SUPERVALU INC.

  • Overview

After a disastrous flirtation with grocery retail, SUPERVALU is returning to its wholesale roots. While the purchase of more than 1,100 supermarkets from fallen grocery giant Albertsons catapulted SUPERVALU to second place in the traditional grocery retail market (behind Kroger), it failed to spur sales. Now, the ailing company has shed five of its retail banners: Albertsons, Jewel-Osco, Acme Markets, Shaw's/Star Market. It retained its regional Cub Foods, Save-A-Lot, and Shop 'n Save chains, among others, as well as its wholesale distribution business, which supplies some 1,900 independently operated stores nationwide with brand-name and private-label goods.

Operations

Food sales account for about 50% of SUPERVALU's total sales, with its supply chain services making up the rest. SUPERVALU's wholesale customers include conventional and upscale supermarkets, combination food and drugstores, supercenters, convenience stores, limited assortment stores, and e-tailers. SUPERVALU offers its retailers private labels in every price range and in virtually every store category, from the value-priced Shoppers Value brand to the premium Preferred Selection and organic Wild Harvest lines. SUPERVALU also offers retailers support services, such as store design and construction. The grocery wholesaler operates distribution centers from coast to coast. Its Save-A-Lot division holds the #1 spot (based on revenues) in the extreme-value grocery market. The 1,300 owned and licensed Save-A-Lot limited assortment stores sell mostly private-label goods.

Financial Performance

Declining sales since the deep recession took hold suggest that SUPERVALU is having serious trouble dealing with the twin challenges of digesting its big Albertsons purchase and responding to the weak US economy. In fiscal 2013 (ended February) sales plummeted nearly 53% versus the prior year and the company lost almost $1.5 billion (its third consecutive year in the red). Indeed, the $17.1 billion the grocery company rang up in sales in fiscal 2013 was a fraction of its all-time sales high of $44.5 billion rung up in 2009. SUPERVALU blamed negative same-store-sales and a smaller store base for the decline in retail food sales. Clearly, SUPERVALU is losing market share to other grocery operators. Its customer count declined by almost 2% in fiscal 2013, on the heels of a 4% decline in fiscal 2012.

Strategy

SUPERVALU's blueprint for success in the retail grocery market -- known for its razor-thin profit margins -- was to leverage its increased size and supply chain operation to realize efficiencies and economies of scale. However, that strategy failed to increase either sales or profits for the company, which in 2013 restructured by selling large parts of its business. Indeed, in March it sold five retail grocery banners (some 877 stores in all) to Cerberus Capital Management in a deal valued at $3.3 billion. Post sale, SUPERVALU continues to operate its wholesale distribution business, and several regional chains, including Cub Foods, Farm Fresh, Shoppers, Shop 'n Save, and Hornbacher's. It also continues to operate Save-A-Lot, the largest hard discount grocery chain in the US. The restructuring more or less returned SUPERVALU's business to what it was before its 2006 acquisition of Albertsons. Prior to the closing of the transaction SUPERVALU installed a new CEO, grocery retail veteran Sam Duncan, who succeeded Wayne Sales. Under Duncan, the company is refocusing on its wholesale business. To that end, it is revamping its executive ranks and board of directors as it attempts to revive its sales.

Ownership

Symphony Investors LLC, an investor group led by Cerberus, owns about 21% of SUPERVALU's shares.

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