Back to the Future

Bigger isn't the only way to go in the fiercely competitive grocery industry.

After 14 consecutive quarters of declining same-store sales at its major banners, Eden Prairie, Minn.-based Supervalu is renewing its focus on supply-chain services to independents, which have been fundamental to the company's historical success.

"Our independent retailers are vital to who we are," says Leon Bergmann, who was named president of Supervalu's Independent Business organization in July 2011, replacing Mark Anderson, who retired. "Without them, Supervalu wouldn't have been around for the last 140 years. That's our history. That's our heritage."

Before Supervalu bought Albertsons in June 2006, adding major banners Albertsons, Jewel-Osco, Acme and Shaw's and becoming the nation's third-largest traditional grocery retailer, the company was primarily a wholesale distributor for independents, says Bergmann. In fiscal 2011, the 135,000-employee company had annual sales of about $37 billion, down 8 percent from the prior year, with roughly 78 percent derived from its retail operation and 22 percent from supply-chain services.

But the company, which paid about $12.4 billion for Albertsons, including $3.8 billion in cash, $2.5 billion in stock and $6.1 billion in debt assumption, has seen its stock's value decreased approximately 70 percent since June 2006. That has led some equities analysts to suggest Supervalu might be worth more if it were to split into three separate companies. And despite its smaller size, the Independent Business unit could fetch a higher price than the core supermarket business, analyst Ken Goldman of J.P. Morgan wrote in a Dec. 21, 2011 report. He values the unit at $4.17 a share, compared with $1.14 a share for Supervalu's traditional grocery business. At Deutsche Bank, analyst Charles Grom has suggested the company needs to "think strategically."

Independent wisdom

Charged with ensuring the success of Supervalu's 1,900 independent customers, Bergmann says the task boils down to one thing: listening. "We are very fortunate in supplying and being a partner with some of the most successful and progressive and growing independent retailers in the country," says Bergmann, who previously served as the company's group vice president of independent sales, marketing and merchandising. "One of the greatest strengths of these retailers is their knowledge of and their connection to the consumers they serve. They do so many things so well, we just need to listen to what their needs are and support them."

Photography by Marta Garcia

Bergmann, who is 44, has been in the grocery business for the past 10 years and in leadership roles for the past 18 years. He previously worked for C&S Wholesale Grocers, where he served as senior vice president of sales and customer service, Northeast. In that position, he was responsible for customer satisfaction and sales for Ahold accounts. Before that role, Bergmann was responsible for customer satisfaction and sales for West Coast accounts including independent retailers, Kroger, Save Mart, Lucky, FoodMaxx, Target, and Foodland.

With profits under pressure amid higher costs and increased competition, Supervalu launched a new focus on hyper-local retailing last year, designed to turn it into "America's Neighborhood Grocer." To achieve this goal, the company is investing in new tools and capabilities to support its various formats and the many independent grocers it serves.

Along with its Save-A-Lot division, Supervalu's Independent Business unit is expected to be a key factor in the company's business transformation. To define key priorities and keep Supervalu executives focused on the transformation, Supervalu chief executive Craig R. Herkert introduced the "8 Plays to Win" framework. Six of these plays address operational excellence and customer centricity in its traditional retail stores; the other two are dedicated to growth of its Independent Business and Save-A-Lot operations.

"We're focused on extending the reach of our Independent Business and deepening our relationship with existing partners," Herkert said during an earnings conference call in July 2011. This segment, which Supervalu previously referred to as supply-chain services, serves as primary supplier to more than 1,900 independent stores in 47 states from 21 distribution centers, and it rang up $8.6 billion in fiscal 2011. While the unit's revenues have declined due to the December 2010 divestiture of Total Logistic Control and the loss of Target as a customer, the future looks promising, Goldman suggested. "Over the longer term, the independent business has grown as a percentage of Supervalu's total sales, and this trend could pick up again if the business returns to growth," he noted in a report.

"We need to stay ahead of our independents' needs to ensure their success in their markets. And the only way to do this is by listening to them, and listening closely."

Still, growing the unit means gaining share in a sector of the industry that has been consolidating. "The average independent grocer may lose share, thus hurting sales of SVU's wholesaling business," Goldman wrote in an Oct. 31, 2011 report.

Wholesale history

But Supervalu has a long history in wholesaling, and the independent retail grocer is the cornerstone of the company's distribution business. The results-oriented Bergmann brings an insider's view of the independent retailer business, because his father worked for a Supervalu-supplied independent while he was growing up. "My dad showed me that you have to have a strong core and do all of the little things each and every day," he says.

Besides serving as a wholesale distributor, the Independent Business unit strives to help retail entrepreneurs, ranging from single-store operators to regional chains, better manage their operations. From store setup to market research, accounting services and technology infrastructure, the division aims to tailor its support to each retail customer.

Customized support

Exactly what Bergmann's unit provides depends on what each independent grocer needs. "There is not one correct business model when it comes to food retail," says Bergmann. "Our independent retailers are very good at determining what the consumers and the trade areas want, and they are very successful in meeting those needs. But those needs are going to vary, and there is no 'one size fits all' approach."

Recently the Independent Business unit has expanded its digital marketing offerings, while also focusing on ways to help retailers build traffic and deliver a strong value proposition to shoppers in the face of increasing competition from other channels. "In order to be that true trading partner, we have to meet our retailers' needs as they evolve and adapt to both situations, whether it's by offering more services, implementing loyalty programs to leverage the frequency of visits, or offering more private label," Bergmann says.

Searching for value

As dollar stores encroach on neighborhood grocers, consumers have more shopping choices and are comparing prices more than ever, says Bergmann, who also sits on the board of directors of Independent Grocers Alliance USA and the California Grocers Association. Sales of the company's Shoppers Value private label brand climbed last year because the products allowed independents to provide value to consumers at a time when prices of many branded food products were rising faster than many families' incomes.

"Consumers have always been focused on value," says Bergmann. "This year food inflation has been significant, led by meat, dairy and produce." Inflation also has eroded consumer confidence and reduced basket size as consumers avoid stocking up to hold onto their money a bit longer, he says.

To address the situation, Bergmann's unit added lower-cost private label items, including proteins. For example, it recently launched individual-sized frozen pork, poultry and beef items priced at $1 apiece. It's also working with vendor partners on programs to drive sales during slower times of the month or attract customers from neighboring areas.

Bergmann plans to work closely with independents to select the best mix of offerings based on each retailer's unique value proposition. Regardless of what competitors in other channels do, Bergmann says, "grocers have that one thing which all of the other channels want, which is that frequency of visit. So we want to maintain and grow that traffic count and then build the number of items in shoppers' baskets."

To do this, Bergmann and his team are constantly visiting retail customers. Then the team meets to share best practices gleaned from the retailers. "It's more than just keeping up with what is happening," Bergmann says. "We need to stay ahead of our independents' needs to ensure their success in their markets. And the only way to do this is by listening to them, and listening closely."

Joseph Tarnowski is director of integrated media and technology editor at Stagnito Media's Progressive Grocer magazine, editor of Progressive Grocer Independent, and manager of the Independent Grocer Network.