--Mr. Sales replaces CEO Craig Herkert, who took over in 2009

--Spokesman says it was board's decision for Mr. Herkert to step down

--Shares rose 13% to $2.24 Monday

(Adds background on incoming and outgoing CEOs, analyst comments and closing share price.)

 
   By Annie Gasparro

Struggling grocery store operator Supervalu Inc. (SVU) dismissed Chief Executive Craig R. Herkert, naming Chairman Wayne C. Sales to succeed him as the company attempts to speed up the execution of its turnaround strategy.

Supervalu, based in Eden Prairie, Minn., continues to lose customers to traditional grocery rivals and new competitors, despite lowering its prices and making other attempts to win back shoppers.

Supervalu is sticking with Mr. Herkert's strategy to lower prices, cut costs internally and expand its discount chain, Save-A-Lot, which has been performing better than its traditional grocery brands, such as Albertsons, Jewel-Osco and Shaw's. But the board and investors seem to think it was taking too long. The key change with Mr. Sales taking over will be better and faster execution of the strategy, analysts said.

"As I step into my new role, I am focused on accelerating our progress in [these] areas," Mr. Sales said in a letter to associates. For instance, "our goal is to be competitively priced, and we will move as quickly as possible to achieve this."

Since the recession, Supervalu has been losing market share to lower-priced competitors, including Kroger Co. (KR) and Safeway Inc. (SWY). It also faces growing competition from dollar stores, drug stores, mass retailers such as Wal-Mart Stores Inc. (WMT) and club stores like Costco Wholesale Corp. (COST), which have started carrying more groceries in recent years.

Despite cutting store-level costs, lowering prices and expanding its line of store-brand products over the past year, Supervalu disclosed earlier this month that its fiscal first-quarter earnings fell 45% and it would suspend its quarterly dividend. As a result, the company lost nearly half of its value in one day. Supervalu also announced at the time it was considering selling all or part of the company--a process that Mr. Sales will continue to lead.

"After careful deliberation, the board decided that this change in the CEO role would be important to the company's efforts to improve our sales and earnings trajectory and generate long-term shareholder value," Supervalu spokesman Mike Siemienas said during an interview.

Supervalu shares rose 13% to $2.24 on Monday, but the stock is still down 72% so far this year.

Mr. Herkert, 52, inherited a challenging scenario when he took over as CEO of Supervalu from Jeff Noddle in May 2009. He joined Supervalu from Wal-Mart, where he most recently had served as president and CEO of its Americas business. Bringing his Wal-Mart experience to Supervalu, Mr. Herkert unveiled his turnaround plan in the fall of 2010, but Supervalu has continued to post identical-store sales declines. In the latest quarter, identical-store sales declined 3.7% for overall retail food business and 3.4% at Save-A-Lot.

Mr. Sales, 62, has been a Supervalu director since 2006 and nonexecutive chairman since 2010. "I have been disappointed with our results. I am well aware of what our critics have said about us. You are all familiar with our continued decline in sales, profitability and share value," Mr. Sales said in the letter.

Mr. Sales contends that his experience leading other retailers, such as Canadian Tire Corp. (CTC.A.T), shows that he has what it takes to turn around Supervalu's performance. Mr. Sales served as president and CEO of Canadian Tire from 2000 to 2006. During that period, Mr. Sales said he led the company as it faced "fierce competitors who were expanding into Canada"--Wal-Mart and Home Depot--as well as "high prices, a high-cost structure and no defined point of differentiation."

During his tenure at the Canadian retailer, Mr. Sales impressed industry analysts with improvements in the revenue and profitability of the company.

Overall, the change at Supervalu was welcomed by investors and Wall Street analysts--but that doesn't mean Mr. Sales has an easy road ahead.

Thom Blischok, chief retail strategist at Booz & Company, said supermarkets that are succeeding in the changing environment are focusing on more than price. "The reality is, with the intensified competition in the grocery industry, it's imperative that retailers continue to improve the shopping experience--that's what the competition is doing, and that's something Supervalu will have to continue to work on," Mr. Blischok said. He says competitors are winning by improving the customer-facing technology, making services at the bakery and butcher shop more personalized and stocking more local produce.

BMO Capital Markets analyst Karen Short said that given Mr. Sales's strategy at Canadian Tire, she expects he will focus more on differentiating Supervalu's brands from other grocers than becoming more aggressive price-wise in order to avoid a price war with Kroger and Safeway.

"The challenges may prove to be insurmountable at this stage for even the most exceptional food retail executive given Supervalu's market share losses, lack of brand equity, and lack of resonance with the customer," Ms. Short added.

-Tess Stynes contributed to this article.

Write to Annie Gasparro at annie.gasparro@dowjones.com.

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