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Supervalu Cuts Corporate Produce Staff
And Turns To W. Newell
For Future Produce Procurement

First word started percolating around the industry that there had been many pink slips handed out to employees working in Corporate Produce at Supervalu. It seemed to be almost everyone from Scott Morris, Corporate VP–Produce/Floral at SuperValu on down.

Then the announcement went out to vendors:

Subject: SUPERVALU to relocate enterprise produce/floral merchandising functions to W. Newell, banners

As “America’s Neighborhood Grocer,” SUPERVALU is always looking for ways to improve the local shopping experience, so consumers choose our owned, licensed, franchised and affiliated stores before others in the marketplace. To accomplish this important goal, we are continually learning about our customer and what she wants in her shopping experience.

Consumers are seeking greater value and more variety of local produce from their neighborhood grocers. Produce and floral present a unique opportunity to be “hyper-local,” which means we can offer what consumers want and value with that special local touch. At the same time, we have the ability to take advantage of national sourcing and procurement competencies that already exist in our company. With this in mind, today we’re announcing an important initiative that will allow us to better capitalize on this opportunity. We will strengthen our banners’ ability to serve local neighborhoods by giving them the oversight for produce and floral merchandising functions while unifying our produce and floral sourcing and procurement at our internal produce organization, W. Newell. The transition will begin immediately and should be complete by the end of March 2010.

Moving forward, produce and floral sourcing and procurement for the company will be managed by W. Newell, our internal produce organization, which is located in Champaign, Illinois. W. Newell currently manages these functions for our Midwest/Southeast and Eastern Supply Chain Services regions. Retail merchandising responsibilities for pricing, promotion and placement will be the responsibility of the banners. These teams will maintain a strong connection to Enterprise Marketing to meet the needs of consumers.

This transition will further enable our entire network of more than 4,300 owned, affiliated, licensed and franchised stores to derive the benefits that we gain by working as one company with one common objective: satisfying consumers with the products they need, the service and variety they expect, and the prices they want.

It’s important to remember that this decision has been driven by consumer feedback and the unique preferences and demands tied to produce and floral. We view this as an evolution in our ongoing SUPERfusion strategy. We have no plans to take this same approach with our other Enterprise Merchandising departments or Enterprise Marketing functions. With the exception of produce and floral merchandising, all other SUPERfusion activities — such as the ongoing integration of Shoppers and Shaw’s — will continue as planned.

I want to thank you in advance for your support and interest as we move forward. If I can answer any questions for you, please let me know.

Thank you,

— Ed Hanson

It was not really a shock. There had been talk for some time that Supervalu, looking to reduce costs, would choose to rationalize its produce operation, although many were betting it would be W. Newell that was going to get the ax, especially since Gary Gionnette and John Aune, both founding executives with W. Newell, left the company as part of a restructuring in 2009 when W. Newell was realigned with Supervalu’s Midwest-Southeast region.

W. Newell was founded for a very different Supervalu. Supervalu was overwhelmingly a wholesale distributor of groceries, with a small retail operation. The wholesale operation found that in market after market, it was losing out to produce-specific distributors, people like Crosset Company and Caito Foods Service.

Many independent retailers complained that though Supervalu’s grocery distribution was top notch, the company had problems carrying the range of items and selection of brands and difficulty providing the high level of service that made for an excellent produce distributor. So the independents bought groceries from Supervalu and produce from a produce specialist.

In an attempt to hold onto this business, Supervalu set up W. Newell as an independent organization.

With the acquisition of many of the old Albertsons divisions and banners, Supervalu became more of a retailer and so it had captive stores and didn’t have to worry about them defecting. So the issues became different: How to buy most efficiently and merchandise most effectively.

Despite all the talk in the announcement about business reasons for doing this — focusing on local, etc. — it almost certainly is primarily driven by a need to cut costs and we would guess management went with W. Newell and canned Supervalu corporate produce because they saved more money and reduced more staff by doing so.

In the end we doubt it makes much difference. Organizations respond to incentives and W. Newell was more flexible and innovative. This is because it had customers that could walk away. The danger in having W. Newell supply all the corporate stores is really that the evolution of the business to serve mostly captive clients will change the culture of W. Newell, and any good things that Supervalu identified in the operation will be lost as it transforms to serve captive customers.

The plan as articulated, which gives back to the divisions merchandising oversight but maintains centralized procurement, poses a grave risk in produce where, typically, merchandising and procurement need to work hand in hand. In so doing, demand for various items is manipulated to make sure the merchandisers are not trumpeting product that has to be brought in at a premium because, say, contracted volumes are exhausted, etc.

Another problem down the road is that Supervalu is dealing with the recession by focusing on its deep discount Save-A-Lot Division and has announced plans to double the division’s size and to open stores in areas where it already has conventional supermarkets. Save-a-lots, though, are mostly franchises and these independently owned stores cannot, legally, be compelled to purchase produce from Supervalu.

It is a very real problem because Supervalu develops standards for food safety, traceability, sustainability, etc., and the cost of these supply chain responsibilities are buried in the cost of the produce. In the meantime, a “man with a van” shows up at a Save-a-lot bearing produce of unknown origin and an appealing price. Many an owner of a Save-a-lot will be very tempted to buy the cheaper produce.

Perhaps Supervalu went with W. Newell in the hope that its heritage of selling retailers who didn’t have to buy from Supervalu might prove mighty handy in dealing with independent Save-a-lot owners.

One hates to see a lot of good people lose their positions but, of course, Supervalu has a lot of debt and needed to make changes. We wish all our friends who have been let go from Supervalu Corporate good fortune in speedily finding new and rewarding positions.

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