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Supervalu Private Label Will Stick With Departing Banners

January 10, 2013
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Supervalu announced Thursday that it was selling five of its banners -- Albertsons, Acme, Jewel-Osco, Shaw's and Star Market -- to AB Acquisition LLC, an affiliate of private equity firm Cerberus Capital Management LP.

The grocer will maintain its independent wholesale business, Save-A-Lot and its 1,300 stores, and regional banners Cub, Farm Fresh, Shoppers, Shop 'n Save and Hornbacher's.

In addition, former OfficeMax CEO Sam Duncan will become the new president and CEO of Supervalu, expected to take over that role in February.

On a conference call with analysts Thursday morning, Supervalu CEO Wayne Sales said the company would continue handling the private label program for both its current banners and those departing under the sale.

"We will continue to manage our private label program for all entities, be it the divested banners, the banners we keep, and the independent businesses, so we continue to maintain that leverage," Sales said. "And we will continue to work cooperatively with the divested banners in terms of merchandising programs."

However, Sales later said that the divested banners would have their own buyers separate from the Supervalu team.

"In terms of collaboration, we have a relationship with each other that we hope to be able to continue, especially in the private label line," he said. "So the physical offices will be separate because they will be separate companies, but in terms of collaboration with the supplier base, we hope to collaborate with each other."

Supervalu spokesman Jeffrey Swanson said the private brands team would remain intact with Supervalu and not be split among the departing banners. He added that the sale would not change the timeline for the continued rollout of Essential Everyday products in 2013 or other new products expected to expand private label lines such as Culinary Circle or Wild Harvest.

"There's no changes to our plans," he said. "As Wayne said, absolutely, the plan is to continue to distribute our private label brands and we look forward to that relationship with the buyers going forward. We look forward to continuing to build on our private brands emphasis."

Carol Spieckerman, president of retail strategy firm Newmarketbuilders, said that she did not expect changes to private labels such as Essential Everyday in the departing banners after the sale is completed.

"I think you have to assume that Cerberus and the companies that are purchasing the pieces of Supervalu looked at those private brands as part of the equity of the total corporate brand," Spieckerman said. "I don't think that's the first thing you start messing with. ... That's part of the value and attractiveness of the deal. There's some streamlining and optimization already done (in private label). I don't know that you look at it and say, 'That's broken and needs to be fixed.'"

In fact, Sales suggested that there were even more opportunities ahead in private label despite the split.

"Supervalu will continue to run the private label program, and in my initial call with analysts, I talked about how I feel about private label programs," he said. "That while we have some of our competitors that do a good job with it, when you look at companies like Loblaws in Canada, no one in the U.S. is even close to what they do. And that would be my vision of how I would grow the business, and certainly we'd get leverage from that, from our independent business, from retail businesses that Supervalu maintains, and the businesses that we divest."

To that end, Jim Wisner, president of Wisner Marketing Group, said continuing the private label plans for the departing banners was smart business.

"I think that's very important," he said. "What happens often times in transition is that so much is going on that it takes your eye off the ball on things you need to do to grow market share. So strategically, it's very smart to do that. The question is, are they swinging in the right direction with the (private label) strategy?"

With the departing banners merging in with Albertson's LLC -- the Albertsons stores that were not under Supervalu's control -- Wisner said there was the potential for new ideas about implementing private label strategies.

"There certainly is the opportunity to do that," he said. "You have a lot of retail grocery people there rather than wholesale grocery people, so you'd think those kind of skill sets might be in place there. But we'll see, it's hard to tell."

Cerberus Senior Managing Director Lenard Tessler said in the statement that the deal would strengthen the five banners.

"We are pleased to be making this investment and look forward to helping build long-term value for all stakeholders," he said. "We believe these transactions will create stronger, more competitive businesses."

In addition to Duncan taking over for Sales, five members of the Supervalu board will resign, with the board trimmed from 10 members to seven members after the completion of the sale. As part of the transaction, Symphony Investors has initiated a tender offer for as much as 30 percent of Supervalu's common stock and will appoint two of the seven members to the board, including Albertson's LLC CEO Robert Miller, who will serve as non-executive chairman of the board. After the sale, four more members will be added to bring the total number to 11.

The deal will reunite the Albertsons stores owned by Supervalu with the Albertsons stores under Albertson's LLC, which is owned by AB Acquisition.

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