with Minnesota roots dating back almost 90 years?

"That is not in my DNA -- being a caretaker," Sales said in an interview on Thursday. "I am not a maintainer. I am a builder and grower of businesses."

He referred to his role leading Supervalu's strategic review as a "part-time job" and declined to comment on any prospective asset sales.

Sales, 62, has been a Supervalu director since 2006, part of a board that hired Herkert in 2009 and terminated him July 29. While Herkert's exit wasn't a total surprise, it seemed abrupt given that in a July 19 interview with the Star Tribune, he gave no indication his tether was so short.

Sales declined to discuss the details of Herkert's dismissal. "Boards are required from time to time, based on circumstances, to make changes they see as appropriate," he said. "In this case, they felt that I was, based on my experience in retail, the best person for the job at this point."

Sales' career is steeped in retail. A Lynchburg, Va., native who grew up on a farm, Sales started as a stock boy at a local Kmart while in high school.

He went on to community college, but quit after a full-time assistant manager's job opened up at the Lynchburg Kmart. After rising steadily at the company, he left in 1991 to become senior vice president of merchandising and marketing at Canadian Tire.

The Toronto-based company is a household name in Canada, with an eclectic mix of items ranging from auto parts and hardware to sporting goods and patio furniture.

Sales played a major role in the company's 1990s transformation into more of a consumer merchandiser than a wholesaler to its licensed dealers. During that decade, Canadian Tire had a successful run of earnings growth.

But its stock was seriously slumping and its prospects were deflating when Sales took over as CEO in 2000.

Sales built a reputation for renovating and expanding Canadian Tire's stores, while fending off a U.S. invasion from the likes of Wal-Mart and Home Depot. Before he retired in 2006, Canadian Tire's sales had grown from $5.2 billion to $8.3 billion. Profits had more than doubled. And the stock had appreciated at an annual average of nearly 19 percent.

"He's got an impressive rsum," said Michael Keara, an analyst at Morningstar who follows Supervalu.

But then Herkert was no slouch, either, Keara noted. He was a top-ranking Wal-Mart executive before taking over at Supervalu in May 2009. Back then, Supervalu was drifting, outflanked by lower-priced competitors and laden with debt from its $12 billion buyout of Albertsons in 2006.

Now, the company's condition is code red. "I don't care what CEO you put in, the headwinds are tough," Keara said. Sales "has got his work cut out for him."

Sales, who will get a $1.26 million signing bonus and draw a $1.5 million salary, seems not to be deviating from the strategy set out by Herkert on July 11. Along with the strategic review announced that day, the company said it plans to accelerate a key price-cutting initiative.

In a letter to Supervalu employees, Sales said the firm will "move as quickly as possible" to be competitively priced. In Sales' bare office at Supervalu headquarters -- no time yet for decorating -- one vestige of its previous occupant remained, a promotional sign with the slogan "Gotta Love Lower Prices."

But prices are only part of the equation; Supervalu must do a better job differentiating itself to customers, Sales said. "People look to us for other points of differentiation [besides price]," he said. "It might be assortment. It might be location. It might be service."

In the letter to employees, Sales also wrote that significant cost cuts are in order. Asked if he plans on going beyond the $250 million in expense reductions announced July 11, Sales said "we just started the process this week and we haven't identified all the costs."

"I want to be careful here, because a lot of times when there's a leadership change, the team feels the only place you are looking to take out costs is to take people out. That's not my mode of operating. I am looking for efficiencies."

Supervalu, both at a corporate and store level, has had waves of layoffs in the past 18 months, and rounds of cost-cutting.

Analysts don't expect Supervalu to be sold as a whole, and any partial asset sales may not happen soon. To keep buyers interested, Supervalu "has to demonstrate there's life in what they have put together," said Jim Hertel, a managing partner with supermarket consultants Willard Bishop.

"And if nobody wants to buy it, or they get only bottom feeders, then they're going to have to run it [themselves]."

Sales seems on track to do exactly that. The Jupiter, Fla., resident was shopping last past week for digs in the Twin Cities. "I am totally committed to running this organization," he said. "I am happy to be in Minnesota."

Mike Hughlett • 612-673-7003

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