Shaw’s, Star Market face a long road back
Under new owners, the grocery chains are spiffing up tired stores, cutting prices, and adding inventory in a difficult bid to reverse falling sales
There is a grocery store in Chestnut Hill where employees in chef’s hats slice cheeses and desserts, bake breads, roll sushi, serve up sandwiches, and make hot meals behind sparkling glass counters. Prices are fair and the aisles are immaculate.
This ideal market isn’t a Whole Foods store or boutique neighborhood grocer. It’s a Star Market, remodeled in a fashion that will be repeated at as many as 20 Shaw’s and other Star Market stores in the next year, in an attempt to revive the struggling New England chains.
The Chestnut Hill store offers a dramatic contrast to many existing Shaw's and Star Market locations that look tired and cost more than other supermarkets in a crowded and intensively competitive industry.
“We’re really focused on rebuilding our two brands,” said Shane Sampson, president of Shaw’s and Star Market. “The stores need lots of tender love and care.”
New owners who bought both Shaw’s and Star Market for $3.3 billion five months ago are embarking on a major transformation. The changes — remodeling stores, lowering prices, adding inventory and employees — are an attempt to stop years of financial bleeding that analysts blame on Supervalu Inc., the previous owner of the two chains.
Annual sales at Shaw’s and Star Market declined by $1.5 billion over six years under Supervalu’s ownership. The company invested little in the supermarkets and implemented a range of cost-saving measures, from shuttering stores to laying off workers and even slashing maintenance budgets, that pushed customers away.
Industry analysts say the new plans for Shaw’s and Star Market are ambitious and necessary. But they are skeptical about the chances for a dramatic reversal.
The analysts say it will cost millions of dollars in capital investment to reverse the downward spiral and question whether any amount of change will lure back customers.
“I don’t know how you come back or if you come back when you’ve had years of prices that were so uncompetitive that it drove customers away,” said Edgar Dworsky, editor of the trade publication Consumer World. “It would take a miracle, frankly, and prices that really did blow the competition away.”
Sampson, a fourth-generation grocer and 20-year industry veteran tapped to lead the new Shaw’s, doesn’t argue with Dworsky and other skeptics.
“They’re right,” he said. “We have a lot of cleaning up to do. We’re putting one foot in front of the other and making a step forward every day.”
The new owners, a group of private equity firms led by Cerberus Capital Management, plan to remodel four to five stores every quarter. Renovation projects at stores in Dorchester, the Fenway, Belmont, and two locations in Cambridge should be finished this fall. A dozen underperforming stores are scheduled to close this summer. At that point, the chains will operate 157 supermarkets.
Meanwhile, many prices have dropped, and the supermarkets are trying to supply fresher produce. Sampson said the chain has dropped prices on staples such as milk, bread, and eggs and is generally pricing in smaller profit margins in hopes of boosting overall sales.
A walk through the aisles of the Chestnut Hill store and Stop & Shop in Brookline seemed to indicate that prices are more competitive than they have been in years past.
Star Market sold Windex for $1.20 cents less than Stop & Shop and charged $1 less for a pint of Ben & Jerry’s Ice Cream. Yet Stop & Shop offered prices 10 cents lower on many products, including cans of Bumble Bee Tuna, 12-can packs of Coca- Cola, Pringles potato chips, and Betty Crocker brownie mix.
In addition to reducing costs, Sampson said he is pushing employees to make the stores “grand opening” ready every day, developing a level of cleanliness some Shaw’s and Star Market locations have lacked.
Sampson invited the Globe on a tour of the Chestnut Hill store recently and the supermarket was so clean — down to product labels perfectly centered on the shelves — that customers questioned what was going on.
The new president also said he has hired 2,000 associates since March and invested more than $10 million in extra inventory.
In addition, he said, the change in ownership puts more authority directly in the hands of Shaw’s and Star Market executives in New England.
Under Supervalu, decisions on everything from where to source produce to prices in local stores were made in Minneapolis, he said.
“So far, I like the changes, and prices have come down a little,” said Teri Hankey, a 70-year-old Dorchester resident, as she perused the meat section at the Shaw’s on Morrissey Boulevard.
Hankey, a bargain shopper, said the lower prices are not enough to keep her from going to Stop & Shop for better deals on some items.
“The bottom line is we all have to make our money stretch,” she said.
Analysts say that success at Shaw’s & Star Market will hinge on the company’s ability to regain market share. But as more retailers enter the grocery industry — from traditional supermarkets to Walmart Supercenters and even Rite Aid — the chains face an uphill battle.
“The renovations and the lower prices are all good things,” said Mike Berger, editor of The Griffin Report on Food Marketing, a trade publication.
“It’s something Supervalu couldn’t do or did not do. Now, whether it’s enough, I don’t know. It’s going to be great for shoppers, but there are just so many competitors.”