Strong competition
While SUPERVALU is no doubt focused on bringing more customers by its various strategies, the company also faces strong competition. The Kroger Co. (NYSE:KR) has also been following a good strategy to increase its presence and sales. Its plans include addition of 75 fresh items to its merchandise portfolio and has also taken the inorganic route to grow its business by acquiring Harris Teeter, a grocery chain. The company’s strategies have yielded results so far as seen through same-store sale growth of 2.9% in the previous quarter. Also, its low pricing is another reason why SUPERVALU might find the going difficult in the future.
Then there are dollar stores such as Family Dollar Stores, Inc. (NYSE:FDO) with their own strategies as far as selling groceries is concerned. Family Dollar Stores, Inc. (NYSE:FDO) offers products at low prices and it has struck a chord with shoppers. As this shopper said, grocery items at Family Dollar Stores, Inc. (NYSE:FDO) have improved over time and shopping at the dollar store helps save money. Even Family Dollar Stores, Inc. (NYSE:FDO) sends out circulars to residents in the area where it has stores and they seem to be having a good effect. The fact that certain items are present at half the price and quality is close to expensive offerings is a major reason why Family Dollar Stores, Inc. (NYSE:FDO) is a threat to SUPERVALU’s resurgence.
But, Family Dollar Stores, Inc. (NYSE:FDO)’s recent results were not as good as expected. Although the company saw a good improvement in its revenue, sales, and comparable store-sales, its profit fell from $124.5 million to $120.9 million. Family Dollar was unable to post a profit because a huge chunk of that revenue was generated from the sale of low margin consumables. But these low margin consumables are the reason why SUPERVALU needs to beware Family Dollar.
Conclusion
SUPERVALU is now going back to its roots of being a wholesale operator. The company is gaining confidence among its old wholesale customers and focusing on better operations. This phase is very important for the company to prove itself. And if it is able to execute as per plan, SUPERVALU should show good returns.
The article This Grocer’s Comeback Is on Track originally appeared on Fool.com and is written by ANUP SINGH.
ANUP SINGH has no position in any stocks mentioned. The Motley Fool owns shares of Supervalu. ANUP is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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