Supervalu CEO to Associates: ‘Strategic Review Not Taken on Lightly’

In tandem with a series of transformational steps aimed to accelerate its turnaround strategy, Supervalu’s CEO Craig Herkert sent a letter to company associates addressing first quarter financial results alongside detailing what he termed “bold moves” the company is embarking on to accelerate the plan in advance of a 10 a.m. all-associate meeting and broadcast July 12.

Herkert began his letter to employees with a word on Q1 performance, which “didn’t meet sales or earnings targets...Although we reported 19 cents earnings per share, we were well below plan and the miss was across each of our businesses.”

But, he went on, “Make no mistake, we are still on track to generate more than $1 billion in operating cash flows this year and pay down between $450 million to $500 million in debt, but we need to move faster to execute our strategy. The competitive environment we’re in demands that we all do better.

“Critical to our turnaround is improving the results in our traditional retail network, and the way we will do that is through use of the operations tools that have already been deployed and by moving faster to the fair price plus promotion strategy. Our customers are responding to our produce transformation, and we just kicked off a larger-scale price reduction at Jewel-Osco. Our target is to have half of our network priced appropriately to the competition by March 2013. All banners will see sales-driving investments this year and will be executing the fair price plus promotion strategy by the end of Fiscal 2014.”

Central to the changes, Herkert told associates the company immediately focus on:

- Cost control
- Reducing capital expenditures
- Restructuring debt
- Suspending quarterly dividend

“As associates, you all have the most control and impact on that first component . We must focus relentlessly on taking costs out of the business while improving our processes and ensuring quality service for our customers,” which he said was the focus of an “organizational efficiency initiative” the company kicked off five months ago, which, “coupled with other projects that will help us be more efficient, will allow us to realize $250 million in savings during the next two years. Continuous improvement must become a way of life for us, just like it is for all successful companies.”

Regarding the potentially most sensitive of all items outlined in the turnaround plan -- a strategic alternative review of the business – Herkert said the decision was “not something we take on lightly. However, given the responsibility we have to you and our other stakeholders, we have to consider all options to increase the overall value of the company. Our review of strategic alternatives will be broad-based and include looking at the sale or other disposition of all or part of the company.”

While its board will lead the effort in order to allow he and his team to remain “focused on driving our turnaround strategy,” Herkert went on to say there could “be no assurance that this review will result in any transaction or any change in the company’s overall structure or business model.”

Acknowledging that Supervalu’s associates have been called on “to do a lot as our turnaround strategy took shape over the last year,” its CEO said they could expect more of the same “as we move through the year of execution.

“I value your commitment to serving customers and being hyperlocal, because those are critical for us to succeed. Let’s keep going. Execute with our goals in mind, continue to share your suggestions to help us profitably grow sales; and challenge us when things don’t make sense. Everything we are doing is designed to make us a stronger, more successful Supervalu, and you play a vital role in this effort.”