Ringing up big changes at Supervalu

Every few months, St. Paul-based Old Home Foods likes to roll out a temporary, unusual flavor of yogurt, and right now it's "Sugar Cookie." But customers at many Cub supermarkets won't see it on the shelves.

The maker of yogurt, sour cream and cottage cheese learned recently that Supervalu, the parent company of Cub, no longer will make room for "Old Home 100" yogurts or Old Home's "Gaymont" brand, named for the bacteriologist credited with bringing yogurt to the United States in the 1940s.

The reason? Check with Supervalu's new CEO.

Craig Herkert, who took over in May, says reviving the sagging fortunes of the $44 billion Supervalu will require sweeping some products off shelves. Herkert is also pursuing an ambitious plan of expansion, the fusion of Supervalu's disparate parts into one company and making the company less complicated.

Supervalu must do all of that while focusing on the customer, said Herkert, who's worked in supermarkets in this country and abroad.

"Consumers are the same across the world," he said. "No. 1, it's a she."

Few would argue there are any easy choices at Supervalu, the nation's No. 3 grocer. The Eden Prairie-based company reported a 42 percent drop in earnings in its most recent quarter as shoppers cut back or went elsewhere. "It's clear the company is still a long way from any meaningful recovery," warned Credit Suisse analyst Edward Kelly in a recent investor's note.

Herkert, who formerly was Wal-Mart's president and chief executive officer of the Americas, has unveiled a sweeping strategy for Supervalu that includes doubling the locations of the company's discount banner, Save-A-Lot. Some top executives have been let go, and Herkert has launched an aggressive tour of the company's operations, criss-crossing the country to visit its nearly 2,500 retail locations and meet customers.

Herkert, who turns 50 later this month, sat down for an interview with the Star Tribune last week to explain his vision for the company.

"We aspire to be America's neighborhood grocer," said Herkert. "That's what we are. It's all we do."

Herkert, raised in Chicago, said coming to Supervalu was like coming home. His wife is originally from Green Bay, Wis. He's an avid biker who rides a carbon fiber Bianchi road bike and a Cannondale mountain bike.

He made news last month when he announced Supervalu's plan -- meaning his plan -- to double the number of Save-A-Lot locations from the current 1,200 nationwide. Some of that expansion will be financed by money saved from the stock dividend, which was cut in half.

"It's not like anything I've seen in the world," Herkert said of Save-A-Lot. "Not an experiment, not a test, not a start-up -- it has 1,200 stores that work today. To me, that's unbelievably exciting."

And he's making waves locally with a call to pare choices at the supermarket.

Citing an example he saw recently at a Supervalu store in Chicago, Herkert said one category in the store's health and beauty section had 108 SKUs.

"And I think that makes it more difficult for our consumer to make a decision with ease and clarity when she's shopping," said Herkert. "She's got a couple of kids with her, she maybe has a baby in the cart. To stand in front of that category and now decide, 'Do I want brand A or brand B, both of which are great brands, but within those brands I've got 60-odd flavors. ... We've got an obligation, I believe, to do a better job of making it easy for her to shop at our stores."

Research shows many shoppers are happier with their choice if they have fewer things to choose from, but knowing how many choices to show the customer gets tricky, said George John, chair of the marketing department at the University of Minnesota's Carlson School of Management.

"There will come a time when customer perceptions of the store will change from 'I'm likely to find what I want' to 'It's a lean and mean operation.' There is the big picture risk sitting there."

Old Home CEO Geoff Murphy said losing shelf space at corporate-owned Cub stores for his "100," "Pom100," and "Gaymont" yogurts amounts to a 10 percent loss of his company's sales volume. "It's a huge blow to Old Home Foods," he said.

Herkert said he didn't have firsthand knowledge of the Old Home decision, but acknowledged that choosing brands gets down "to the trickiness of being a merchant and listening."

"Ultimately, you have to be a businessperson."

The move grants Supervalu more leverage with remaining brands. And, more significantly for Supervalu's bottom line, paring SKUs could steer customers to Supervalu's store brand.

It's also part of a larger vision Herkert has about supermarket shopping: It should be as simple as possible for the customer.

Advertisements should speak clearly. Prices shouldn't be hard to understand, or require a calculator to figure. (Herkert lambasted a "3 for $5" sign last month that he had seen at a store: how many consumers would quickly know what each item costs?). And as a company, Supervalu, which has some historical separation between its retail, wholesale and Save-A-Lot divisions, should speak with one voice, he said.

"Frankly, the world moved beyond us. We have been too complex for our vendor partners to talk to," he said. A vendor can make one call to speak to Supervalu's competitors, but might have to make as many as 13 calls to reach all of the banners under Supervalu's corporate umbrella.

"We need to make that easier for them and then use the leverage we have as a $40 billion-plus retailer when we're talking to our vendors," he said.

Eventually, Herkert said, the company should hit its financial goals of 4 percent top-line growth, 10 percent bottom-line growth and a 15 percent return on invested capital. But he's deferred on a timeline for hitting those targets.

In the meantime, Herkert has maintained a frenetic travel schedule, spinning his vision for the company, pushing the "neighborhood grocery" image and talking to customers. He flew to Pasco, Wash., to drop in on stores last week, then touched down in Eden Prairie for meetings before leaving Wednesday for two more days on the road.

A store owner in Pasco told him about the success he's had in the past four years. A deli manager at a supermarket on Chicago's South Side said she's seeing more customers looking for healthy options after a diagnosis of diabetes.

"Market research isn't going to tell me that. Getting out and talking to real human beings is going to tell me that," Herkert said. "I'm lucky that I find it fun. This is what I need to do to understand what customers want."

Herkert began his supermarket career as a buyer at Jewel-Osco in Chicago, now under the Supervalu umbrella. He was assigned to a senior buyer who told him: Your job is to be an agent for the customer.

"How cool is that?" Herkert said.

Matt McKinney • 612-673-7329