January 8, 2016
Photo: Sav-A-Lot
Will Save-A-Lot do better without Supervalu?
Last summer, Supervalu CEO Sam Duncan said Save-A-Lot, his company’s answer to Aldi, had “great growth prospects” and that he thought the business was most likely to achieve those on its own. Yesterday, Supervalu filed plans with regulators to spin Save-A-Lot off as a public company.
In a filing with the Securities and Exchange Commission, Supervalu said its shareholders would own at least 80 percent of Save-A-Lot when it went public. No deadline was set for when the spinoff would take place.
Mr. Duncan, who will step down as CEO of Supervalu at the end of next month, has maintained that spinning off Save-A-Lot would enable Supervalu to concentrate on its wholesale business along with the other grocery chains it continues to operate. The move would also enable Save-A-Lot management to focus efforts on growing share in the “hard-discount” space, which is only going to become more competitive in the years ahead as Lidl enters the American market and dollar stores emphasize perishables to maintain growth rates.
In Supervalu’s most recent earnings call in October, Mr. Duncan said efforts to differentiate Save-A-Lot through fresh produce and meat were proving successful, and that the chain was continuing to open stores in new markets such as Las Vegas. A test of an ethnic merchandising program, focused primarily on Hispanic shoppers, was performing well, with stores involved in the pilot achieving total store sales increases of four percent.
- Supervalu Announces Filing of Form 10 for Possible Spin-off of Save-A-Lot Business – Supervalu Inc.
- Supervalu Files Plans to Spin Off Save-A-Lot Division – The Wall Street Journal (sub. required)
- Supervalu Sam K. Duncan on Q2 2016 Results (Earnings Call Transcript – SeekingAlpha
- Supervalu Sam K. Duncan on Q1 2016 Results (Earnings Call Transcript – SeekingAlpha
BrainTrust
Recent Discussions
Discussion Questions
Do you agree with Sam Duncan on the growth prospects for Save-A-Lot? Where do you see the greatest challenges and opportunities for the business? How will Save-A-Lot perform as an independent company compared to being part of Supervalu?
Poll
Yes, but consider this: what if Lidl then acquires Save-A-Lot in order to get a more solid entry point into the U.S.? This would take away any major challenges the new company may face and provide a greater growth path for all. Supervalu could be Lidl’s supplier going forward!
If not, as an independent company Save-A-Lot will do well without the Supervalu limited focus on retail and whatever cost that includes. This is a very good move for Supervalu and for Save-A-Lot.
Supervalu has always been more successful at wholesaling than retailing. So I believe Mr. Duncan on that point. Save-A-Lot as its own entity has an opportunity for continued growth, given the format’s size and operational efficiencies.
However, Save-A-Lot’s leadership must continue to think about technology, merchandising techniques and adjustments, and a changing shopper base. What makes this format successful today will likely not be as effective next year.
I disagree. I think Supervalu just doesn’t want Save-A-Lot. Based on their sales volumes, sales per square foot and sales per man hour, they are nothing compared to Aldi. In one market that has Aldi and Save-A-Lot competing, a new Walmart came in. Save-A-Lot lost 50 percent and Aldi’s sales went up. Why? Save-A-Lot cannot compete on price with Aldi and is barely on par with Walmart. Aldi loves Walmart because Walmart cannot compete on price with Aldi and Walmart brings traffic to the area. Aldi is around $500 per man hour and Save-A-Lot is closer to $200. Save-A-Lot is good at taking distressed real estate in difficult areas. However while those locations might have a positive cash flow, they will never operate on the level of Aldi. Now Lidl is coming and I’m sure that is influencing Supervalu to dump Save-A-Lot.
Aldi can go into higher-income areas that would otherwise be a disaster for Save-A-Lot. As an independent company I think Save-A-Lot will continue to close stores and be a weak competitor. The stores that do open will be the usual “C” locations of recycled real estate in difficult areas. Save-A-Lot will be a survivor but will be an under-performer.
There’s a lot of evidence across the last two decades that shows bigger isn’t often better. “Large” retailers who are in essence a collection of different smaller ones don’t get the economies of scale that a single-banner retailer of the same size does, especially if the hard (and often expensive) work hasn’t been done on the back-end in terms of systems integration, organization and governance. I think Save-A-Lot falls into this category, being a very different proposition from the SVU banners. Surely there was some basis for synergy but I’m betting the increased flexibility gained from being independent will more than offset that loss.
The greatest advantage for Save-A-Lot to be on its own is growth options. Currently unless Supervalu has a warehouse nearby Save-A-Lot would not open a new store. Being on their own will allow them to grow where the market is, not where Supervalu is located. Another opportunity is for Save-A-Lot to operate their own logistics system. A 1,500 item warehouse is a lot cheaper to operate than one handling 30,000 items or more. As has happened in many countries around the world, hard discounters continue to increase market share and the same will be true for the U.S. Aldi and Lidl are well-run companies and represent real competition for Save-A-Lot. To be successful Save-A-Lot must be on their game.
A dedicated focus on the hard discount supermarket segment should help Save-A-Lot to better compete with the likes of Aldi and the dollar stores. The hard discount space is fundamentally different than the small and regional chains that Supervalu manages with its wholesale and retail businesses; therefore a separation of the two entities makes sense for both sides.
The products and categories carried by hard discounters are also largely different from traditional supermarkets, which will mitigate any decrease in scale from Save-A-Lot’s separation from Supervalu.
When it comes to small limited assortment stores, Save-A-Lot is last on my list. Right there along with Fresh & Easy. Aldi and Trader Joe’s are the industry standard. Grocery Outlet is in the middle. Save-A-Lot to me is the A&P of limited assortment stores. They are both corporate and independent. They are too cookie cutter in some ways and too inconsistent in other ways. Supervalu appears to be pumping the value of an underachiever because Supervalu has been an even worse underachiever for the past few decades.
My observation is based only on what I see in the Columbus market. I think the Save-A-Lot stores are no threat to Aldi, and that is reinforced by the number of cars I see in their respective parking lots. Compared to Aldi , in addition to a better meat and produce selection, Save-A-Lot has a higher percentage of brand names, and accepts credit cards. I wish them well as they have stores where no one else dared to locate.
More Discussions
How Timely Is the Planned Lowe’s Website Renovation Focusing on Personalization?
Is Lowe’s being timely with its website reno, and is it right to be placed as…Should Costco Be Opening Members-Only Gas Stations?
Is this the right move for the warehouse club?As Boomers ‘Age Out of Peak Purchasing,’ How Can National Brands Retain Interest With Gen Z?
According to a recent First Insight study titled “Is Gen Z Still Choosing Your Brand,” while…
Yes, but consider this: what if Lidl then acquires Save-A-Lot in order to get a more solid entry point into the U.S.? This would take away any major challenges the new company may face and provide a greater growth path for all. Supervalu could be Lidl’s supplier going forward!
If not, as an independent company Save-A-Lot will do well without the Supervalu limited focus on retail and whatever cost that includes. This is a very good move for Supervalu and for Save-A-Lot.
Supervalu has always been more successful at wholesaling than retailing. So I believe Mr. Duncan on that point. Save-A-Lot as its own entity has an opportunity for continued growth, given the format’s size and operational efficiencies.
However, Save-A-Lot’s leadership must continue to think about technology, merchandising techniques and adjustments, and a changing shopper base. What makes this format successful today will likely not be as effective next year.
I disagree. I think Supervalu just doesn’t want Save-A-Lot. Based on their sales volumes, sales per square foot and sales per man hour, they are nothing compared to Aldi. In one market that has Aldi and Save-A-Lot competing, a new Walmart came in. Save-A-Lot lost 50 percent and Aldi’s sales went up. Why? Save-A-Lot cannot compete on price with Aldi and is barely on par with Walmart. Aldi loves Walmart because Walmart cannot compete on price with Aldi and Walmart brings traffic to the area. Aldi is around $500 per man hour and Save-A-Lot is closer to $200. Save-A-Lot is good at taking distressed real estate in difficult areas. However while those locations might have a positive cash flow, they will never operate on the level of Aldi. Now Lidl is coming and I’m sure that is influencing Supervalu to dump Save-A-Lot.
Aldi can go into higher-income areas that would otherwise be a disaster for Save-A-Lot. As an independent company I think Save-A-Lot will continue to close stores and be a weak competitor. The stores that do open will be the usual “C” locations of recycled real estate in difficult areas. Save-A-Lot will be a survivor but will be an under-performer.
There’s a lot of evidence across the last two decades that shows bigger isn’t often better. “Large” retailers who are in essence a collection of different smaller ones don’t get the economies of scale that a single-banner retailer of the same size does, especially if the hard (and often expensive) work hasn’t been done on the back-end in terms of systems integration, organization and governance. I think Save-A-Lot falls into this category, being a very different proposition from the SVU banners. Surely there was some basis for synergy but I’m betting the increased flexibility gained from being independent will more than offset that loss.
The greatest advantage for Save-A-Lot to be on its own is growth options. Currently unless Supervalu has a warehouse nearby Save-A-Lot would not open a new store. Being on their own will allow them to grow where the market is, not where Supervalu is located. Another opportunity is for Save-A-Lot to operate their own logistics system. A 1,500 item warehouse is a lot cheaper to operate than one handling 30,000 items or more. As has happened in many countries around the world, hard discounters continue to increase market share and the same will be true for the U.S. Aldi and Lidl are well-run companies and represent real competition for Save-A-Lot. To be successful Save-A-Lot must be on their game.
A dedicated focus on the hard discount supermarket segment should help Save-A-Lot to better compete with the likes of Aldi and the dollar stores. The hard discount space is fundamentally different than the small and regional chains that Supervalu manages with its wholesale and retail businesses; therefore a separation of the two entities makes sense for both sides.
The products and categories carried by hard discounters are also largely different from traditional supermarkets, which will mitigate any decrease in scale from Save-A-Lot’s separation from Supervalu.
When it comes to small limited assortment stores, Save-A-Lot is last on my list. Right there along with Fresh & Easy. Aldi and Trader Joe’s are the industry standard. Grocery Outlet is in the middle. Save-A-Lot to me is the A&P of limited assortment stores. They are both corporate and independent. They are too cookie cutter in some ways and too inconsistent in other ways. Supervalu appears to be pumping the value of an underachiever because Supervalu has been an even worse underachiever for the past few decades.
My observation is based only on what I see in the Columbus market. I think the Save-A-Lot stores are no threat to Aldi, and that is reinforced by the number of cars I see in their respective parking lots. Compared to Aldi , in addition to a better meat and produce selection, Save-A-Lot has a higher percentage of brand names, and accepts credit cards. I wish them well as they have stores where no one else dared to locate.