CEOs of the Year

Hy-Vee's Edeker: Outstanding Outreach

As only the fourth chairman/CEO in Hy-Vee's history, Randy Edeker is maintaining and improving the chain's customer outreach programs.

CEO OF THE YEAR
Randy Edeker
Hy-Vee

Like many grocery CEOs, Randy Edeker started at the bottom at Hy-Vee, taking a part-time job at a store in Chariton, Iowa, right out of high school. It gave him a firsthand look at the intersection of corporate culture and strategy.

"I had somebody tell me one time, 'Culture eats strategy for breakfast,' and I think that's true," Edeker says. "You have to have an understanding of the culture you're a part of, and that will help you develop strategy to be successful."

Edeker rode that understanding to the top at Hy-Vee, becoming chairman and CEO in June 2012. The handpicked successor of Ric Jurgens, Edeker is only the fourth person to hold those titles in the 85-year history of the Iowa-based chain. Hy-Vee has more than 230 stores in eight states, and annual sales of more than $8 billion.

Edeker is overseeing initiatives to improve and expand upon several of the operational aspects that Hy-Vee is known for, such as foodservice offerings and elaborate in-store customer outreach. He has brought an emphasis on sustainability to Hy-Vee that touches everything from lighting to seafood sourcing. Edeker also is highly active in community organizations and trade organizations. He serves as chairman of the Member Services Committee for the Food Marketing Institute and will become chairman of the National Association of Chain Drugstores in April. For these reasons, Randy Edeker is one of Retail Leader's CEOs of the Year.

PERSONAL SERVICE

Hy-Vee's identity as a grocery chain has long been bound up with customer service, of a highly personal kind. The company employs 215 dietitians, who work in all of its stores. They lead classes and work with individuals to answer questions and advise on the best kind of foods to manage weight, deal with various medical conditions or generally maintain a healthy lifestyle. The company also has more than 100 in-store chefs, who not only do in-store cooking demonstrations but can prepare to-go meals to order.

Edeker sees one of his tasks as preserving the continuity of efforts like this–efforts that spring from the company's core values of service to the community and responsiveness to its needs. In that regard, he wants to follow the example of his predecessors.

"They've done a really good job of sticking to our core values and our strengths, not straying far away from what's made us successful," Edeker says. "I mean, obviously the business is evolutionary and changes with lifestyles, but they've done a good job of sticking to our core values and keeping them in the top of mind in all our 75,000 folks [employees]."

IDEAS GO BOTH WAYS

Autonomy is an important part of the Hy-Vee setup; ideas can originate from the bottom as well as from corporate. That was the beginning of the dietitian program.

"It started with a couple of stores that actually hired a dietitian themselves," Edeker says. "We watched how they developed and were used within their store, and then it turned into 215 dietitians across our company, because there was a business case, a way to be successful."

This kind of autonomy is, in a sense, built into Hy-Vee's corporate structure. Hy-Vee claims to be the second-largest employee-owned corporation in the United States. The ownership takes the form of 401(k) membership; anyone vested in the company 401(k) owns stock in Hy-Vee, making the employees, collectively, the majority stockholder.

Autonomy takes other forms within Hy-Vee, notably in the way it awards bonuses.

"I think our rewards system, the way our store directors work, is different than most," Edeker says. "They're on a system that basically rewards them based on their store." Employees, including part-timers, get bonuses based on the year's profitability in their own store, calculated on a store-by-store basis.

Edeker recently instituted another way to reward employees based on individual store performance. The Customer Experience Program, which began last year, sends "customer experience analysts" to stores several times a month to rate aspects like store conditions and customer satisfaction. In December, Hy-Vee presented six stores with the first-ever Hy-Vee Customer Experience Award, which confers cash prizes to employees as well as recognition. Edeker is overseeing the expansion of two of Hy-Vee's most successful in-store establishments: Market Grille/Market Café, its in-store restaurants, and HealthMarket, a unique merchandising concept for healthy/organic products.

Hy-Vee has offered foodservice for more than 50 years, but Market Grilles and Market Cafés take it to the next level. They are sit-down restaurants that are inside the stores but have the look and feel of a standalone establishment, with full menus and full bar service.

HealthMarket is even more distinctive: It's a "store within a store" that carries a full range of healthy, organic and/or natural products all in one place. It's the answer to every shopper who despairs of hunting down healthier products one at a time; the logic, from Hy-Vee's viewpoint, is that customers interested in organic or healthier foods often buy across multiple categories.

In the past year, under Edeker's guidance, Hy-Vee doubled the size of HealthMarkets in virtually every store. "In stores of 90,000 square feet, HealthMarkets are now about 8,000 square feet, and they're doing very, very well" he says.

INDUSTRY TRENDS

Edeker, of course, pays attention to various industry trends and developments.

"I think there are a lot of trends that are important," he says. "Obviously time constraints on our consumers are bringing new challenges. The change in trips, change in shopping habits, that's something we're going to be dealing with in the future. You deal with that through trying to make shopping more convenient. You do that by working with more prepared foods, trying to take steps out of the process for our customers."

Another important trend is home shopping and delivery. "We've done home shopping for a while, but I don't think we've done it very well," Edeker says. "We're on the cusp of re-launching our home shopping and home delivery." He makes a distinction between items that customers want to shop for personally, primarily fresh foods, and others, like pet food or bath tissue, "that customers would love to just have magically appear at their house." In "the very near future," Hy-Vee will unveil a new strategy to accommodate this distinction.

Whatever the next important trends in grocery may be, Hy-Vee's autonomous structure will make it extra-responsive.

"What has made us strong over all those years is just staying in tune with our customers," Edeker says. "With our system, those needs and wants bubble up through our folks, and we are able to keep a touch on the pulse of lifestyles, where our customers are moving."

Supervalu's Duncan: Turning It Around

A veteran retail chief with a rep as a turnaround wizard helps Supervalu reinvent itself.

CEO OF THE YEAR
Sam Duncan
Supervalu

Sam Duncan has a reputation as a turnaround wizard. And if ever there were a company that needed turning around, it's Supervalu.

Duncan was brought in as Supervalu was in the end stages of a painful, wrenching conversion from large-scale retailing back to its roots as a wholesaler. It was a drastic process that entailed major transactions, leaving the company at roughly half its former size.

Duncan took over in February 2013, right when Supervalu sold its major retail assets, including four big chains: Albertsons, Jewel, Acme and Shaw's/Star Market. Its core business is now as a wholesaler to nearly 2,000 independent grocers, but it still retains Save-A-Lot, a national discount chain; Cub Foods, a major chain in Minnesota and Illinois; and smaller banners Farm Fresh, Shoppers', Shop 'n Save and Hornbachers.

Duncan's responsibility was to oversee the last steps of the sale, then guide the company through the initial stages of its new identity. His leadership is working, if the stock market is any judge: Supervalu's stock rose 33 percent in 2014, closing with a big burst after one of its most favorable quarters in years.

Reshaping the core identity of a major company is one of the hardest tasks there is. Few if any CEOs in the grocery sector have done this as successfully as Sam Duncan. That's why he is one of Retail Leader's CEOs of the Year.

When Duncan came on board, Supervalu was at the end of a long, bumpy ride. The 145-year-old company, based in Eden Prairie, Minn., had acted mostly as a wholesaler until 2006. That year, under then-CEO Jeff Noddle, Supervalu acquired Albertsons, one of the largest national grocery banners, in a $12 billion deal that loaded the company with debt.

The idea was to plunge into retail with an established banner. In one coup, Supervalu tripled its retail operations and became one of the nation's largest supermarket operators. But, as with many debt-heavy deals that took place immediately before the recession, it turned out badly.

Between 2006 and 2011, same-store sales kept dropping, and Supervalu's stock price plunged 70 percent. Besides the poor economy, the deal was weighed down by intense competition from Walmart and other low-cost retailers, and by the simple fact that, in hindsight, Supervalu probably overpaid for an underperforming chain.

FIRE SALE

After years of floundering, Supervalu finally decided, in 2013, to reverse course. It sold roughly half of its assets, including Albertsons, in a $3.3 billion deal to a group led by Cerberus Capital Management, a venture-capital firm. The deal mostly took the form of debt assumption; only $100 million was in cash. With the deal, Supervalu's sales were cut roughly in half, to $17 billion, bringing its wholesale business more prominently to the forefront. The deal also brought about a change in leadership, with five of the ten directors on the board replaced.

That's where Duncan came in.

Duncan was, in many ways, the perfect candidate. He has the two types of experience the job would seem to require: Grocery executive and turnaround specialist.

Duncan's last job was at Office-Max, where he took the helm in 2005. At the time, OfficeMax was struggling: low profits, accounting issues, turnover in the executive suite and an erratic stock price. Under Duncan's leadership, sales and profits rebounded, and so did the stock price. Its low, in February, 2009, was $4.80; by the time Duncan retired in 2010, it had reached $16.80.

His previous job was even more appropriate. Beginning in October 2002, he served as president and CEO of ShopKo Stores, a chain based near Green Bay, Wis. (Ironically, ShopKo had been a Supervalu banner from 1971 to 1997.) In his four years at ShopKo, the company's stock price rose from $13 to almost $23, and his tenure culminated in a successful sale to a private equity firm.

GROCERY RESUME

The ShopKo experience was far from Duncan's only grocery job; indeed, his first work experience, at age 15, was as a clerk at an Albertsons store. He worked his way up at Albertsons before moving over to Fred Meyer, a Kroger banner, as vice president of grocery, later becoming Meyer's president. From 1998 to 2001, he served as president of Ralph's, the Southern California grocery chain. He also was a director at Nash Finch from 2007 to 2012.

Duncan actually started his job at Supervalu a little early, in February 2013. The original plan was for him to begin after the sale of the major retail banners to the Cerberus-headed consortium was completed. Instead, he was on hand to oversee the completion and begin the transition to the new, wholesale-dominated Supervalu.

Duncan's priorities are to return Supervalu to its historical roots as a wholesaler, and to stabilize the operations of the remaining retail banners. The most recent quarterly results seem to show that he's going in the right direction. In its third quarter, ending Nov. 29, Supervalu posted profits (adjusted for one-time charges) of $49 million on sales of $4.2 billion, up almost 5 percent from last year. This was nearly 3 percent above analysts' expectations. It was Supervalu's strongest quarter in years, notable for the fact that all of its divisions–wholesale, the Save-A-Lot banner and the regional chains–posted gains.

"We passed an important milestone this quarter delivering positive sales increases in all three of our business segments for the first time in many years," Duncan said in a statement.

Wall Street rewarded the results with an immediate jump in the stock price of 11.5 percent, closing at $7.54. Analysts were almost uniformly laudatory.

Ajay Jain of Cantor Fitzgerald: "We think Supervalu has performed extremely well in its transition year under Sam Duncan and the leadership team."

Rupesh Parikh of Oppenheimer & Co.: "Today's results clearly demonstrate management actions are gaining traction."

Free of deadwood, with same-store sales on the rise–even slightly–across the board after years of decline, and with its new identity as a wholesaler-oriented company set, Supervalu is poised to move even further forward in 2015.