business news in context, analysis with attitude

Yesterday, MNB took note of a The Wall Street Journal report saying that Supervalu “says it has reduced items in 10 major food categories by 20%, a move intended to leverage lower costs with suppliers and free up shelf space for the grocer's private-label products.

CEO Craig Herkert told analysts yesterday, “The stuff we took out still positions us to be a leader in assortment and variety ... We were simply so over-assorted before."

The company also said that it was eliminating “26 general merchandising categories such as automotive accessories and fragrances.”

My comment:

I’m a big believer in the notion that most categories in the store are over-assorted, and that private brand emphasis makes sense as companies look to create a stronger sense of what their banners represent ... assuming that the companies actually know what they stand for, and what their differential advantage is. (And in most cases, I think it has to go beyond “we’re cheaper.” Not all cases. But most.)

That said, is it just me, or does the Supervalu/Herkert approach sound a little similar to the strategy that Walmart embarked upon, and then had to back off from, because it found that its SKU choices were actually causing some customers to shop elsewhere?

We got lots of reaction to this piece. One MNB user wrote:

No, it is not you. If SKU rationalization is done simply on overall sales and vendor funds available, it has left the customer out of the equation. True rationalization looks at who is buying each item within a category, and what else that customer is buying. Items that are at a secondary and tertiary level in overall sales may be items that are purchased by your most loyal customers. Eliminate their favorite items and you send them, and their total basket,  away.

Which is, if I understand the situation correctly, what happened to Walmart and why it adjusted its program.

Another MNB user wrote:

The real reason Supervalu’s stores were overloaded on SKUs was their policy on filling the slotting bucket. On several occasion they would authorize more items than they could get on a shelf and therefore had to remove SKUs that should not have been removed. This policy was a holdover from the Albertson’s strategy.  They cannot compete on price because they continue to require slotting and lump sum ad fees while their competitors put their funds against price point in ads.


And another MNB user - who works for a manufacturer doing business with Supervalu - chimed in:

We are currently participating (not voluntarily by any means) in the above project as one of SV’s branded and p/l suppliers.  They want to go from 3 brands to 2 brands (one of which will be the private label).  So, two national brands will duke it out for the one remaining slot.  Kevin, how many guesses would you like as to how the “winner” will be picked?  There is an electronic form we will fill out w/cells beside such labels as “merchandising fund”, “ad fund”, “new item fund”, you get the drift.  Nothing about product mix, quality, service, market ranking, nope.  Just fill out the moneys available form and email it in.

Walmart did some retrenching which it came to regret.  At the time, we lost 2 of our 7 SKU’s in WM.  This year, they put them back in.  While we took the hit while they were out, there was zero cost to get them back in.  Zero.  They simply redid the modular and started reordering.  And other retailers still wonder how suppliers can offer WM lower costs and still make more profit while doing so.

Still another MNB user wrote:

It appears to me that both Supervalu and Walmart  are making decisions for customers that they shouldn’t make. It’s okay to tweak things some  and add more private label offerings, but what both companies are doing is major revamping. Both companies act like they know more than the customer. BIG mistake.  Apparently neither has learned from the Randalls/ Tom Thumb/ Dominicks fiasco from several years ago when Safeway acted in this same way.

In fact, I did not receive one email defending the Supervalu initiative as being a good idea done for the right reasons. Not one.

Rather, the general consensus seemed to be that it is an ill-conceived idea that has more to do with using leverage to generate higher slotting fees and promotional allowances than it does with creating a compelling in-store shopping environment.
KC's View: