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[8 comments]

Supervalu to leave grocery retailing to its customers

July 17, 2014

Back in March when Supervalu completed its sale of Albertsons, Acme, Jewel-Osco, Shaw's and Star Market stores to AB Acquisition, the company made clear that its focus going forward would be primarily on its wholesaling operations, which serve roughly 1,900 independently owned and operated stores.

That commitment was reinforced by the company at its recent shareholder meeting when discussing its recent acquisition of 10 Rainbow Foods stores in the Twin Cities area from Roundy's. Eight other Rainbow locations were purchased by independents served by Supervalu, including Jerrys Enterprises, Haug Enterprises, Lund Food Holdings and Radermacher Enterprises.

"I have no desire to be a big retailer — none," Sam Duncan, president and chief executive officer of Supervalu, told shareholders at the company's annual meeting (via the St. Paul Pioneer Press). "We are a great wholesaler, that's what we're good at. That's what our focus is going to be for this company; it's the largest part of our organization."

In April, the company announced fourth quarter sales were down 0.6 for its Independent Business (wholesale) division due to the loss of two key accounts and the effects of sequestration on its business with the military. It will report its 1Q15 earnings on July 24.

Supervalu continues to own, license and operate banners including Cub Foods, Farm Fresh, Hornbacher's, Save-A-Lot, Shop 'N Save and Shoppers.

FINANCIALS:     [NYSE:SVU] [ ]

Discussion Questions:

Is Supervalu headed in the right direction with its focus on grocery wholesaling? Given the market, what are the keys to success in grocery wholesaling today?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Do you agree or disagree that Supervalu is headed in the right direction with its focus on grocery wholesaling?

Comments:

Time to "stick to the knitting" for Supervalu. This is what they have to do best, with over 1,900 independents. The Albertsons acquisition was a disappointment, likely on both sides of the aisle—shareholders and consumers were shortchanged.

With the right focus from Sam Duncan down through the wholesaler, associates will be better positioned to FOCUS on "What's Important Now" (WIN). Supervalu still will hold pricing power and regional diversity.

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Roger Saunders, Managing Director, Prosper Business Development

Retailing and wholesaling involve related but different skill sets. Identifying a core competency and staying with it is a smart move. Wholesaling faces a challenging future, so divided attention would make success difficult. Focus will be needed.

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

Supervalu has been through the ringer lately, and IMO, they have a tough road ahead. The supermarket game has changed dramatically in the last 10 years, and even though they have some good banner stores, the independent stores they distribute to are under intense competition. Everybody sells groceries, and the cost of goods being shipped into most independent stores can not compete on the level of the big boys and the dollar formats, which puts the retailers at a built-in disadvantage.

Customers who shop local markets like the convenience and the service, but are more unwilling to pay for it in terms of price. This has created more stress for the stores, as they struggle with ways to increase sales per-customer, as many shop four or five stores to save money. Gourmet items and signature foods aside, the bottom lines of many stores continue to erode, as the labor costs continue to outpace revenue. I remember Flemming, when they were the biggest wholesaler in the country, and many other wholesalers who have merged or gone away. Can Supervalu survive on independents growing? I don't know, but it is going to be tough, as demand for extreme value continues to stay strong, leaving many local stores struggling.

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Tony Orlando, Owner, Tony O's Supermarket & Catering

Having strategic clarity goes a long way to simplifying the business and guiding organizational direction and team actions. Mr. Duncan has done a terrific job in focusing the company on the wholesale business so Supervalu can leverage its long-standing wholesale culture—people, systems, processes and history—to a more tenable future success.

Keys to success: their ability to make independents competitive in a crowded food retailing market. That will mean having the right systems, technology and communications to help their customers with the back-office and supply chain capabilities, to deliver on the right assortments based on local demands, and keeping them in-stock and on-time with competitive prices.

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Mohamed Amer, Vice President, Global Consumer Industries, SAP

Supervalu was never a good retailer, ever. So why keep trying to do things you are not good at and will never be good at? Yes, Supervalu is better off leaving the retailing to successful and proven retailers. The keys to successful grocery wholesaling are just the usual canned answers; better buying, distributing and supplying good retailers. Develop new business, don't buy new business.

David Livingston, Principal, DJL Research

Supervalu's latter-day managements have said conflicting things in the past few decades depending on who owned or managed the company.

There was a time, initiated by the leadership of Jack Crocker, when Supervalu focused sharply on being the country's very best wholesaler and its sales increases, impressive profit growth and its stock splits proved that it was. Supervalu knew what it was and it wanted stay as the country's classic wholesaler. Those were Supervalu's halcyon days.

Successor managements got enamored with retailing by the success of big boxes. Then the possible purchase arrived of an ailing Albertson's. That changed their focus to become a top grocery retailer. It was an ambitious mistake which resulted in a disaster and eventually created a change in ownership, who now wants Supervalu to be a great wholesaler again. The merry-go-round keeps moving. So wherever Supervalu wants to go today might change again tomorrow. That could indicate that the right direction may still be up for grabs as Sum Duncan and crew keep making progress, particularly on cost containment, but retail sales have remained sluggish.

To be successful as a wholesaler tomorrow, a new paradigm is needed, since there is little growth available from the independent sector of retailing. "To be or not to be, that is the question," Mr. Duncan.

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Gene Hoffman, President/CEO, Corporate Strategies International

It is always a good strategy to focus on a core competency and employ it to build a competitive advantage in the marketplace.

Success in wholesaling is still largely driven by a broad scope of business and operational efficiencies. In the future, they will also need to develop online sales capabilities.

Scope used to be key to retailing as well, but the game has changed. As we enter the age of online sales and omni-channel marketing, it will be increasingly difficult for the traditional grocery operation to compete on a broad basis.

To be successful, most grocery chains will have to focus on a defined segment such as a geography (Publix), a kind of shopper (Whole Foods), a limited assortment, etc.

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Raymond D. Jones, Managing Director, Dechert-Hampe & Co.

Supervalu has been a launchpad for large companies that start selling groceries as a Supervalu customer then go out on their own and self distribute. WinCo, Target, and I suspect many others.

Being a launchpad to others is not a sustainable long-term strategy. They need to think long term and stick to a strategy. What strategy? That's up to management.

'storewanderer'

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