Supervalu: A Look At Past, Present, And Future

| About: SUPERVALU Inc. (SVU)

Edited by Kate Boehme

Hugh G. Harrison, in 1870, provided the seed money for B.S. Bull & Company, a dry goods wholesaler serving Minneapolis, St. Paul and the adjoining rural areas. Although B.S. Bull was short-lived, it served as a roadmap for subsequent businesses created by the company's proprietors. In 1926, these kindred corporations combined to form the Winston & Newell Corporation, Supervalu's primary parent organization.

For more than 140 years, Supervalu (SVU) has supplied a base of operations. The company is known as a center of innovation for the grocery retail and supply chain industry. From its origins in grocery supply to the retail and trading strategies it delivers to the industry today, Supervalu has consistently offered a combination of features and managing procedures that are wholly unique. Supervalu blends skills in the "grocery, pharmacy and supply chain" sectors to establish a powerful foundation for eco-friendly, positive results.

Nowadays, Supervalu is one of the most notable U.S.A. grocery corporations with about 130,000 workforces. The corporation serves consumers throughout the United States through:

• 1,102 conventional retail shops.

» 797 in-store pharmacies.

• 1,332 discount outlets.

» 935 outlets controlled by licensee proprietors.

• 2,700 self-sufficient places maintained by Independent business segments.

» Primary supplier to approximately 1,900 stores.

"8 Plays to Win" strategy

Supervalu is currently drawing on its "8 Plays to Win" modification strategy to grow as a company and become known as America's Neighborhood Grocer. In particular, this technique is focused on the simplification of business procedures and creation of step-by-step financing to develop additional price investments. It also involves a focus on achieving the particular needs of every neighborhood.

With these priorities in mind, one major tenet of the "8 Plays to Win" approach involves the execution of an overall pricing doctrine known as "fair pricing plus promotion." This doctrine has been developed with the specific goal of strengthening product sales. Under this approach, the corporation will supply cheaper, more competitive day-to-day pricing on less-promoted products in addition to offering their proven special offers.

A local retailer

One key facet of Supervalu's business strategy is to match up the offerings and experience of all retail stores to the surrounding local communities, in a process known as "hyperlocal retailing." Every single shop representative is given independent control over the products they advertise and offer. This strategy permits Supervalu retails stores to better reflect neighborhood priorities and produce more suitable in-store experiences for consumers.

Fair Pricing

Another particularly important aspect of Supervalu's present business modification efforts is the focus on providing a pricing structure called "fair pricing plus promotions." This strategy is part of an overall company-wide dedication to providing fair everyday pricing.

Furthermore, Supervalu works closely with distributors to offer interesting seasonal events, as well as displaying items and designing special offers to create a fun and fascinating purchasing experience for consumers.

Income Statement

Supervalu's gross profit for the first quarter was $2.32 billion dollars, or 22.0 percent of the net product sales. This is a slight drop from the last fiscal year, in which the gross profit margin was $2.46 billion dollars or 22.1 percent of the net product sales. This reduction in the gross margin (as a percentage of net product sales) reflects the benefit garnered from lower fuel sales (about 30 basis points). This represented a clearly reduced LIFO charge, "which were more than offset by the negative rate effect of increased shrink, marketing and advertising expenses, and alter in business mix." The effect of price investments was thus completely balanced by financing campaigns throughout the quarter.

Selling and management expenditures in the first quarter of 2012 ended as $2.12 billion, or 20 percent of the net product sales. This comes off of a similar 2011 result, in which selling and management expenditures were $2.18 billion dollars, or 19.6 percent of net sales. The increase in sales and management expenditures as a percentage of net product sales displays the effect of sales deleveraging as well as lower fuel sales. This is particularly offset by benefits from lower employee-related costs, as well as the Corporation's expense elimination campaigns. Moreover, management expenditures as a percentage of net product sales have been comparatively flat compared to previous fiscal year.

The 2012 financial expenses involved a number of impairment charges ($6.10 per share) and severance costs ($0.06 per share). Similarly, 2011 financial expenses also provided impairment charges ($8.23 per share). Charges for retail store closures and retail markets exited at $0.37 per share.


In my opinion, Supervalu continues with these measures in an attempt to generate more visitors to the shops. Supervalu works to ensure that it is the ultimate shopping destination in the served neighborhoods. In order to achieve this goal, Supervalu must focus on maintaining their operational and financial strength. As Herkert says, Supervalu is "dedicated to producing operating cash flows of much more than one billion dollars yearly and achieving or going above…financial debt elimination objectives."

Analyses confirm that Supervalu is examining the full range of opportunities and possibilities available to nurture a worthwhile investment for shareholders. The corporation's Board and management team, jointly with its financial consultants, are also examining all alternate options for their business. These are daring but essential steps, which are ensuring Supervalu's success in the increasingly competitive industry.

Supervalu has emerged from a very low level to become the best corporation in the U.S.A. for the grocery retail and supply chain operations. Strategies, such as the "8 Plays to Win" scheme guarantees hyper-local retailing and fair pricing plans. Nowadays, most retailers are under the pressure of diminishing margins including Supervalu. However, the market has over-reacted to the news. There is a huge gap between $3 - $5 range, which is yet to be filled. Supervalu is a strong company, certain to reach $4 to $5 per common stock share in the next few months.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SVU over the next 72 hours.

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500. Become a contributor »
Tagged: , , , Grocery Stores
Problem with this article? Please tell us. Disagree with this article? .