Editor’s Note: This initial article stated that Supervalu owns the Shop ‘n Save chain; this is incorrect. Shop ‘n Save is locally owned and operated with Supervalu supplying the chain. This article has been corrected.
At one time, SUPERVALU INC. (NYSE:SVU) was one of the largest and most profitable grocery companies in the United States. However, as a result of stiff competition and bad economic conditions, the company’s sales have been declining for the past five years, and the company has been forced to divest a significant portion of its business in order to focus on returning to profitability and stabilizing its businesses. Will this once-great company succeed in returning to its former glory, or should investors get out while they still can?
SUPERVALU INC. (NYSE:SVU) makes its money from three different business segments. Regional Food Operations, which contributed 28% of last year’s revenue has been downsized significantly (more on that later) with the number of grocery stores reduced from almost 1,100 to about 200. The company’s regional grocery stores are operated under the Cub Foods, Farm Fresh, Hornbacher’s, and Shoppers Food & Pharmacy names.
The reason for the downsizing was to allow the company to concentrate on the other two segments of its business. The Save-A-Lot stores segment operates almost 400 stores and licenses another 950. Save-A-Lot is a discount supermarket that is a no-frills which reduces costs wherever possible in order to offer the lowest prices on its grocery items. The stores even save on labor and shelving by displaying products directly in their shipping cartons. The stores have a limited assortment of products; generally carry only private label (store brand) products, and only one size.
The bulk of Supervalu’s business comes from its Supply Chain Services segment, which supplies a network of about 1,900 independent grocery retailers in addition to their own stores. The segment has several long-standing business relationships, such as with IGA, who SUPERVALU INC. (NYSE:SVU) has supplied for over 80 years.
Efforts to Bring Back Growth
Supervalu has taken steps over the past several years to divest underperforming businesses and close underperforming stores in order to bring profitability back to the company. Most notably, in March of this year, Supervalu sold 874 of its grocery stores, which included the Albertson’s, Acme, and Star Market brand names, for $3.3 billion to AB Acquisition. However, the deal only brought $100 million in cash for the company, with the other $3.2 billion in the form of assuming SUPERVALU INC. (NYSE:SVU) debt.