Supervalu abruptly ousted Chief Executive Craig Herkert on Monday, three years into his unsuccessful effort to turn around the lumbering grocery giant with deep Minnesota roots.
Herkert's departure comes less than three weeks after the company, owner of Cub Foods and one of the largest U.S. grocery operators, put itself up for sale and announced other strategic moves. The company's financial vital signs progressively weakened during his tenure as it fought a losing battle against lower-priced rivals.
"This [was] hardly a surprise, in our view, following the wide-ranging changes announced on 7/11," Cantor Fitzgerald stock analyst Ajay Jain wrote in a research note Monday.
Herkert has been replaced by Wayne Sales, Supervalu's non-executive chairman, whose résumé highlights include leading a turnaround at one of Canada's largest retailers.
Sales' prescription to revive Eden Prairie-based Supervalu -- speeding up supermarket price cuts and slashing costs -- looks an awful lot like what Herkert announced July 11, the same day Supervalu put itself up for sale and suspended its dividend.
But the board apparently didn't see Herkert, 52, as the right person to execute the strategy. Company spokesman Mike Siemienas said the board made the decision Sunday to replace Herkert, effective immediately.
Jain said Herkert's exit was "somewhat inevitable," given Supervalu's recent terrible financial performance, and the decline in its stock to 30-year lows. It was around $16 when Herkert took over in May 2009 and closed Monday at $2.24, up 25 cents or 12.6 percent.
Herkert couldn't be reached for comment, and Supervalu declined to make Sales available. In a letter to Supervalu employees, Sales said the company "must take significant costs out of the business," though he didn't say if he meant beyond recently announced cuts of $250 million. "Today we are doing many things that are not business critical, are of low value or are not focused on driving sales or profitability."
Sales also tried to reassure employees. "I have spent most of my professional career working with and leading retail and non-retail companies through a variety of difficult situations," he wrote.
Sales, who has 35 years of experience in retail, became a Supervalu director in 2006 and non-executive chairman of the board in 2010. The 62-year-old was named earlier this month to head Supervalu's strategic review process -- i.e., to shop the company.
He is the retired vice chairman and former CEO of Canadian Tire, a general merchandise retailer and Canada's largest independent gasoline seller. In his tenure from 2000 to 2006, the company expanded and its stock price tripled, despite competition from Wal-Mart, Home Depot and others.
Sales wrote to Supervalu employees that he sees a number of similarities between Supervalu now and Canadian Tire when he joined it.
To concentrate on Supervalu, Sales is resigning from the boards of Discover Air and Georgia Gulf Air. He intends to "devote himself to the successful turnaround of Supervalu," Siemienas said. Sales, who resides in Florida, will be based out of the Twin Cities as Supervalu's CEO, he said.
The company has 8,700 employees in Minnesota, including at Cub stores, its distribution facilities in Hopkins and its corporate campus in Eden Prairie. About 3,000 of those 8,700 jobs are corporate jobs, including some at Cub's main office in Stillwater.
One analyst wrote that Sales appears to be a steward, not a long-term chief.
The fact that Sales, "whose background is in other areas of retail, but comprises some turnaround experience, assumed the role of CEO implies that this move is temporary and strategic in nature," wrote Jonathan Feeney, a stock analyst at Janney Capital Markets.
Also, Herkert's continued presence at Supervalu "raised governance issues" that could "deter any external interest in Supervalu's assets," Feeney wrote. "While this move alone doesn't inspire confidence, it removes a key perceived hurdle in the company's review of strategic options."
Jain wrote that it is "increasingly likely that some type of break up of the integrated business is likely and will result in some asset disposals."
Taking on debt
Supervalu is looking to possibly break up what was created in 2006 by Herkert's predecessor, Jeff Noddle, when he engineered the $12 billion acquisition of Albertsons. The deal turned Supervalu from a firm known more as a wholesaler into a retail giant that now has 11 chains across the country.
But it saddled the company with a lot of debt, and a tanking economy and intensifying competition from discounters such as Wal-Mart increasingly took their toll. Supervalu didn't have the resources to adequately freshen up its stores or reduce a sizable price gap with competitors, analysts say.
"Mr. Herkert inherited a very troubled situation following the Albertsons acquisition in 2006," Jain wrote. However, "the lack of retail turnaround expertise in Supervalu's management team also has exacerbated the structural issues related to" stores gained through the Albertsons' deal.
Janney's Feeney wrote that "some of Herkert's numerous turnaround efforts had strategic merit," ... but "Herkert's policies essentially nipped around the edges of [Supervalu's] inherent competitive disadvantages."
In a July 19 interview with the Star Tribune, Herkert acknowledged that Supervalu hasn't moved quickly enough to reduce prices to halt its long downward spiral in sales and market share.
But he was encouraged by recent board actions -- including a key debt refinancing and $250 million in operational cost cuts -- that would allow him to accelerate Supervalu's price-cutting initiative.
Herkert told the Star Tribune the board had given him a timeline to accomplish the strategy. But it seems to have been cut short.
Star Tribune staff writer Dee DePass contributed to this report. Mike Hughlett • 612-673-7003