Monday, July 30, 2012

An Ill Timed CEO Change at Supervalu

Supervalu has made value destroying customer and corporate acquisitions throughout its history, climaxing in those of Wetterau and Albertsons.  The 2009 decision to bring in a CEO who had served as head of Wal-Mart's North American operations for five years seemed a timely and appropriate choice.

For some reason, the board consented to make a monumentally ill advised announcement that all strategic options were being considered, including a sale of the company.  Nothing like inspiring confidence in what remains of the independent retailer customer base, your managers, employees and shoppers.

So, today's announcement that board member Wayne Sales, of Canadian Tire and Kmart, is taking over as CEO further adds to the strategic confusion.  Sales himself is reported to have said that the company's biggest enemy is "time."  Right.  If so, why waste more time and energy with a management shuffle?

Nothing in the new CEO's memo to employees sounds new.  I am so tired hearing about the expansion of Sav-A-Lot as being the linchpin of revival and growth.  I first came across Sav-A-Lot through meeting its founder Bill Moran in the early nineties when Wetterau had acquired his company.  Sav-A-Lot is a real estate driven strategy which needs an entirely different distribution model from Supervalu's core distribution centers.

The debt load, an ossified culture, and a history of not investing in integration of disparate acquired operations all conspire to make buying inefficient at Supervalu relative to its corporate scale. Just marking down prices in a race to the bottom isn't the answer by itself. If former CEO Herkert's pace of change was not fast enough, the board should have worked with him to make things go faster. Any barriers in terms of people or attitudes should have been ruthlessly pruned.

Given that the board, in different forms, was present during secular value destruction, it's not comforting to see this announcement when time and degrees of strategic freedom are not on the company's side.  Analysts, who are more interested in positioning their firms to participate in asset sales or sub-advisory roles, have had nothing illuminating to say about the announcement today.

This company, when I first came across it, was a 20% grower, with a high return on capital employed, a reasonable dividend, and an A1/P1 commercial paper rating.  It is a real shame that the board, through a long period of acquiescence and inattention, has let the company come to its current state.

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