What is SuperValu doing to Jewel-Osco?

It is in no way my intention to complain about, slam, or otherwise present Jewel-Osco or any of its staff in a negative light. I’ve publicly stated hundreds of times that Jewel is my favorite Chicagoland shopping destination. However, the amount of press their parent company, SuperValu, has received lately regarding their decisions for Jewel-Osco’s future has left me and many of my readers wondering what’s going on with one of our favorite places to shop. We have had numerous concurrent discussions running in the blog forum over the past few weeks about shoppers’ unhappiness with some of SuperValu’s changes being implemented at Jewel, with readers asking what’s going on and why. Special thanks to all of my readers who sent articles and links that contributed to this post.

Overview

Craig Herkert is the CEO of SuperValu. He joined SuperValu in 2009 after leaving a CEO position at Wal-Mart. When he took over, both trade publications and coupon boards buzzed with speculation and fears that Mr. Herkert would ultimately try to “Wal-Mart-ize” its SuperValu-owned supermarkets, moving away from a “high/low” pricing structure to an “everyday low price” model, with more house-branded products to maximize profits. (Yes, this is probably something the average, rest-of-the-world Jewel shopper neither researches nor worries about, but couponers are a much different breed!) And, over the past few months, those of us who have long been loyal Jewel customers have seen signs that the direction Mr. Herkert’s taking Jewel in may be negatively affecting its shoppers.

Last fall, Mr. Herkert announced plans to open 1,200 new Save-A-Lot stores nationally over the next five years [link]. My readers may be unfamiliar with Save-A-Lot, but it’s comparable to Aldi, offering mostly house brands, very few national brands, and a stripped-down product offering. Again, shoppers on blogs and messageboards around the country wondered if this “many house brands” strategy would, over time, carry over to the SuperValu-owned supermarkets too — including Jewel.

In February, Retail Industry News reported that “The news over the weekend ended months of speculation about Supervalu’s plans for various divisions now that its new CEO, Craig Herkert, has made clear that he believes the Save-A-Lot business model – stressing reduced SKUs and a strong value proposition – is the company’s retailing future.” [link] And shoppers knew changes were to come.

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Project SHE – “Simplify Her Experience”

Earlier this summer, these changes became noticeable. Jewel began testing a new format, cutting 15%-25% of its product SKUs, lowering shelves and introducing more house brands. Reactions were less than positive, especially with the tactic used to promote the reduction to shoppers. This format was known as “Project SHE,” which stands for “Simplify Her Experience.” Crain’s Chicago Business stated, “Jewel, which has long prided itself on offering a wide selection, risks alienating shoppers by removing their favorite brands.” [link]

Many readers took personal offense to the name “Project SHE.” “Simplify Her Experience” seemed to imply that women weren’t smart or savvy enough to navigate a store full of products, and that women need help reducing their choices so that big, intimidating grocery store didn’t unnerve them to shop in it.

Many shoppers reacted negatively to Project SHE too. One of my readers noted that Jewel no longer carries her Jolly Time Popcorn, her dishwasher cleaner, and her specific haircolor number, noting “I now buy it at Target. All reds are NOT alike.” [link] Another noted Mariana dried fruit disappeared from the shelves. [Link] Fans of Grande tortilla chips noticed there was only one variety left in the stores now, when there used to be four. [link] One reader and her daughter, upon noticing Dannon Activia on clearance, asked why Jewel would want to carry fewer items. A Jewel employee stocking the shelves overheard them and said “Because they want to lose money and drive the customers away.” [link]

My mother saw workers in her Jewel removing name-brand products from the shelves by the cartfull, then filling the spaces with multiples of the same product to close up the gaps on the shelves. This kind of “reduce and spread” strategy is always noticed by shoppers.

And, if Project SHE was genuinely designed to make my “busy life” easier by carrying fewer of the products I buy, the opposite will actually become true. My “busy life”will now be even busier if I have to now go to two or three stores to find all of the items I could previously pick up at Jewel. Project SHE will now force me to spend my money in places other than Jewel. Is that really the idea?

One of my blog readers wrote, “I actually did a focus group for Jewel and had to walk around the Bolingbrook store to tell what I thought of the changes. They asked what I thought about having all the choices of products. Then, they took me to the Naperville store on Rt. 59 to compare my shopping experience. In the end I told them I did NOT like the new Jewel layout. One of the managers at the Woodridge store said that nobody likes it and customers are complaining left and right. In fact, the manager at the Bolingbrook Jewel resigned. I am annoyed that I have to run to other Jewel locations to buy certain products, like the Fisher Nuts. This is very frustrating!” [link]

Both Walgreens and Wal-Mart have experimented with SKU reduction in the past with negative results. In February, Wal-Mart removed both Glad and Hefty bags from its shelves, offering only Ziploc and its house-branded Great Value brand. Glad and Hefty were back on Wal-Mart shelves one month later when “it became clear Wal-Mart wasn’t losing only a $4.99 single-item sale, but entire shopping excursions by people seeking specific brands.” [link]

From Mass Market Retailers: “Bill Simon, executive vice president and chief operating officer of Walmart Stores U.S., noted that eliminating a slow-moving $1 item can lose an entire shopping basket worth $60 to $80. Consequently, the retailer has added back about 300 items it had culled from its shelves… Walgreens has backtracked on SKU-reduction moves that eliminated nearly 50% of SKUs that it classified as impulse or convenience items, often in such categories as hardware or automotive. It has returned several hundred eliminated products to the shelves of stores that derived a higher percentage of sales from the eliminated items.” [link]

Now, from a sales standpoint, if certain products simply aren’t selling, the store is going to have to tighten its belt and ultimately turn that shelf space over to products that turn a profit more quickly. If a store stocks eight varieties of Crest toothpaste and cuts citrus and lemon flavors from inventory because they’re not big sellers (even though someone out there will chime in that they love their Crest Lemon Ice toothpaste!) it is understandable. Every product on the shelves does cost money to order, stock, store and maintain, and if a certain product ultimately costs more money than it brings in, it may be marked for deletion. This goes on at every store, not just Jewel (and if you’re savvy enough to snap things up when they are clearancing out, you can often score a good deal on them — how many of my readers have stocked up on super-cheap Tide Stain Release over the past few weeks?)

The key, though, is for stores to maintain that delicate balance between offering enough variety and options without removing entire categories of products. Stores undergoing 25% reduction in products are losing one out of every four products on the shelves, and from a shopper’s perspective, that’s a lot. On paper, four flavors of Grande tortilla chips may seem like “too many” to someone, but when they went on sale for $2 and we had lots of dollar coupons, many coupon shoppers noticed the reduction, asking “What happened to the Multigrain? Where’s the Salsa Limon?”

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Shopper’s Value saturation

The larger numbers of “Shopper’s Value” house-branded products that began appearing in Jewel stores this summer angered many Jewel customers as well. My blog readers vented publicly. “I will not buy Jewel brand over my preferred items no matter how much they try to shove them down my throat,” one stated. [link] Another reader posted “Lose the name brands + lose the products = lose the customers.“ [link]

Coupon shoppers have no interest in switching to a generic. We’ve become accustomed to enjoying our name-brand products, often at much lower prices, post-coupon, than we could buy a store-brand product for. If our name brand products are gone, we’re not going to switch to the store brand. We will buy them somewhere else.

Regarding the new Shopper’s Value products, Mr. Herkert told investors, “I’m pleased to point out that our private brand penetration rose above 18%, moving us closer to our year-end target of 20%… As customers discover the quality of our offerings, we are building product loyalty that we believe will outlast the current economic cycle.” [link]

And, while the abundance of Shopper’s Value products now on the shelves may present a larger profit margin to SuperValu, there’s another problem. Shoppers are saying these products’ quality is overwhelmingly sub-par. Shopper’s Value “imitation shredded cheeses” can now be found on the shelves for $1.89 a bag during the same week in which Kraft natural shredded cheese can be purchased for .59/bag with a current coupon/Catalina deal. Who is going to buy this imitation cheese? (Actually, a reader’s husband did. He bought the Shopper’s Value cheese for a homemade pizza he was making. She wrote, “The cheese didn’t melt and was horrible tasting. My kids who love pizza wouldn’t even eat the pizza. I would pay extra for Kraft than that cheese. It ruined our meal!” [link])

Nutritional value is another subject entirely, but one of my readers also noted the extremely high sodium content in these products, pointing out that one slice of Kraft Singles American Cheese has 0 mg of sodium, but the Shopper’s Value cheese slices pack a whopping 260 mg of sodium in a single slice. [link] Another reader noted that the imitation cheese is made from trans-fat-laden hydrogenated soybean vegetable oil, writing “Who want trans fatty acids in their cheese. I looked at the real cheese products next to the Shopper’s Value and they did not have hydrogenated soybean oil in them. Do they really think they will fool us? … Aren’t fast food places in the hot seat because of the less than healthy foods, oil, etc that are in their products. Doesn’t this speak to the same issue?” [link]

Would anyone even moderately concerned with nutrition buy these?

Of SuperValu’s house brands, Mr. Herkert said, “When a consumer comes to any one of our stores I want her to be able to make a choice. If she wants to buy a national branded product, I want to have that national branded product at a fair price for her. If however she chooses to want to buy something that is a better value, then I want to have that. We have a great private brand program. Quite frankly we haven’t stepped up and really shown off that fact to Mom.” [link]

Despite being irritated that once again, all “consumers” are automatically assumed to be “moms,” I have to question his opinion that Shopper’s Value is a “great private brand program.” Not only is the sodium off the charts in many of these products, the nutritional value is negligible at best. One of my readers posted the definition of “imitation cheese,” and it’s not pretty: “Imitation cheese relies on a combined of casein and vegetable oil that is used instead of milk solids. Imitation cheese tends to lack the same level of nutrition that is found with real cheese or even with substitute cheese. Because there is a marked absence of dairy products within the formula for imitation cheese, the product has very little food value. The main advantages of imitation cheese have to do with the price and the shelf life.“ [link]

Are “Moms” really expected to buy this? The moms I know are intelligent shoppers who don’t want to feed something with “very little food value” to their families.

I have not seen a positive review of Shopper’s Value products from shoppers who have tried them — on my blog or any other. One reader writes, “Shopper’s Value? There is no value in a low quality paper towel which isn’t strong enough to absorb an eye dropper’s worth of water.” [link]  Another reader discussed her experience with Shopper’s Value chocolate chip cookies, pointing out that “Kids will eat anything with chocolate in it, pretty much. My kids thought they were disgusting. I tried one and totally agreed. Disgusting. We threw the whole package away.” [link]

Last week, my husband came home from work and asked “Who makes Shopper’s Value chips?” Someone had brought several bags of Shopper’s Value potato chips to work for a lunch meeting. He said everyone was complaining about the texture and high salt content of the chips, and by the end of their lunch, everyone had asked where those chips came from so that they wouldn’t purchase them again.

How can house-branded products improve profits if shoppers buy them one time — and never buy them again? And worse, they tell everyone they know how they feel about the products are via social networks and the Internet? On the web, one person’s voice can be heard by thousands. Chicago is saturated with thousands of smart, savvy shoppers who know exactly how to spot a deal. They’re determined, driven, and they tell each other what they will and will not buy.

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Who are these coupon shoppers, and how much do they buy?
The Nielsen Company issues excellent reports each year detailing the demographics of a coupon shopper. They consider a “coupon enthusiast” to be someone who redeems more than 104 coupons in a six-month period (as an aside, if I don’t redeem that many per month, I’ve really been off my game.) And the demographics of a typical coupon enthusiast are as follows: They are female, under the age of 54, college educated, and they earn between $70,000 and $100,000 per year. [link]  (Again, these are general, nationwide statistics — certainly, there are plenty of men coupon-shopping too — on a good night, easily 30% of my Super-Couponing workshop audiences have been men.)

And what are these coupon shoppers buying? According to Nielsen, “coupon enthusiasts” accounted for 18% of all unit purchases in 2009. Read that again — almost one in every five items purchased is being bought by a coupon enthusiast! Coupon enthusiasts shop more frequently, making an average of 1.7 more trips to the store than non-users and buying 1.8 times as many products annually.

Are these really the shoppers SuperValu wants to alienate? To send to a competitor? Here in Chicago, Jewel’s closest competitor is Dominick’s (Safeway.) My readers know I’ve long had a love/hate relationship with Dominick’s, but I have to confess… over the past three weeks, I’ve been shopping at Dominick’s more frequently. Their sales have been excellent as of late, and while Jewel will always be my first choice, I also shop on price. Jewel may be a Chicago coupon shopper’s true love, but we will also shop where the sales are. As one of my readers wrote this week, she shops at Jewel most of the time, but “Dominick’s and I still have the occasional date night.” [link]

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Driving shoppers away?

Yet instead of embracing coupon shoppers, a highly-desirable group of consumers who shop frequently and buy in quantity, SuperValu’s new strategies run the risk of driving this demographic away.

In January of this year, Mr. Herkert told shareholders, “Consumers have become adept at tracking weekly advertisements and executing with surgical precision the purchase of those items that maximize their own savings.” [link]  (This is not news. Coupon shoppers have had an amazing array of tools avaiable to them for years, including entire online databases of everything on sale at a particular store during the current week, matched to the exact coupons shoppers need to take those items home at bargain prices.) In the same address though, Mr. Herkert also stated that low promotional prices “encourage routine cherry-picking” and drive lower transaction sizes.

All true. But they also increase our trips to the stores, in which we may buy other items that weren’t the loss-leaders we ran in the door for (hint – whoever has the best sales also gets my produce, bakery and dairy purchases for the week too. I only want to go shopping once a week!) Even non-die-hard coupon shoppers love a good sale. But remove the sales, and what happens? The shoppers go away too.

This week, so many readers wrote to me commenting on the lighter list of Jewel deals for this week compared to the other stores’ sales. I truly wish there had been more at Jewel to report, but the fact is that it’s just a pretty light week at Jewel. No one tells me what to write about — I have always approached my Deals of the Week writeup with the intent of blogging the best sales in town, wherever they are. But the stores also feel the effect when the sales are not as hot.

I stopped into a Jewel last night to pick up some orange juice and bread, and I ended up talking with a group of employees for nearly half an hour. (Lately, it doesn’t even matter which Jewel I’m in, and I visit a lot of them due to my speaking schedule — but if any employees spot me, I can pretty much plan on talking groceries for a while!) These employees asked, “What happened this week? The store’s been really slow. Why didn’t you blog more Jewel deals this week? Where are all the coupon shoppers? (Like it or not, the coupon shoppers were over at Dominick’s buying $1.69/lb. steaks and 4lb. bags of frozen boneless skinless chicken breasts for $5.76 — I pointed out that the 3lb. bag of boneless, skinless chicken breasts at Jewel is priced over $10 this week — nearly double the price for a pound less of chicken.)

That discussion turned into a much longer one, turning to the Shopper’s Value products throughout the store and the reduction in products. Overwhelmingly, customers do not like them — one employee said “I just wish they [SuperValu] would actually come into the store and see what’s going on, talk to people, but these decisions are being made from so far away.” Another employee could rattle off a list of what products are no longer being carried, because so many customers have come to the customer service counter asking where they are.

This ISN’T the fault of the Jewel stores, and that cannot be stressed enough to my readers. Do not take your frustration out on your local Jewel store or staff — they are very aware of what’s happening, and judging from the feedback and emails I receive, they’re not happy about it either. (And, again, if there are products your store no longer carries, see if the customer service counter can special-order them for you — they may still be able to.)

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“Everyday Low Pricing” at Jewel?

Take a look at what Mr. Herkert told shareholders on Tuesday of this week:

“Herkert also announced the grocer would begin moving toward an everyday-low-pricing strategy across several categories, which should result in significant labor savings he said, as employees will no longer have to adjust as many pricepoints at the shelf several times per month.” [link]

“Over the next few months, we will begin offering these products at constant everyday prices rather than employing promotional cycles.” [link]

Any coupon shopper knows “everyday low prices” are not to our advantage — it’s the reason coupon shoppers, for the most part, completely avoid shopping at Wal-Mart. But now we have a former Wal-Mart exec trying to apply Wal-Mart strategies to SuperValu stores. Coupon shoppers hear “everday low prices” and immediately head in the opposite direction. When you remove the high/low sales cycles that coupon shoppers have become accustomed to, they will go elsewhere.

The reality is, especially in Chicagoland, we have many, many other options for grocery shopping. Not even counting Wal-Mart or Aldi (which most of us rarely set foot in for groceries,) and depending where you live, we have Dominick’s, Meijer, SuperTarget, Woodman’s, Ultra, Food 4 Less, Piggly Wiggly, Caputo’s, Butera, Schnuck’s, Kroger/Hilander — and the highly-successful HyVee plans to make a splash in the market, opening stores soon too. I can easily think of a half-dozen or more other smaller players too. And coupon shoppers will go where the sales are. If the little family-owned grocery store in my town sells apple juice for .99 a bottle, I will run in and buy it there. If Jewel moves too far in the everyday-low-price direction while other stores’ low-priced sales cycles continue, the shoppers will follow the sales, wherever they happen to be.

Let me be clear once again — I do NOT want to see Jewel fail. It is still my, and many others’, favorite place to shop. But if the sales that make Jewel so great are taken away, the fact is that we have many other shopping options in this market. You cannot radically shake up the product offering and pricing structure of something that’s familiar to devoted shoppers and not expect fallout.

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Shopper and industry reaction

Now, I do not know Mr. Herkert personally (in fact, my email to him regarding these concerns was “deleted without being read,” as were other emails sent by my readers [link]) and if he were to read this, he might brush it off as a rather long post on a “little mommy coupon blog.” But this little mommy’s coupon blog is read by nearly 40,000 of his Chicagoland Jewel shoppers every single week. And what’s happening at Jewel has not gone unnoticed by Jewel shoppers, who have been quite prolific in their posts and emails regarding the changes they’re seeing.

With so many issues being raised by my readers, I wanted to round everything up into one, admittedly quite lengthy, post. People have been asking what they can do to let someone know that they’re not happy with what they’ve been reading in the news. If our emails are not being accepted, at least we can discuss what’s happening publicly. And there’s power in that. We are the shoppers that these changes directly affect.

And we’re also not the only ones talking. Analysts are concerned with the direction SuperValu’s headed in.

“Supervalu Inc.’s choice of profits over wooing more customers with low prices will hurt performance in future years, an analyst said Wednesday as he cut estimates on the national grocery chain… analyst Jonathan Feeney said the company’s first-quarter results, released Tuesday, beat estimates and included higher gross margins because the company, which operates Albertsons, Jewel-Osco and other grocery chains, is choosing to sell more profitable items rather than entice shoppers with promotions and less expensive products. Feeney said maintaining the guidance is “remarkable — bordering on breathtaking” and indicates the company plans to keep reducing promotions.” [link]

This analyst calls SuperValu’s focus on house brands over low prices “bordering on breathtaking.” As one of my readers noted, “bordering on breathtaking” seems like code for “What IS this guy THINKING?” [link] Mr. Herkert appears to be feeling the heat too from the industry, as this week he publicly defended the product reduction as part of his “vision:”

CEO and president Craig Herkert defended the company’s SKU rationalization program in response to “the great deal of discussion” industry wide regarding the practice. “I want to be clear what SKU rationalization is for Supervalu,” he told analysts during his opening remarks: it’s a “well-defined vision” that maintains variety while reducing product redundancy and enhancing labor efficiency. [link]

Where do the customers’ wants and needs fit into that puzzle? The people who, each week, vote for their favorite store with their dollars and their business. The shoppers who, contrary to possible misconceptions, are not nimble-minded weaklings who find a store packed with variety and high-value sales “confusing” or “overwhelming.” The shoppers who, in fact, to use his exact words, “are adept at tracking weekly advertisements and executing with surgical precision the purchase of those items that maximize their own savings.” We can’t be both incredibly adept, shopping with precision and simultaneously need that big overwhelming store simplified for us. So which is it?

Not only are we intelligent shoppers, we communicate with each other regularly. We share information with thousands of other shoppers every single day. If one person has an experience in a store, good or bad, it’s shared with thousands of other people. If one of us spots a great sale, thousands more of us are running out the door to take advantage of it. We are connected, we are informed, we’re incredibly smart, and we have money we’d like to spend in your stores.

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Conclusion

Discussing the habits of shoppers, particularly female ones, the Nielsen Company writes, “The millions of Moms across the country are an army – mobile, nimble, vigilant, in touch like never before through social media, and powerful – if your product or messages hit home with them, you have won over powerful allies who will support you through instant communication networks beyond anything you could create for yourself. But the reverse is also true.” [Link]

Would SuperValu like to keep our business? We’d genuinely like to keep the Jewel experience that we know and love.

Of coupon shoppers, particularly enthusiasts, Nielsen states, “Retailers would do well to target enthusiasts: their shopping behaviors and demographics make them extremely appealing.” [link] When nearly 1/5th of everything purchased with a coupon is being purchased by one of us, I’d have to agree — we are an extremely appealing group of shoppers that no retailer would want to lose.

If it’s any comfort, Mr. Herkert wrapped his Tuesday address with these words. “Where we have made a decision that is unpopular with a majority of our customers,” he said, “we revisit that decision.” [link]

Let’s hope it’s sooner than later.