Taking Stock

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With Farm Fresh Exit, Supervalu Looks To Unload Other Corporate Retail Properties

Maybe (or maybe not) Cub Food Stores (35 stores) or Hornbacher’s (eight stores) will be protected in the end, but now it seems pretty obvious that the dismantling of the rest Supervalu’s corporate retail division is fully in gear. With the sale/closing of 35 of the 38 Farm Fresh units in Tidewater completed, one of the industry’s worst kept secrets is now completely out of the bag.

Last month, Supervalu said that its 36-store Shop ‘n Save unit in St. Louis is on the sales block and that the 22 former Food Lion stores in western, MD, Central PA and West Virginia (reportedly originally destined for Bill Shaner and Tom Jamieson), which also trade under the Shop ‘n Save banner, are also actively being peddled.

The news also put Shoppers in a tenuous future position. Other than Micky Nye, former Farm Fresh president who most recently served as VP-retail operations SVU east and left the company earlier this month, there’s been little news emanating from Shoppers’ Bowie, MD headquarters. The company did announce that it would close its underperforming Olney, MD store (we expect several more store closings to be announced shortly).

However, now that the Eden Prairie, MN-based wholesaler/retailer has begun its corporate store sell off, how can Shoppers not be far behind? Despite the tireless effort of president Bob Gleeson, ID sales continue to slide and the 51-store regional chain hasn’t been given adequate cap-ex money to open stores or remodel many other units that need to be upgraded since 2006. That alone places a tremendous burden on management to succeed and adversely affects the associates who see the handwriting on the wall.

However, when that inflection point occurs, Shoppers will likely run into the same issues that impacted Farm Fresh in terms of salability. On paper, Shoppers produces significantly more volume per store than Farm Fresh and its stores are located in a more affluent market area. Ten years ago, Shoppers would have fetched a pretty penny, but new competitors have emerged and most of Shoppers’ stores have lagged behind the market in terms of providing a modern shopping experience, which includes offering more prepared foods and utilizing state-of-the-art technology. The facts that there are very few strategic buyers in play and that Shoppers is a unionized operation don’t work in Supervalu’s favor, either.

Supervalu is making changes in its corporate operation, too. Last month, it announced that it would sell (and then lease back) eight of its distribution centers – Green Bay, WI; Commerce, CA; Stockton, CA; Champaign, IL; Joliet, IL; Oglesby, IL; Pompano Beach, FL; and Harrisburg, PA (which will open later this summer). The buyer is reportedly CF Grocery Distribution PropCo, an affiliate of giant financial services firm Fortress Investment Group. The deal will net SVU $483 million which will allow for greater financial freedom for future investments.

In the Mid-Atlantic, that not only includes the transfer of its wholesale business from the former Denver PA distribution center (owned and soon-to-be-operated by Albertsons/Acme) into a newly refurbished DC in Harrisburg, but the opening of its dedicated natural, organic, specialty, healthy and ethnic Market Centre facility in Carlisle, PA later this year.

Supervalu has also cut some staff at its Mechanicsville, VA depot in the last few months and has shifted to a more centralized merchandising plan. Several readers have recently inquired whether, with Farm Fresh gone (and little return on gaining distribution from the new buyers) and Shoppers potentially on the ropes, there is a long-term future for that Central Virginia facility? It also appears that the company won’t be replacing Kevin Kemp, the former Eastern Region president, who left the company earlier this year. Senior VPs Joe Della Noce and Mark Gossett, who handled Kemp’s duties on an interim basis, will continue to lead the Eastern Region and report to Mike Stigers, president of SVU wholesale.

I’ve said this before and will repeat it again – I believe in the vision of CEO Mark Gross. Much of his planning over the past two years has now shifted into real time performance and execution. It’s going to be a bumpy ride and the next 18 months will likely determine Supervalu’s future.