MINNEAPOLIS — For the reconstituted Supervalu, the outlook is brighter, though challenges remain, industry observers told SN.
“We like the idea of Supervalu being a smaller company,” Mark Skogen, president and chief executive officer of Festival Foods, Onalaska, Wis., said.
“Running retail stores [like the Albertsons chain] was not Supervalu’s forte. But Supervalu has always been a great wholesaler, and now that it can focus its energies on wholesale, we think it can only get better for us.”
Festival signed a new supply agreement with Supervalu just before the deal to sell five large retail banners was announced in January, Skogen noted.
Neil Stern, senior vice president of McMillanDoolittle, Chicago, said he also expects the new Supervalu to be a more focused company, “rather than one that’s spending so much time trying to put out fires among the businesses it acquired from Albertsons [in 2006], which meant it wasn’t able to pay as much attention to what had been its core business — wholesale.
“Supervalu was a healthy business prior to the [Albertsons] acquisition, and it’s likely to be a healthier, more stable business going forward — and a growth business, if it can get the Save-A-Lot ship righted.”
Read more: Supervalu Plans Retailer Advisory Council
Rich Niemann Jr., president and CEO of Niemann Foods, Quincy, Ill., told SN he believes Supervalu will be a more stable company in its new form.
“The renewed focus on wholesaling is a big deal,” he said. “There’s going to be a stabilization of the whole environment and atmosphere now that things have settled down after all the churn of the past few years.
“That doesn’t mean there still won’t be a lot of churn at the corporate level, but as a customer, things have been pretty quiet since the sale was announced. Before that, there were concerns about a possible meltdown, though service levels were never affected.”
Greg Sandeno, president and CEO of C&K Market, Brookings, Ore., said his company has already encountered a major change resulting from the sale of assets to Cerberus Capital Management — a switch in distribution centers from one in Portland, Ore., which Cerberus acquired, to an existing Supervalu warehouse in Tacoma, Wash.
“It means the trucks must be on the road an extra three hours to get to us,” he explained, “but the Tacoma warehouse is better equipped to handle independents like us, whereas the Portland warehouse was geared more to supplying Albertsons stores.
“We were the first independent being served out of Portland, and the mix was not originally geared to our operation. But now that we’ve moved to the Tacoma facility, we’re hopeful that as the transition goes on, we’ll be able to get some synergies for larger quantities by buying with other independents that aren’t competing with us,” Sandeno said.
C&K, which has been a Supervalu customer for two years, said it did not encounter any problems while the company’s future was in doubt. “We’ve always found them to be very good partners,” he noted.
Positives and Negatives
Andrew Wolf, managing director of BB&T Capital Markets, Richmond, Va., told SN he sees positives as well as negatives for Supervalu going forward.
“Now that Supervalu has divested the large retail chains, there’s less channel conflict with its customer base, so it can avoid losing customers like Roche Bros., which switched to Bozzuto’s. And it stands to gain customers as smaller companies take another look now that it won’t be competing with them,” he explained.
Read more: A Fresh Start for Supervalu
On the negative side, Wolf said he believes Supervalu has hit “a rough patch” in the wholesaling part of the business, which will account for about 47% of its sales base.
“Though it appears Supervalu has stabilized sales in food distribution, it’s had to lower margins to grow market share, so operating income has fallen. In fact, apart from the challenges posed by the major chains it just sold, the food distribution part of the business hasn’t been doing well lately, with earnings continuing to decline. So it’s not like the legacy business has great earnings power.”
Sales at Save-A-Lot
For Chuck Cerankosky, managing director of Northcoast Research, Cleveland, the big question is, what will Supervalu look like over the next few months?
“Sales momentum remains a problem, with Save-A-Lot showing negative comparable-store sales, and it’s still possible Supervalu could sell parts of what’s left of the company.”
Other observers also said they anticipate Supervalu will focus on boosting Save-A-Lot’s performance.
According to Skogen, “If the new management can get legs under Save-A-Lot and grow that business, it should be good for us because the better off Supervalu is at the corporate level, the more opportunities there will be to serve its independent customers with a lower cost of goods.”
Another Supervalu customer, who asked not to be identified, said he expects Supervalu to focus on sharp pricing at Save-A-Lot.
Read more: Supervalu Cuts 1,100 Jobs
“Save-A-Lot needs to get back to basics as an extreme-value operator,” he told SN, “and I believe the new management team, which is not attached to the past, can wipe the slate clean and view that business differently and get it back on track.”
Deborah Weinswig, managing director of Citi Research, New York, said she anticipates margins at Save-A-Lot “will improve significantly as the company increases the private-label offering and simplifies the operations.”
Asked for comment on the directions Supervalu may take, a spokesman for the company said, “Going forward, Supervalu is a more focused and more efficient wholesale and retail operation, and we’re confident about each of our three business units and working hard to operate them.”
Praise for Duncan
There was universal praise for Sam Duncan, Supervalu’s newly installed president and CEO, and for Janel Haugarth, who will continue as executive vice president and president of the independent business.
“Sam and Janel have made it a point to get out and meet customers, and they have energized me and made me even more confident about what Supervalu can do,” Niemann said.”
Skogen said he is excited about Duncan.
“He’s a great executive who talks about a sense of urgency, and that resonates with us because it’s the way we run our own business. There will always be challenges for any large company moving forward, but Sam has dealt with those kinds of challenges before.”
Wolf said Duncan has a good track record “that suggests he’s a strong operator, and I’m glad the company kept Janel because she’s a very strong, very details-oriented executive and a very talented manager who understands the supply chain, merchandising and technology parts of the business.”
Sandeno said he used to work with Duncan at Fred Meyer “and we’ve talked with him and other members of management, and they’re interested in coming out to visit us and figuring out how they can do a better job for us.”
Read more: A Fresh Start for Supervalu
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