Supervalu plots to keep Cub Foods on top of Twin Cities grocery sceneAugust 5, 2017
By John Ewoldt | Star Tribune
The biggest grocery chain in the Twin Cities — Cub Foods — has half the market share it did 20 years ago, with competition coming from new big-box store chains, boxes arriving on front porches, and a parent company that makes most of its money as a wholesaler rather than a retailer.
Can it remain the market leader?
The person who is ultimately responsible for Cub’s future says it can.
“I’m the guy overseeing the projects,” Mark Gross, chief executive of Supervalu Inc., Cub’s parent company, said in an interview. “We’re giving Cub the capital, the leadership, the talents, resources and innovation. I’m optimistic.”
In the 1990s, Cub dominated the Twin Cities grocery scene with a 40 percent market share. It rose from a revolutionary start. Originally, it was a no-frills outlet, similar to a co-op or warehouse store, that was called Consumers United for Buying. Customers had to write down the price on each item using a pencil.
“The prices were remarkably cheaper than any other supermarket,” John Hooley, the son of Cub co-founder Jack Hooley, said in an obituary in the Stillwater Gazette when his father died last year. “The idea was almost like a Sam’s Club where you pay a little fee and then you get the fee back every month in coupons.”
In 1980, Supervalu purchased the five Twin Cities Cub stores and grew them into a chain of 140 stores in 12 states. But after borrowing to acquire even larger grocery chains, including Albertsons about a decade ago, the company started paring back its retailers and its debt.
It made its biggest move in 2013 by shedding Albertsons, Jewel and some other retail lines. And last year, it sold the discount Save-A-Lot chain for $1.3 billion, the last major move to reduce its debt. Along the way, it trimmed Cub’s size to 79 stores in Minnesota and one in Freeport, Ill.
According to recent surveys from Metro Market Share and Chain Store Guide, Cub’s market share in the Twin Cities is now around 20 to 23 percent. “Cub has lost about 1 market share point per year in the last five years to Walmart, Target, Costco, Whole Foods, Hy-Vee, Trader Joe’s and Sam’s Club,” said Burt Flickinger of Strategic Resource Group.
Adding to that pressure, the metro is now “one of the most over-stored grocery markets in the country,” Flickinger said.
Eden Prairie-based Supervalu, meanwhile, now gets about 70 percent of its revenue and most of its profit from its wholesale business, distributing groceries to about 3,000 independent retailers in 46 states from 25 giant distribution centers. (The numbers include Supervalu’s acquisition of Unified Grocers, which closed in June, but not Central Grocers warehouse, a more recent purchase.) Investment analysts continually speculate that the company will continue to pare back its remaining retail chains, the biggest of which is Cub.
“If there is a viable interest in any major piece of [Supervalu’s] retail business, it would have to be considered,” said Ajay Jain, a stock analyst at Pivotal Research Group. “Retail is not a core strategic focus.”
David Livingston, a supermarket analyst at DJL Research in Milwaukee, thinks two of the nation’s leading grocery retailers, Albertsons Cos. and Kroger Co., are candidates for purchasing Cub from Supervalu. But he adds, the price “would have to be cheap.”
Gross, who took over as CEO of Supervalu 18 months ago, rejects the speculation. He said the company is not looking to sell Cub. The sale of Save-A-Lot infused the company with capital to upgrade Cub stores and take on new competitors, notably Iowa-based Hy-Vee, which runs big stores like Cub and will have eight Twin Cities stores open by the end of the year and seven more in the works.
“That $1.3 billion fundamentally changed our leverage,” Gross said in an interview at Supervalu’s annual Expo held last month in St. Paul. “People will continually hear about investments made in Cub.”
The person directly in charge of that process is Anne Dament, the former grocery chief at Target Corp. who became Supervalu’s senior vice president of retail, merchandising, marketing and private brands in January.
She’s in the process of rolling out hundreds of new items in Cub’s new Quick & Easy line of meals that can be prepared at home or come fully prepared. “Meal solutions in grocery are changing the game,” she said. “Supervalu and Cub are going to be in the meal program in a meaningful way.”
The line is already in the West End store in St. Louis Park, as well as Maple Grove, White Bear Lake and Cottage Grove. The rest of Cub’s stores will have it by Sept. 15. Besides a much larger deli selection, the line includes fresh-cut vegetables such as steam-in-a-bag asparagus, green beans and Brussels sprouts. Dament thinks the new pre-seasoned chicken breasts that can be microwaved in about five minutes will be a hit with time-starved consumers. “You can get chicken with steamed veggies and there’s no pan to wash,” she said.
Jay Halsne of Minneapolis shopped the Quick & Easy section at the West End store on Wednesday. “I love it,” he said. “I work nearby so I use it every day for lunch and get meat for meals at night.”
Clare Foley, also of Minneapolis, isn’t a fan yet. She still cooks from scratch. “I’m not of that generation that likes quick meals, but I think it’s great for people who want a healthier meal and don’t want to cook.”
Shoppers could argue that competitors such as Whole Foods, Lunds & Byerlys, Kowalski’s and Hy-Vee have been offering extensive grab-and-go choices for a couple of years. Gross, who stressed that he’s only been in charge for 18 months, said being slow to innovate isn’t always bad. “Sometimes people can be a little ahead of their time,” he said. “They’ll put in sushi and then say it doesn’t work. Actually, you were too soon, but it does work now.”
Cub is also shifting more labor to nights and weekends when more people shop, instituting more training to keep shelves stocked, enhancing more-profitable private labels such as Wild Harvest and Culinary Circle, and expanding the grocery selection with more “mainstream” foods that were once considered specialty. The delis will soon be stocking tamales and burrito bowls, for example.
In February, Cub switched its ads from a Sunday-to-Saturday cycle to Thursday through Wednesday to be more in line with Supervalu’s four other retailers. Most supermarket retailers across the country run ads that start midweek. Starting this week, Cub now places its weekly ad in a RedPlum circular that Twin Cities residents get in Wednesday’s mail instead of the Sunday paper.
“We want to improve the shopping experience so we will put the Cub circular into everyone’s hands midweek,” Gross said.
He pays more attention to the challenges presented by the companies running brick-and-mortar stores than the app-driven, meal-in-a-box services that are getting so much media attention and Silicon Valley capital.
The problem with shrink-wrapped meals in a box is waste, Gross said. “Purchasing that week’s food at a store is a far more sustainable choice,” he said. But he added, “There will not be one answer in how America eats.”
The food business in the Twin Cities, analyst Flickinger said, is likely to still be led by Cub five years from now. In that time, though, Hy-Vee will have moved up to second, he said.
Gross acknowledged Cub has lost some ground since Hy-Vee arrived in the market in 2015, but he said Cub is rising to the challenge. In Oakdale, on the east side of St. Paul, Cub tore down an existing store after Hy-Vee moved in across the street. It built a new store nearby.
“Our sales in Oakdale are substantially higher than what they were before Hy-Vee,” Gross said. “The benefit of competition does make you sharpen your game.”