Cutting SKUs, increased optimization drive Supervalu's profit

EDEN PRAIRIE, Minn. Streamlined operations. It’s what’s driving success today at Supervalu, president and CEO Craig Herkert told analysts Tuesday.

After reporting earnings per share of $2.03 for its fiscal year ended Feb. 27, Herkert said, “All in all, I'm pleased with our fourth-quarter results, and would say that we've accomplished a lot, not the least of which was delivering on the earnings and beating the debt reduction guidance provided at the end of the first quarter shortly after I joined the company.” But it’s streamlined operations — the culling of expenses from the business — that has been core to the grocer’s success, he said.

To that end, Supervalu altogether has exited 26 general merchandise categories that were not core to the business — fragrances, automotive accessories and everyday electronics, for example — and optimized 10 center-store categories by removing 20% of the SKUs from each category. “These efforts contributed to lower year-end inventory levels,” Herkert said.

“The fourth quarter was a very productive period for Supervalu,” he added, pointing to a number of initiatives in addition to optimization that will help fuel growth going forward. “We made significant headway in refocusing on the costumer, streamlining functions throughout the organization, assessing our market position, on-boarding new leadership, and improving our balance sheet.”

Optimization will be a significant initiative going forward, as well. During the conference call, Herkert shared details around Supervalu’s Project SHE initiative, which stands for Simplify Her Experience. “The SHE initiative has many components, will evolve [over] several years, and will fundamentally alter the shopping experience for our customers,” Herkert said. “Consistent with my vision, Project SHE will allow us to improve our relevance to our customers in their neighborhoods by leveraging our brand equity while maintaining all the advantage of our national scale.”

Supervalu is in the first stages of this multi-year initiative, Herkert reported. “Activities in this past year have many facets and include SKU rationalization of creative displays, compelling product adjacencies, and clear signage,” Herkert said. “All will heighten our focus on customer engagement and bolster our local relevance. We will be more effective in capital spending as we redefine the in-store experience and redesign it with her in mind.”

The plan for fiscal 2011 is to roll out the initial basis of SHE to approximately 300 stores.