The king of process has struck again. Supervalu CEO Craig Herkert, whose two-year track record has delivered continually eroding sales, plummeting share prices and generally poor earnings results, has shuffled his personnel deck again in a manner that I didn’t even think was possible.
Earlier this month, he dispatched his most valuable senior executive – Bill Shaner, president of SVU’s most successful unit, Save-A-Lot – and replaced him with a man who has spent the bulk of his career in the most process laden retail organization on the planet, Wal-Mart.
No disrespect to Santiago Roces, who worked with Herkert at the Behemoth, but if there were only a few cupfuls of credibility left at SVU, Shaner possessed most of what had remained in the cupboard.
Nobody worked harder than Shaner to preach the gospel of Save-A-Lot. After all, Bill Shaner learned the system and understood the culture (both within the S-A-L organization and with the licensees) from the company’s founder Bill Moran, He toiled patiently for several years as Moran’s right hand man and when it was his turn to run the S-A-L show, Shaner proved to be the right man on every level, consistently delivering strong results and engendering himself to the company’s associates as somebody they liked and believed in.
Perhaps in the end he couldn’t deliver the undeliverable that Herkert promised shareholders nearly two years ago: double the number of Save-A-Lot units to 2,500 over a five year period. Even with discounted licensing fees, offering independents opportunities to acquire corporate stores (where’s the net store growth with that move?), and developing co-branding arrangements (Rite Aid) that seemed to favor the other retailer more than S-A-L, meeting Herkert’s lofty goals was simply an unrealistic proposition given current market conditions and the questionable leadership in Eden Prairie.
Or maybe, as in the case of another talented former SVU retail president Ron Dennis (Farm Fresh), Herkert wanted his own choice for the job because he didn’t like the bluntness and pushback that he was hearing from those two strong senior managers.
You could make a case about Herkert’s thin skin, after all, with every Supervalu retail president who’s resigned, retired or been pushed out under Herkert (Dick Bergman at Shoppers, Judy Spires at Acme and even the much maligned Mike Witynski at Shaw’s), in each case the new choice has ultimately presided over a continuation of sales erosions.
That’s primarily because Herkert and his insulated band of executives who roam the hallways at corporate headquarters in Eden Prairie, MN are controlling the stick. The whole stick. And their “leadership” skills have created such a disconnection between Eden Prairie and the divisions that not even a combination of the DNA of Izzy Cohen (Giant Food), George Jenkins (Publix) and Sidney Rabb (Stop & Shop), could fix what’s ailing Supervalu as it is now run.
Take for example Herkert’s new choice to replace Larry “Mr. Retirement” Wahlstrom to run its failing Shaw’s operation in New England. Recently named president was Mike Stigers, a name not many have heard of. That’s because Stigers has never worked outside of the state of California and most recently worked for a food safety firm, Sterilox. His last retail stint was as president of PW Markets, a seven store independent based in San Jose that folded its tent last August. I’m fairly certain that the Shaw’s situation is not fixable (and Acme isn’t that far behind), but how much confidence is shown by hiring a man who never worked in New England and has never held an executive level job in any capacity for a chain retailer?
The entire Supervalu story is so unbelievable it’s hard to imagine that only a few short years ago the retailer/wholesaler was placed among the best run firms in the entire food business.
But there’s more.
Last month, the company released its fourth quarter earnings, and while SVU’s numbers swung to a modest profit ($95 million) from its third quarter loss of $202 million, the metrics remain awful.
Overall revenue dropped from $7.2 billion to $6.7 billion and ID sales remained near the bottom of its class at negative five percent. Additionally, the company continued its trend of declining customer counts (a drop of 4.6 percent) and it lost 40 basis points this quarter on average basket size.
In his follow-up conference call to the financial analysts, Herkert once again focused on progress and achievements (all process-related). He and CFO Sherry Smith touted SVU’s new analytical tools that are helping the company better measure results and deliver efficiencies. Between Herkert and Smith, they used the word “tool” or “tools” 25 times to illustrate how SVU is improving its performance (shelf in-stock position tools, point of sale transaction data tools, analytical tools, process tools, etc.). In fact, Herkert uttered the word 22 times and Smith three times in the hour long session with the analysts (I guess as the head tool, Herkert’s entitled to more “tool time”).
Even though he came across on the earnings call as a bit more sincere and focused (translation: less giddy), there were still plenty of examples of “vintage” Herkert. Early in his tenurehe seemed to coin a plethora of not so witty slogans (“SHE” – Simplify Her Experience, “WWP” –Win With Produce, “Hyperlocal,” etc.), but more recently he has been relatively low key with the rah-rah stuff.
However, on this conference call he created the phrase “Eight Plays To Win.” Two of those “plays” focused on growth opportunity (continued expansion of Save-A-Lot and the expansion of SVU’s independent retailer base), while the other six “plays” addressed Supervalu’s traditional business.
And there couldn’t be one conference call without Herkert dancing around a question. After spending much of the session, inferring greater transparency, here’s how he responded to a query from analyst Jonathan Feeney of Janney Montgomery Scott:
“Craig…I’m not sure how much granularity you want to give here. But what I’m trying to get at is how you mentioned Chicago (Jewel) being below average (in ID sales performance from the corporate average). When you think about profitability across the many different banners without getting specific about any one, I mean, can you give us a flavor if there’s any pockets where there are real outliers, either positive or negative, when you talk about profitability? The reason I asked that question is just trying to understand – if you fix one or two things – do you see a step function in profit and/or comps? Can you give us any color around that?
Herkert: No. I will tell you though, what we are doing is we are focusing on the enterprise. We had a great store directors summit here about mid-March, and we brought, for the first time ever, all of our traditional store directors together in one place at one time and laid out in really granular detail the tools that we’re providing to them, the new rules of engagement that we’re providing to them, the new incentive program that we’re providing to them. And this was everybody and it was regardless of which banner, and they were all here. And so we’re trying to think of this business holistically. And clearly, making sure that if there are banner-specific marketing initiatives that we still do that, we still have banner leadership, it is part of our being hyperlocal. But we are not picking and choosing who wins and who loses in this race.”
That response merits another “Huh”? I’ve heard hundreds of conference calls in my career and this guy can’t even give this analyst a bit of “color” or direction.
Nothing has really changed. And it won’t until Herkert gets more engaged with the stores and the associates who run them. Process and expense cutting can only take a company so far. Negative five percent on identicals is a bad number, made even worse when every quarter under Herkert’s regime has been significantly negative. And Herkert boldly predicted that for the fiscal 2012, which began on February 27, SVU’s ID sales will improve to negative 1.5-2.5 percent. Time will tell, but he may be out on an island with that prognostication.
If you listened to the conference call closely, you heard two other “nuggets” that were much more relevant than the hype and spin that dominated most of the session. First, Herkert admitted that, despite inflation, ID revenue at its “golden child” – Save-A-Lot – were flat in Q4. And, about midway through the call, Sherry Smith acknowledged that Supervalu suffered market share losses in its top 20 DMAs (designated market areas) during the second half of the year. That is an incredibly telling statement.
Here are a few questions for Herkert that I’d like to ask: If, as you say, retail pricing has improved and is now “fair,” at which banners have sales improved? How are you attempting to upgrade morale at the divisions and in the stores? Where are you making gains against your competition? And, instead of more transformational “tools,” how about delivering meaningful positive results that can be tangibly measured by shareholders, associates and financial analysts?
It’s been about 10 days since the departure of Bill Shaner was announced. In that short span, I’ve received more than 50 phone calls and emails from current Supervalu associates, former SVU executives and vendors who knew or called on Bill. All were in disbelief.
But Shaner’s not the overriding issue at Supervalu. Yes, he was an important cog in delivering solid sales results and was the rock solid leader at the best banner in the SVU fleet. Surely, it won’t take long for Bill to land on his feet at a much better managed organization than the moribund situation in Eden Prairie.
The big issue remains Herkert. How much longer can SVU’s board continue to believe the spin without delivery of positive results? It’s been more than two years and, by whichever scorecard you use – strictly by the numbers or credibility among key peer groups – Wall Street, the vendor community, or (based on the number of emails and phone calls I receive each month) his own associates (especially outside of Eden Prairie), Craig Herkert has been a dismal failure by every tangible measure.
Wake up board members Wayne Sales, Irwin Cohen, Ronald Daly, Susan Engel, Phil Francis, “Skip” Gage, Charles Lillis, Steven Rogers, Matthew Rubel, and Kathi Seifert. You are stewards of what once was a great organization. Your company has become the punch line of a joke in the industry.
Don’t the associates and shareholders deserve better?
This is just part of May 2011 Taking Stock. To read more, subscribe by calling 410-730-5013.