Taking Stock

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Supervalu Quietly Regaining Momentum By Focusing On Creative Wholesale Growth

The dark days of past regimes (rudderless Jeff Noddle, clueless Craig Herkert and greedy Wayne Sales) are now clearly in Supervalu’s rear view mirror and the true talent of Mark Gross, who became the wholesaler/retailer’s CEO nearly two years ago, is beginning to reveal itself.

Earlier this month at Barclays’ “Eat, Sleep & Play” financial conference in Manhattan, Gross illustrated to the financial community just how far the Eden Prairie, MN firm has come in the past 22 months.

Sales are increasing, earnings are improving, Supervalu is in an acquisition mode and Gross has made several key executive changes that have improved culture and operating efficiency.

At the Barclays’ conference, the New England native focused on key components of SVU strategy which (not surprisingly) focuses on expanding its core wholesale grocery business.

Beginning with creating a “selling culture” mindset, Gross has prioritized serving new customers (America’s Food Basket and The Fresh Market have been added this year), retaining existing customers and selling them more product.

The latter piece involves capturing additional business in produce, meat, private brands, administrative services and specialty and ethnic items.

The acquisition of Commerce, CA-based Unified Grocers earlier this year has already produced benefits beyond the $3.8 billion in annual revenue it adds to Supervalu’s top line. Because many of Unified’s members operate ethnic stores, the deal gave center store top heavy SVU an opportunity to inject the California wholesaler’s ethnic/specialty mindset into existing Supervalu areas, particularly with Unified’s Market Centre, a dedicated ethic specialty, natural/organic depot expanding to the Midwest (with the acquisition of the former Central Grocers’ one million square foot distribution center which is only seven years old). We’ve also heard that Supervalu is close to adding another Market Centre in the Mid-Atlantic in Carlisle, PA.

Having dedicated distribution centers for those formerly niche, but now mainstream, departments will allow SVU to not only attract new independent retailers, but might also attract other non-Supervalu customers to shift a portion of their business into Supervalu’s domain.

We will probably see both the Joliet, IL and Carlisle facilities open in 2018. By this time next year, Supervalu will also shift its core Mid-Atlantic business from its existing facility in Denver, PA (which is owned and soon to be operated by outgoing transition services agreements – TSA – partner Albertsons) to another depot in Harrisburg, PA which is currently being refurbished.

Also adding to its wholesale portfolio was the recent addition of Associated Grocers of Florida, which will add about $650 million in annual revenue and more ethnic marketing expertise and a geographical reach that extends to the Caribbean as well as Central and South Americas.

Yes, there are still major challenges that Gross and Supervalu face. Stock price is still lagging at about $20 per share despite a 1-8 reverse stock split earlier this year designed to spur activity. The company’s nearly 220 corporately-owned stores (Shoppers, Farm Fresh, Cub, Shop ‘n Save, Hornbacher’s) remain a constant thorn – at least Supervalu was able to dump the seemingly even more troubled Save-A-Lot discount unit a year ago. And the lost adjusted EBITA from the wind down of its TSA primarily with Albertsons will total $120 million over the next three fiscal years.

Even with those roadblocks, the body of work under Gross’ leadership has been impressive when you consider how many intangible hurdles the 54-year chief executive had to resolve before he could even tackle sales and future growth initiatives.

Many goals such as adding talent, improving morale and creating a mindset of aggressive expansion throughout the organization have been achieved and just in the past 12 months more than $5 billion in wholesale sales will have been added.

There are more opportunities – and still major challenges – that lie ahead. I’m betting on Gross to continue to move the needle forward in 2018.