Supervalu Closes Sunflower Market –
Are There Lessons For Tesco?
Jim Prevor’s Perishable Pundit, January 30, 2008
Way back in 2005, Supervalu announced Sunflower Market with a flourish:
…Sunflower Market is SUPERVALU’s response to the rapidly growing market for natural and organic foods in the U.S. According to SUPERVALU’s consumer research, 96 percent of consumers use fresh organic produce at least occasionally. Research also indicates that while 66 percent of the U.S. population seeks organic products that offer nutritional, appetizing solutions for themselves and their families, the cost of organic foods is the most common obstacle for consumers.
…”At Sunflower Market, we will offer customers the convenience of a full shopping experience, with access to natural and organic products in all categories,” said John Hooley, president of corporate retail for SUPERVALU. “We’ve developed a unique merchandising approach that will highlight our perishables, which include an extensive produce offering, natural, case-ready meats and fresh bakery and deli items. Simply put, our goal is to provide customers with great tasting, wholesome foods at affordable prices.”…
Now Supervalu is closing the banner with a whimper:
A foray into the pricey world of organic food has ended badly for Supervalu Inc., the Eden Prairie supermarket giant, which announced that it’s closing its Sunflower Market organic and natural food stores….
The five locations …were to be the first of a national rollout of a smaller organics food store meant to compete in the supermarket niche where Whole Foods and Wild Oats have found customers….
The chain, the first of which opened in Indianapolis in January 2006, billed itself as a cheaper alternative to places like Whole Foods, which has seen some consumer pushback for its high prices. …
The Sunflower stores, at 13,000 square feet, were far smaller than a typical Cub Foods, which can run nearly 90,000 square feet. They carried 8,000 to 12,000 items, about one-fourth the volume of a typical supermarket. Supervalu once had hoped to open 50 Sunflower Markets within five years.
When it looked like the deal between Wild Oats and Whole Foods would collapse, a lot of folks on the Wild Oats side were secretly hoping that Supervalu would ride to the rescue. With small format stores and a heavy emphasis on organic, it seemed like a possible match. In one fell swoop, Supervalu could have picked up a broad store base and the intellectual capital to run this type of operation.
Of course, it didn’t happen, and one reason it didn’t happen is because Supervalu was focused on providing low-priced organics. We mentioned the chain here when it was expanding into Columbus and the differentiating factor was purely price.
Among other things, retailers of all types tell us they find shrink on organic product to be significantly higher than conventional, so it is not clear that “bargain basement” organics makes sense.
Now the chain is closing for a lot of reasons, most of which have nothing to do with Sunflower. Since the launch, Supervalu has acquired most of the old Albertsons stores, as we mentioned here in a piece about the first anniversary of the combination. We thought there were grounds for optimism but did caution that “…we suspect that the hard part is just beginning.”
That has certainly been true, and if the stores weren’t almost instantaneously stupendous successes, the executives at Supervalu have other fish to fry. They can’t be focused on five small stores.
Yet Supervalu didn’t close Sunflower because it was making too much money, so there may be a lesson for the industry here. Let us think about the characteristics of this concept:
- Small Footprint
- A Focus on Organic and Natural
- Affordable Organics for the Average Joe.
There is only one prominent chain that talks that way: Tesco’s Fresh & Easy concept.
When Tesco described its concept, most people in the trade assumed it would be somewhat upscale, certainly higher education-biased — Why? Because organic and green are issues that in America, we associate with more educated and more affluent people. Yet Tesco said, no, that the unique edge of its concept would be to make these types of items available not only to the middle class but to the inner-city poor living in food deserts where no supermarket exists.
Sunflower tried some non-traditional locations, as in its Indianapolis store, but quickly moved to a more conventional site in Columbus, Ohio near the University.
Competitors tell us they estimated the sales of the Sunflower stores at no more than about $75,000 a week.
As we mentioned here, Willard Bishop has a new report estimating that the typical Fresh & Easy is only selling $50,000 a week. The Sunflower stores are a tad larger but, still, this holds out the hope that they might get the Fresh & Easy stores up to $75,000 a week. The problem is that Tesco expects $200,000 per store, per week.
Supervalu is a very sophisticated organization, with lots of diverse experience in the American market. If Supervalu saw any likelihood of getting these Sunflower stores up to $200,000 a week, they would jump on it.
That they are closing, instead, is not good news for Tesco.