Supervalu Puts ‘For Sale’ Sign on Shop ‘n Save
By George Anderson
Ask Jeff Noddle what he thinks about Supervalu’s prospects and he’ll tell you that the company is “very well positioned for the long term.” It’s dealing with more immediate issues that has his attention at the moment.
Yesterday, Mr. Noddle and company announced that it would sell 20 corporately owned grocery stores operating under the Shop ‘n Save banner.
“By eliminating the split ownership of the Shop ‘n Save banner in the Pittsburgh market, Shop ‘n Save’s go-to-market strategy will be simplified,” said Supervalu’s chairman and chief executive officer. “We remain committed to our strong independent operators whose local customer knowledge and marketing savvy positions them to successfully compete and serve the Pittsburgh customer base.”
Supervalu expects that independent operators, currently running 55 Shop ‘n Save stores in the market, will buy most of the stores being put up for sale.
Jason Whitmer, an analyst with FTN Midwest Securities Corp., has expressed concern about Supervalu’s retail business, which he maintains has “been struggling the last three or four quarters.”
Mr. Noddle maintains a positive outlook, despite the challenges his company faces.
“The sales environment has weakened since the first quarter as the impact of higher fuel prices continues to unfold across the consumer spending landscape. We are working to refine our merchandising programs during this challenging environment to generate sales improvement.”
Supervalu’s chief added: “Several of our new initiatives have been launched, including W. Newell & Co. produce and our supply chain technology investments, as well as the integration of Total Logistics, Inc. which is substantially complete. We remain committed to our strategy, which includes innovative retail merchandising programs, network expansion and the delivery of best-in-class supply chain services across the grocery retail channel and beyond.”
Moderator’s Comment: From your vantage point, what has been Supervalu’s response to the challenging sales environment the company and its competitors
face? Is Supervalu on the right track or are there specific opportunities it is missing to improve sales? –
George Anderson – Moderator
When Supervalu talks of “new merchandising concepts” and the normal buzz about how they are going to please Wall Street, let’s all remember that there are several SV divisions that vendors won’t even sell to because of their long standing reputation for requiring “too much vendor capital”…the “new merchandising programs” usually means that SV has found another way to take money from vendors that they hadn’t thought of before. Many SV division aren’t profitable for vendors once the “nuisance” monies have all been deducted…..literally.
How about if SV changes it’s philosophy and works to become PARTNERS with their suppliers instead of the current distrust that exists. THAT would help SV move their company to the next level and would also bridge a gap that has existed for a long time.
The vendor community WANTS to partner, but in many cases we find it is a one way street. Whether you distribute to corporately owned stores or to independents, you still need groceries to sell and that involves dealing with the vendor community.
Help US help YOU and we ALL win.
This is a very good move, in my opinion. Why split your management team into retail and wholesale when you should concentrate on your core strengths of distribution? I believe this will only improve their overall execution in this market and also their operating profits and efficiencies.
The current environment is full of knotty challenges for retail and wholesale food companies: same-store sales, reaction of Wall St., rising energy costs, an uncertain economy, relentless expansion by Wal-Mart, increased out-of-home eating, organized vs. non-organized operations, etc.
Supervalu, like other retailers and wholesalers, must weave its way successfully over these revising hurdles to continue its vibrant lifespan. In adding stress to Jeff Noodle’s task, Wall Street clobbered SVU stock with a nearly a 10% drop yesterday upon announcing the cost of selling those 20 corporate Shop ‘n Save stores as well as a modest prediction on overall company sales in the quarter ahead.
As David said above, Supervalu is at the zenith in the wholesale food sector in the U.S. as well as being the top dog in Twin Cities food retailing: key accomplishments. But SVU’s corporate retailing achievements elsewhere have been spotty in the past. (Save-A-Lot stores are still a work in progress.)
In selling off the 20 Shop ‘n Save corporate stores in Greater Pittsburgh, most of which will be bought by existing Shop ‘n Save independent operators, Supervalu would still be serving most of today’s 75 Shop ‘n Save stores. Without the demands and costs of operating those 20 stores, SVU has an opportunity to earn a greater return.
Is Supervalu on the right track with its current strategy? Only time will reveal the answer but the “answer pot” is also boiling for the entire food industry. There are flashes of concerned lightning almost everywhere on the horizon: Nash Finch’s CEO recently sold 500,000 shares of his stock and just announced he will be leaving company in March after six years at age 51; Albertsons is seeking a buyer; some writers are challenging Target’s image as not be price-oriented enough. The signals keep flaring up. Today’s climate leaves us with an industry in a quandary, i.e., “What’s it all about Alfie?”
As we ponder these many issues, let’s give Jeff Noodle and his dedicated SVU crew the benefit of the doubt and wish SVU well with its current multi-faceted strategy.
Supervalu clearly has not demonstrated core competencies in the operation and strategic alignment of retail operations. All signs post to a focus on supply chain, logistics and other functions associated with excellence for a wholesale distribution company.
It appears to me that Supervalu management has accurately determined what they can and cannot do well, and where it makes sense to invest corporate resources to improve existing competitive advantages. No objective observer I have met, read, or been introduced to considers Supervalu as a case study for efficient or even creatively different retail grocery operations.
Without respect to the Twin Cities market share, Supervalu has had too many formats operating in too many niches with few if any competitive advantages.
This is a very good move.
First, we need to put aside all the mumbo jumbo industry buzz words like “go-to-market strategy.” Who are they trying to impress? Outside of the Twin Cities, Supervalu has not been very successful running corporate conventional stores…at least not in this century. What Supervalu is good at is being a supplier and they are leaving weaker wholesalers like Nash Finch in the dust. This appears to me as just a good business decision to focus on what they do best.
In the Twin Cities, Supervalu excels as both a retailer and a wholesaler. Supervalu’s Cub stores have a market share of nearly 3 times that of distant second Roundy’s Rainbow. Rainbow has only been able to get one store to the level of the average Cub. Supervalu has done an excellent job in owning this market. Combined with their independents, their market share is closing on 70%.
In the conventional supermarket business, as well as the convenience store business, it pays to be a wholesaler or a franchisor or a franchisee, not a combination. This is an excellent decision. The company will be much better off supplying retail stores, not owning them. The retail location labor and management headaches are better met by owner/operators.
I watched Jeff handle the Kmart-Fleming bidding process a few years back and was not sure I agreed at the time or fully understood. What I have learned since is that he has a very good handle on his business and strategy… I am willing to bet he is right this time as well.
Mr. Noddle is a prime example of strategic smarts.
Supervalu has done well, and will continue to outpace the
competition.
Like all grocery operations, the tactical pricing games need to be reduced, and replaced by marketing efforts to the shoppers,
first, and then the middle men, the grocers.
Thank you Mr. Noddle for proving strategic thinking works. Hmmmm