Taking Stock: Supervalu Changes Retail Ops Team, But Will It Really Matter?

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Pete Van Helden. Toast. Sue Klug. Adios. Kevin Holt. Welcome to the nightmare.

My man Craig Herkert is finally blowing up the weakest part of Supervalu’s overall weak organization – its store operations team.

Now before I give too much praise to “The Spinmeister,” I think it’s important to note that these changes should have been made at the beginning of Herkert’s tenure in 2009. And while I’ll admit that Van Helden’s reign (under Herkert’s regime) as executive VP of retail operations only produced declining sales and worsening morale at the divisions and in the stores and that his buddy, Ms. Klug, also saw diminishing revenue and earnings at Supervalu’s large Southern California unit, Herkert never provided the necessities at retail (cap-ex funding, analytical tools, pricing flexibility) that perhaps would have made it easier for Van Helden and Klug to succeed.

Holt, formerly of Meijer and Sears (maybe he’d like to omit that stint from his resume) has been named to oversee all of corporate retail. And his entrance coincides with other recent changes at Supervalu’s retail banners. Keith Wyche is the new president of Acme; Dan Sanders moves from Acme to Klug’s former post in SoCal; Brian Audette takes over Wyche’s old job at Cub; and Tim Lowe is leaving the presidency of Shoppers Food & Pharmacy to relocate to headquarters in Eden Prairie, MN where he will become senior VP-merchandising, reporting to Janel Haugarth (no replacement for Lowe has yet been named).

Holt walks into what is arguably the most challenging job in the grocery industry. Virtually every aspect of retail operations is at least partially under water. Supervalu has only opened a handful of stores (that’s one handful) in Herkert’s awful three year reign. Even though the company has been fairly active in the remodeling a lot of its older and smaller units, many of those remodels (especially at Acme) have been more cosmetic than substantial. And morale in the stores is not good and is getting worse. And if that isn’t a steep enough mountain to climb, Holt inherits a situation across the entire retail operations spectrum in which all of its retail supermarket banners are now perceived as old, tired and one of the most expensive places to shop in their markets (by the company’s own admission, Supervalu’s share has continued to decline in all of its top 20 markets).

We wish Holt good fortune in his new gig. As for his boss, Herkert’s already used up the “good luck” card. His dismal three year record is on view for everyone to see. Now, Supervalu’s board needs to follow Herkert’s decision to blow up retail operations. And their decision begins at the top.

Still No Wal-Mart Executive Changes In Aftermath Of Mexican Bribery Scandal

In the great 1958 Orson Welles movie, “Touch of Evil,” that deals with corruption on the U.S. – Mexican border, Police Captain Hank Quinlan (played by Welles) says to his loyal cohort, Sgt. Pete Menzies (Joseph Calleia), when questioned about their police procedures: “I don’t call it dirty. Look at the record, our record, partner.”

“Touch of Evil” is arguably the best film-noir of that decade and three of its most prominent actors – Welles, the legendary Marlene Dietrich, and the larger than life Russian actor, Akim Tamiroff – play three of oiliest characters ever to appear together in one movie.

A great movie, indeed, but a screenplay that was total fiction.

After reading the New York Times’ non-fiction expose on the bribery and corruption scandal at Wal-Mart concerning its powerful Mexican operation (Wal-Mart de Mexico), my first thoughts is that you could say that some of the executives involved in the wrongdoing resemble the villains in Welles’ classic, dark film.

Additionally (and unfortunately), my feelings have reverted back to the bleaker days of Wal-Mart. You know the so-called “Old Behemoth,” replete with gender discrimination lawsuits, “off the clock” violations and a general perception that the world’s largest retailer was a bad place to work.

Until reading the Times’ report, I had actually believed that over the past five years the Behemoth had become a kinder and gentler corporation – one that is providing better compensation and health care benefits, offering improved working conditions to its associates and actually developing a conscience when dealing with environmental and foreign supplier issues.

However, after reading the story, even though much of the alleged $24 million in bribes occurred more than seven years ago, the consciousness of its some of its current top executives apparently hasn’t significantly improved.

After digesting the 7,600 word page one story (and a monumental piece of journalism to boot), maybe I shouldn’t have been surprised that payola is thought by some to be a justifiable means to an end inMexico. And perhaps it wasn’t all that shocking that much of the actual alleged bribery was conducted by Wal-Mart officials based in Mexico (not senior managers in the U.S.) in an attempt to accelerate Wal-Mart’s growth.

But what was most eye-opening was that its leadership team based at headquarters inBentonville,ARknew of its “Mexican Problem” back in 2005, investigated it thoroughly and then deliberately chose to ignore it.

The old adage goes, “it’s not the crime, it’s the cover up.” And although bribery, baksheesh, payoffs, kickbacks (or any other related term) may be an accepted method of doing business in other countries, we still have to live by the laws of our country.

And it seems pretty clear that Wal-Mart’s efforts were not merely a gratuity, because the bribes allowed Mexico’s largest private employer (209,000 associates) to gain a clear competitive advantage in accelerating and approving construction permits more easily than its rivals.

So, while laws may have been broken (the U.S. Justice Department is currently investigating), the fact that when about 12 senior level executives were presented with clear cut evidence of widespread bribery in 2005 they elected to sweep the findings under the rug, hoping it would go away.

Among those executives the Times said knew of its “Mexican Problem” were: then CEO Lee Scott; current chief executive Mike Duke (then head of Wal-Mart International); Eduardo Castro-Wright, who oversaw Mexican operations at the time (Castro-Wright would later ascend to become president of Wal-Mart’s U.S. business ad become vice-chairman of the corporation; he is scheduled to retire in July); and Craig Herkert, who at the time supervised Wal-Mart’s Latin American operations (more on “Wonderboy” in the next subhead of this column).

In the end, this was not business as usual, even for a company like Wal-Mart, which has paid hundreds of millions of dollars in fines over the past 15 years for dozens of violations clearly outside the margins.

Unlike past offenses though, the Mexican bribery conspiracy can’t be sloughed off to a “disgruntled employee” or “overzealous store manager;” this scandal goes right to the core of the company’s leadership.

Solely because of that, all involved need to resign or be dismissed. And that starts with chief executive Duke and Castro-Wright (he certainly shouldn’t be allowed to retire with dignity). That purge list should also include Lee Scott, currently a member of the board of directors.

To be fair, this stuff did happen seven years ago and Wal-Mart has certainly become a better citizen in the ensuring years.

However, because of its notorious past record, there is a certain level of untrustworthiness that has always lingered. And the Mexican bribery scheme, along with the subsequent deliberate cover-up, is going to cost Wal-Mart dearly.

For its own credibility, it needs to clean the slate of all its executives who were part of the conspiracy to bury the facts of its own investigation.

However, since that story since broke last month, there has been no fallout from within Wal-Mart. Perhaps, like the bribery scandal, the leadership team at the Behemoth is going to sweep this under the rug, hoping the passage of time will make it all go away. But this issue isn’t going away. In the ensuing few weeks, the $153 billion California State Teachers Retirement System (the second largest U.S. public pension fund), which holds 5.3 million Wal-Mart shares, has sued those executives involved. Additionally, several pension funds representing New York City intend to vote against the five Wal-Mart directors up for election at next month’s annual meeting. And an employee petition effort has been launched in effort to force the resignations of Duke and chairman Rob Walton.

Moreover, the internal cheating is apparently continuing as well. Earlier this month, Wal-Mart agreed to pay $4.8 million in back wages and damages to more than 4,500 employees after the U.S. Department of Labor found that the retailers violated provision of the Fair Labor Standards Act concerning overtime. Wal-Mart will also pay another $464,000 in civil fines.

Sometimes a zebra really can’t change its stripes.

 ‘Round The Trade

At presstime, still no official word on the finalization of the Genuardi’s (Safeway) deal to sell 16 of its stores to Ahold USA (Giant/Carlisle). Sources tell us that once the FTC offers its final ruling, Giant will eventually gain control of 15 stores from its original list with the 16th unit (reportedly Newtown, PA) being sold to an independent retailer. Three other Genuardi’s units –C onshohocken, PA, Doylestown, PA and Norristown, PA) have been sold to Weis. That deal is expected to officially close on June 11 and Weis hopes to have those units reported by that same weekend (June16-17). In other Safeway news, Robert Edwards, Safeway’s former CFO, last month was elevated to the post of president of the large chain. So, does this mark the beginning of a succession plan at the chain, whose CEO Steve Burd has been at the helm since 1993? I don’t think that’s going to happen anytime soon because the fire still burns in Burd and at age 63 he is in great shape. There are those who’ve said the Burd’s passion about improving national health care could find him in a Cabinet-level post one day, but my belief is that Burd will carry on as Safeway’s leader as long as his personal health is good and his interest in his current job remains at a high level. Of course, for a publicly-held company like Safeway, having a “next in command” is always a prudent idea. On a somewhat similar note, I  remember back nearly 30 years ago when analysts and reporters would ask the great Izzy Cohen, then chief executive of Giant/Landover, what his succession plan for the company was. He responded that his father (N.M. Cohen) lived until he was 94 and was ultimately killed in an auto accident. A decade later, as Izzy was approaching 75, the same question was asked. This time Cohen retorted: “Don’t worry about me, I plan to rule from the grave.” Ultimately Cohen did name Pete Manos as president in 1992 and when Izzy passed away in 1995, Manos succeeded him. On the earnings front, Safeway’s first quarter numbers were solid. Overall sales rose from 49.7 billion to $10.0 billion, but identicals were flat (excluding gas). The company earned $72.9 million for the period ended March 24, compared with a profit of $25.1 million last year when the Pleasanton, CA chain absorbed a large tax charge. Other earnings of results of note include Whole Foods, the hottest food retailer on the plant, which posted a 24 percent earnings gain in its third quarter (ended April 8) and saw ID sales jump an impressive 9 percent. Whole Foods has been on quite a run over the past year, posting identical store sales increases of 7.8 percent, 8.1 percent, 8.4 percent and 8.2 percent in its previous four quarters. Co-CEO John “Whacky” Mackey summed it up best by noting: “We are pleased to report another outstanding quarter, producing the best results in our company 32 year history. Our consistent execution and strong capital disciplines have been delivering record returns to our shareholders.” Regionally, the Austin, TX chain will break ground this month on a new 40,000 square foot store in Marlboro Township, NJ. That Monmouth County unit is slated to open next spring. Despite all the company hype about the success of its Bottom Dollar Food units, parent company Delhaize posted poor first quarter numbers, particularly at its U.S. units (which also include Food Lion, Hannaford, Sweetbay, Harvey’s and Reid’s).            DelhaizeAmerica’s comp store sales declined 0.6 percent (on top of a decline of 0.4 percent the previous quarter) and its U.S. operating margin dipped from 4.7 percent to 3.7 percent. Don’t expect much good news in the ensuing quarters either, because as long as Delhaize can’t fix its core Food Lion business, where, like Supervalu, price perception has hurt its image, the rest of the Delhaize America ship can’t be turned around. And just before presstime, Wal-Mart reported that its first quarter financials were improving. In the U.S., operating income rose 8.1 percent and comp sales increased 2.6 percent. Other positive metrics included a 1.1 growth in traffic and a 1.5 percent gain in average ticket size. “Price was the focus of our first quarter marketing and this will continue to be a key message this year,” said Bill Simon, president and CEO of Wal-Mart U.S. While Wal-Mart clearly made gains focusing on its core price programs it did come at some cost as its gross profit rate declined by 24 basis points, reflecting those price investments.

 Local Notes

It was another carnival type opening at Wegmans’ newKing of Prussia, PA store on May 6. Sources have told us the new unit did well over $2 million during the first week and that business was very strong the following week, too. While I believe that the KOP store will cannibalize some business from Wegmans’ units in Collegeville, PA and Malvern, PA, the Rochester, NY uber-retailer had developed an uncanny strategy to place it stores in upper middle class areas that can both relieve some of the traffic at existing high-volume Wegmans while also carving out plenty of new business to support its new stores (e.g., the new King of Prussia unit is 10.1 miles from Collegeville and 9.3 miles from Malvern)…another fast growing retailer with a unique merchandising style is Fairway Markets. Word on the street is that the Manhattan based merchant may be looking to go public. Fairway, which was founded in 1933 by the Glickburg family, is now majority-owned by private equity firm Sterling Investment Partners, and sources have told us that after five years,Sterling may be looking to cash out. Even though it operates only nine stores, it generated a whopping $550 in annual sales (a 10th store will open this summer in Woodland Park, NJ),  and financial analysts believe that an IPO could fetch up to $250 million. And just before we went to press, we learned that Fairway is eyeing another Manhattan location. Sources have told us that the specialty merchant is eyeing the former Borders bookstore location on Second Avenue & East 32nd Street in the Murray Hill section of the city. We’ll keep you posted…industry veteran Dennis Hickey has left White Rose after 10 years to join another metro New York wholesaler, Krasdale Foods, where he will become a VP…The Giant/Carlisle unit in Ferguson township, PA (Centre County) has purchased a liquor license and will pursue approval from the township and the Pennsylvania Liquor Control board to add a restaurant to its Northland Center unit so it can qualify to sell beer for in-store consumption and carry-out. Two other Centre County retailers (Wegmans in State College in 2009 and Weis, in its new Bellefonte store this year) are both selling alcohol. You’ve heard from me about this issue before: the current system for selling beer, wine and alcohol is archaic and draconian. Let the free enterprise system reign!…on the brokerage front, hats off to JOH which was named by both Athens Foods and Rhodes Bake-N-Serve (eastern region) as their broker of the year. For JOH, it is the second consecutive year it was named by Rhodes…a few words about the recent FMI Convention in Dallas: the show is definitely getting better and CEO Leslie Sarasin has worked diligently to enhance what only a few years ago was a “left for dead” event. The speakers and seminars have clearly improved and there is much better retailer attendance from the VP, director and store manager levels. However, there is still much work to do. In the inertia that occurred in the 10 year period before Sarasin took the helm of the industry’s trade group in 2009, the FMI show lost many major vendor/exhibits while also losing focus and direction. Some of those larger CPG companies transferred their FMI budgets to more targeted shows like PMA, IDDBA, the Boston Seafood Show, etc. and as we all know, once an expense is removed from a company’s budget, it’s sometimes difficult to get back on. However, I do believe the big trade group is on the right track and the move back to Chicago for the 2014 show should also provide a boost…a few obits to report this month: the great David Silverberg, former president of Wakefern has passed away at age 91. Silverberg began his career at the large co-op wholesaler in 1950 and rose through the ranks to become president in 1971. During his 17 year reign, Silverberg was instrumental in pioneering Wakefern’s IT division and in decentralizing the organization, which today remains a key component in the company’s success. I remember David as a real gentleman and a teacher, somebody who spent time with younger people who wanted to learn more about the industry. “David’s contributions to Wakefern and to the industry at large are beyond compare. We are where we are today because of the foundation he laid and the innovative ideas he brought to the company. We are and will remain forever indebted to him,” said Joe Sheridan, president of Wakefern… I’m also sad to report the death of Dean Werries, former CEO of the Flemings Cos. Werries, 91, passed away late last month in Oklahoma City. Werries was a man of great intellect and principle who began his career with Fleming in 1955 at the now defunct wholesaler’s Topeka, KS division. He rose to become president in 1978 and CEO in 1989, before retiring from the company in 1994, long before the scandals that brought down what was once one of the country’s best distributors. I can only think that he must have been so disappointed in the events that led to Fleming’s demise, because Dean Werries was truly a man of honesty and integrity. And from the world of music, we note the passing of Donald “Duck” Dunn, one of my favorite bass players of all-time. Dunn, who along with Booker T. Jones (organ), Steve Cropper (guitar) and Al Jackson (drums), comprised the tremendous band that was the foundation for Memphis-based Stax Records and its many great artists (Otis Redding, Wilson Pickett, Isaac Hayes, the Staple Singers, Sam & Dave). Dunn, 70, died in his sleep while the band was on tour in Tokyo. And if you listened to Dunn’s playing, you’d recognize his uncanny knack for bridging melody and rhythm which contributed to the gritty and funky style that defined the Stax style.