Supervalu is going back to its wholesale roots, for better or worse.
When the struggling Eden Prairie, Minn.-based firm unloads its four largest grocery chains in a pending $3.3 billion deal, the company will again rely on wholesaling for almost half of its business. Wholesaling has accounted for only about 23 percent of total sales in recent years.
The problem: Food distribution is a shrinking industry, as Supervalu can attest. Its own wholesale revenue has fallen 17 percent in the past four years, to $8.2 billion in fiscal 2012. A good part of the decline stems from the gradual loss of a big customer, Target.
But also, many of Supervalu’s wholesale customers are beset by the same woes that caused Supervalu’s own retail downfall: an onslaught of competition from Target, Walmart and other low-price chains, combined with a soft economy.
Supervalu operates a distribution center on the Tacoma Tideflats. It also closed the Save-A-Lot store in Tacoma’s Hilltop neighborhood, one of several in the region it closed in a streamlining effort.
“Their core market is shrinking,” said David Livingston, a Wisconsin-based supermarket industry consultant. “The wholesale business is not growing because the number of retailers is declining. ... I don’t think they can make it grow.”
Supervalu, not surprisingly, disagrees. The company says it remains primary supplier to some of the nation’s “premier” independent grocers.
“Despite the challenges with the economy the last several years, these independents continued to grow their sales and open new stores,” Supervalu said in a statement to the Star Tribune, declining to make an executive available for an interview.
Supervalu last month announced it will sell its four largest grocery chains to Cerberus Capital Management for $100 million and the assumption of $3.2 billion in debt. Cerberus, a private equity outfit, will also buy up to 30 percent of Supervalu’s stock.
Some sort of deal had been expected, as Supervalu put itself up for sale in July, the result of steadily falling sales and a tanking stock price. The sale to Cerberus will leave Supervalu looking much as it did before an epic 2006 buyout of most of Albertsons Inc. That debt-laden acquisition transformed Supervalu into one of the nation’s largest food retailers, but it ultimately failed.
The major chains Supervalu picked up in the 2006 deal — Jewel, Albertsons, Acme and Shaw’s — will go to Cerberus, as will distribution warehouses dedicated to those chains.
Five smaller chains will remain with Supervalu, making up 28 percent of its future sales. So will Save-A-Lot, Supervalu’s national discount chain, which will constitute 25 percent of revenue.
Wholesale will supply the remaining 47 percent. Stock analysts are betting on Save-A-Lot to fuel Supervalu’s overall growth, but the wholesale business is hardly an afterthought.
JOIN THE DISCUSSION | Register here
We welcome comments. Please keep them civil, short and to the point. ALL CAPS, spam, obscene, profane, abusive and off topic comments will be deleted. Repeat offenders will be blocked. Thanks for taking part — and abiding by these simple rules. A thorough explanation of rules of conduct can be found in our Terms of Service. If you have any questions, including why your comment may not be showing immediately after you submit it, be sure to visit the commenting FAQ.