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 vaulted SUPERVALU to second place in the traditional grocery retail market (behind Kroger), it failed to spur sales. The struggling company shed five of its largest retail banners: Albertsons, Jewel-Osco, Acme Markets, Shaw's/Star Market, and retained its regional Cub Foods, Hornbacher's, and Shop 'n Save retail chains, among others, as well as its extreme-value Save-A-Lot chain, and wholesale distribution business, which supplies more than 1,800 independently operated stores nationwide with brand-name and private-label goods.

Operations

Retail food sales account for about 51% of SUPERVALU's total sales, with food distribution services making up the rest. The company's retail business includes some 190 stores under five regionally-based formats: Cub Foods, Shoppers Food & Pharmacy, Shop 'n Save, Farm Fresh, and Hornbacher's. Its national Save-A-Lot division holds the #1 spot (based on revenues) in the extreme-value grocery category. The 1,330 owned and licensed Save-A-Lot limited assortment stores sell mostly private-label goods.

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.

Financial Performance

SUPERVALU's recent reorganization, including the sale of five retail banners and the refocus on food wholesaling, appears to have stabilized its finances. Indeed, in fiscal 2014 (ended February) sales were essentially flat (up less than 1%) versus the prior year, after experiencing a dizzying 53% decline in the previous annual comparison. Also, SUPERVALU reported net income of $182 million in fiscal 2014, compared with a loss of almost $1.5 billion in 2013. It was the company's first profit in four years. So progress was made. Cash flow provided by operations continued its four year descent, plunging to just $19 million in fiscal 2014, from $898 million the prior year.

The $16 million increase in total sales in fiscal 2014 versus 2013, was driven by growing sales at the company's Save-A-Lot division, which increased 3% year over year. Both the regional stores division and the company's wholesale business experienced falling sales. SUPERVALU blamed the 2% decline in sales at the wholesale business on lower sales to existing customers, including the US military and two large lost accounts, offset partially by new business.

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. 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.

SUPERVALU is putting its money behind its successful Save-A-Lot format by expanding the extreme-value chain's reach through new store development and growth of its licensee network. Also in 2014 the company streamlined its wholesale organization by consolidating three regions into two, forming new East and West teams located in Virginia and Minnesota, respectively.

Mergers and Acquisitions

After a year of divestments in 2013, SUPERVALU returned to acquisition mode in May 2014 with the purchase of 18 Rainbow Foods stores in the Twin Cities area from rival Roundy's. SUPERVALU, which was part of a consortium acquiring the stores, will convert about 10 of them to its Cub Foods format.

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