MINNEAPOLIS — In his first quarterly address since taking the reins at a slimmed-down Supervalu, president and CEO Sam Duncan said the company would focus on decentralizing its retail banners, a new commitment to pricing at Save-A-Lot and recharging its wholesale business.
In the meantime, costs associated with the sale of five banners to the Cerberus-led group of investors, along with restructuring and severance costs, led to a loss of $1.4 billion in the fiscal fourth quarter that ended Feb. 23. Continuing operations lost $179 million (including $149 million in charges) on $3.9 billion in sales. Overall sales declined by 2.3%, while identical-store sales declined by 4.1% at conventional stores and by 2.6% at the hard-discount Save-A-Lot division.
Duncan, however, was optimistic, citing a fast-moving effort to “right-size” and reorganize the company. Wall Street appeared to share the optimism as Supervalu stock climbed by around 10% after results were announced last Wednesday. Analysts noted that sales and underlying earnings at Save-A-Lot, while still negative, showed a marked improvement from the third quarter.
“The opportunity to turn Supervalu around is now possible with a strengthened balance sheet, a right-sized, decentralized organization, and a sharp focus on driving sales and cash,” Duncan said in a conference call.
Duncan outlined priorities for each of Supervalu’s three business lines. The company has established a new retailer advisory group of independent retailers that will meet for the first time in June. “Working with and supporting these retailers will be a big focus of my time — not running the business but helping out wherever I can and continuing to listen what they have to say,” Duncan said.
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Cost-cutting at Save-A-Lot’s St. Louis headquarters — including 100 employees let go last month — will support more competitive pricing at the hard-discount banner, which is largely operated by licensees. Duncan said that group “lost confidence in us,” with some buying product elsewhere to support pricing they could no longer get from Supervalu.
“The cost structure had gotten out of line, which meant our licensees and corporate stores were not as competitive as they should be,” Duncan said. Merchandise mix at stores had also strayed from a private-label focus, “and as a result, the store growth simply wasn’t happening.”
Duncan said one of the first things he did at Save-A-Lot was reduce inside margins to allow for sharper pricing on 15-17 key items, which were pre-sold to licensees. “Licensees were very, very happy about that,” he said.
Supervalu’s remaining conventional banners — Farm Fresh, Shoppers Food Warehouse, Cub Foods, Hornbacher’s and Shop ‘n Save — will also see price investments that will support local buying and merchandising. Decentralized operations at each of those banners began last week as Supervalu completed the remainder of allowances under the previous regime, Duncan said.
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“Decentralized operations means the guys and gals out at the banners are going to make their own decisions on ad items, new items, those types of things, because they know best what sells at their banners,” Duncan said. “There is no way anyone here in Minneapolis can tell somebody at Farm Fresh in Virginia, the types of ad items they need. It just won’t work.”
Duncan said the declining sales at those stores in the quarter reflected less promotional activity than in the same period last year. The margin investments “won’t be to the point where they destroy the company,” but will support a companywide mission to raise “sales and cash.”
He said the company had opportunities to improve margins and sales by driving a more favorable mix of fresh sales at those banners in part by applying better presentation standards and product specifications.
“The lack of sales at these five retail banners is due strictly to the produce and meat departments, bakery and service deli,” Duncan said.
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