BY MIKE DUFF

Consumers want value, and Minneapolis-based Supervalu is betting that means they want Save-A-Lot.

In the company’s latest conference call on Oct. 20, Supervalu CEO Craig Herkert made no bones about it. He sees the value-oriented small-box supermarket as the primary growth vehicle for the retailer. His reasoning was straightforward and boiled down to Save-A-Lot being the right grocery store concept for the times,

In a marketplace in which consumers have redefined what value means to them, Save-A-Lot is well-positioned to serve the growing number of people who want to cut back on basic spending. Even if the economy has turned a corner, unemployment numbers are enough to remind consumers they face a long ride back to prosperity.

Save-A-Lot was founded in another period of economic uncertainty, the 1970s, as an alternative format developed to help independent grocery store operators combat growing regional supermarket chains. Its low-price orientation served consumers then, too, who were concerned about inflationary erosion of their living standards.

True to Form
Remaining true to its founding principles, Save-A-Lot has been able to grow over the years by keeping operations as simple as possible while enhancing efficiencies and productivity, says Mike Kemp, vice president of procurement. The operational model is still heavily influenced by the store’s early focus on frozen food, grocery and commodities such as household cleaners.

Save-A-Lot still tailors its product assortment closely around those products that are most popular with its customers, even if that means giving up some sales and store trips to more conventional food retailers. At 15,000 square feet on average, Save-A-Lot stores already have cost advantages over conventional competitors, which the company enhances by sticking to high-velocity products that move through distribution quickly, minimizing inventory-related costs. Save-A-Lot generates demand by investing cost savings in low prices and products that exceed the quality those prices suggest.

In frozen food, for example, a private label lineup closely matches in packaging and flavor profile a range of popular national and regional manufacturer brand products. Save-A-Lot doesn’t shun manufacturer brands, though. It isn’t quite Aldi, which has an extremely limited manufacturer branded assortment. At the same time, it doesn’t align with Walmart either, which, despite its recent private label expansion initiatives, expresses a determination to remain primarily a national brand retailer.

Save-A-Lot maintains its own balance instead. So its private labels such as World’s Fare in frozen novelties and Marvella in processed cheese food are merchandised adjacent to Popsicles in the one instance, and Tropical Queso de Papa in the other.

Ethnic Considerations
The presence of Tropical, a widely distributed Hispanic-oriented regional brand, demonstrates another important element in Save-A-Lot’s evolution. To its basic food assortment, the chain has added products that address local communities directly and make the company’s relatively limited product selection more effective for both the shopper and the company.

Still, ethnicity is only one factor Save-A-Lot has become more adept at addressing in its efforts to satisfy a consumer base with ranging concerns in addition to price. Kemp notes that the Save-A-Lot shopper wants to save money but is interested in the same food trends that engage consumers generally. That is why, for example, an East Hartford, Conn., Save-A-Lot we recently visited stocked both Marie Callender’s Pasta Al Dente products and Healthy Choice Café Steamers.

Kemp says that, throughout the product assortment, Save-A-Lot is enhancing quality — both in terms of basic components and contemporary formulations — while maintaining a price differentiation from the competition based on the efficiencies it has built into operations.

Maintaining those efficiencies has not been easy during Save-A-Lot’s continuing move into perishable foods, which necessarily creates complexities throughout the distribution system. In response, the chain has become better at analyzing its own operations to formulations — while maintaining cost structures that support its low-price position.

“How do we grow categories and, at the same time, stay true to our focus?” Kemp asks rhetorically. “We study an awful lot of data and an awful lot of consumer research.”Because of store size and product assortment limitations, annual category reviews and the process of SKU rationalization have become more strategic for Save-A-Lot than they have for most other supermarket operators. After all, a change of SKU or two can have a big impact on an entire tightly edited category.

Yogurt has been a particular challenge. Kemp noted that the assortment some supermarkets offer would fill Save-A-Lot’s entire dairy case and still spill over to the floor. So the retailer makes a study of the category to determine what it needs most urgently to satisfy the majority of its customers.

“You can go into a conventional store and see 16 to 24 feet of yogurt, but we might have 16 linear feet,” Kemp says. “But that is an area of growth. Yogurt has exploded over the past five years with our customers.”Increased demand has handed Save-A-Lot a management challenge it is addressing in its own style.

“We say, focus on creating good value in the category and not to be everything to all people,” Kemp says. “We realize that there are certain things customers are looking for that we can’t provide. We can’t please customers with 100% of their needs. That’s not the Save-A-Lot concept.”

What Save-A-Lot can do is stay on top of trends and consumer reactions to them as it works within the tight operational parameters it must maintain to keep prices low. In East Hartford, that translates into about 12 linear feet of private label yogurt merchandised with 4 feet of pudding and gelatin items. Save-A-Lot’s Coburn Farms private label products fill the yogurt display’s conspicuous single-serve set with a total of 10 SKUs divided into light and low-fat varieties.

Flavors include basics and some that are a bit trendier. Under the light designation, flavors are peach, strawberry, strawberry/banana, cherry cheesecake and Key lime pie, while under the low-fat designation, the flavors are blueberry, peach, strawberry, strawberry/banana and cherry vanilla. The foot of the set mounts multipacks of Yoplait, Dannon Activia and Yo-Snack products. Clearly, the store’s yogurt set meets a significant if not comprehensive range of preferences in very little space.

To the Core
Customers may shop other retailers for some items, but Save-A-Lot can represent their the core shopping trip, Kemp says, as long as any particular store can satisfy the needs local families have for good quality at an affordable price. Yet to do so requires staying current with those needs, hence, the addition of low-sugar products to Save-A-Lot’s assortment and private label line.

“Our consumer is challenged with certain dietary and health-related issues,” Kemp says. “We try to focus on diabetes. Our consumers have a higher incidence than the national trend. Obesity and weight management are other issues of focus, and that also ties into the areas of heart disease and high blood pressure. So we look at healthy alternatives.”

As it adds products that are more nutritious, Save-A-Lot continues to eye costs. Products should not cost more just because they are healthier, Kemp says. So Save-A-Lot’s light and low-fat yogurts are priced at two for a dollar every day.

A walk through the East Hartford store demonstrates other ways Save-A-Lot is staying current with food retailing trends. One end of the major frozen coffin case promotes a Thanksgiving meal deal that promises to feed four people for $20, for example.

In some ways, the times have caught up to Save-A-Lot. Its evolution as a retailer has made it particularly adept at two functions other retailers are trying to master today: private label development and SKU rationalization. The two go hand in hand at the chain.

Save-A-Lot employs private labels to satisfy broad needs and eliminate sometimes-redundant manufacturer brands. Then it applies SKU rationalization to balance what it offers under its own and manufacturer brands.

Save-A-Lot has no choice. To succeed, it needs the productivity a small store can generate, but also the traffic necessary to drive dollars through the cash register. By consistently concentrating on core disciplines while developing new operations to better serve its defined market, the chain has withstood bigger, more powerful competitors and has thrived in their presence.

Sometimes, though, Save-A-Lot’s ability to effectively serve its customers is underappreciated. Maybe because, at its foundation, customer service at the chain is based on such a simple principle: respect for the shopper.

Save-A-Lot stores are typically bright and attractively maintained. Private label products do not vary in quality, they improve in quality and manufacturers’ brands stay interesting. Everything remains inexpensive as well. The price on Banquet frozen dinners at Save-A-Lot stores is a buck day in and day out. Service, if sparse, is generally attentive, and the fact that much of the chain is owned by licensees means an owner is regularly in the store maintaining the standards the business must meet to be successful.

Rapid Growth
In fact, in announcing the planned doubling of the Save-A-Lot chain, Supervalu's Herkert, a former president of Wal-Mart Americas, noted that the licensee system would be a strength Supervalu would build on in its expansion drive. Entrepreneurship and licensee investment are advantages the chain can leverage to reach a potential that Herkert said is compelling to consider.

“I am genuinely excited about the opportunity to grow this format,” he said during the conference call.

Part of the thrill is Save-A-Lot’s relevance to consumers with household incomes of less than $45,000. Herkert pointed out that these consumers represent almost half the U.S. total households. He also said the Save-A-Lot format could be integrated into markets such as Chicago, where the company operates the more upscale, conventional Jewel-Osco supermarket chain, one that is successful but might not appeal to lower-income shoppers.

Already, Save-A-Lot complements Supervalu’s Acme conventional supermarkets in the Philadelphia metropolitan area. In fact, given their low cost to develop — and Supervalu has a plan designed to lower capital requirements by 15% to 30% — Save-A-Lot stores could enter urban markets in which Supervalu has a presence without undue return-on-investment complications, as well as rural areas in which Supervalu has little or no presence.

So Supervalu is looking at the advantages Save-A-Lot has nurtured in its own development and is discovering it can apply them to benefit the broader company, particularly at a time when a large and growing proportion of American consumers want not only good quality at low prices, but also just a little bit of respect.