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Could Sale Boost Private Label Investment?

January 10, 2013

As he discussed the sale of five retail banners with analysts Thursday, Supervalu CEO Wayne Sales took time to discuss why the company felt the deal was good for all parties.

And the first thing that he mentioned was the ability for both Cerberus Capital Management – the group buying the banners – and Supervalu to invest in their brands.

“Obviously we’ve been talking for a long, long time about the need to invest in price, to invest in the customer experience, to invest in fresh,” Sales told analysts. “What the purchasing entity does is it brings a number of things. It brings a very strong balance sheet that can immediately invest in price, to invest in fresh, to invest in the customer experience.

“For Supervalu, when you take Supervalu apart and look at the most recent results … what this means for the independent grocers is this is smaller and it provides more focus and leadership on the legacy business, a much stronger balance sheet to ensure liquidity. You look at the ability to focus on Save-A-Lot. We’ve been working in the past 12 months in terms of strategies, in terms of improve the in-store experience, improving the pricing position … making a radical shift in terms of private label offerings from 57 percent to 70 percent, simplifications of operations. We’re excited about the opportunity to invest in this banner, in this business … and that will be a huge opportunity for growth for us.”

Wisner Marketing Group President Jim Wisner said the deal felt like 2006 all over again, before Supervalu made the Albertsons acquisition. And he said Supervalu could live up to the pledge of investing in its remaining businesses.

“I think on the Supervalu side that’s probably true,” he said. “You’re restoring it to what it was six or seven years ago, which was a successful company.  I think the question is a little more vexing when you look at the Cerberus side of it. What they may have greater capital to invest, the question is at what rate will they invest it at? There’s a significant pool of money they invested to buy these stores, so how much is left?”

Carol Spieckerman, president of retail strategy firm Newmarketbuilders, said she thought the potential investments in Save-A-Lot could bring big dividends.

“Save-A-Lot is supposed to be the small format move, the future-seeking prototype, but it’s not a given,” she said. “As Tesco’s seen through its missteps with Fresh & Easy, you can’t assume that just because it’s small it’s going to work. … Things are much more different to run, and these big-box operations are really fine-tuning the concept. So in a small format footprint, there’s still opportunities to do something exciting there while everyone else gets their act together. There’s quite a window of opportunity to do something impressive.”

Although Supervalu has invested money into pricing to make banners such as Jewel-Osco more competitive, Wisner said he think the money might better be spent elsewhere.

“To my mind the biggest question is they have to put a lot of capex in these stores, and they have to create a new shopping environment,” he said. “The pricing investment in Jewel hasn’t seemed to have gotten much for them, and prices are starting to rise now. So if you can’t compete on a price basis, you have to differentiate with experience, with perishables, with variety. That’s what Mariano’s is doing in Chicago, and it’s taking business where once Jewel and Dominick’s dominated.”

Wisner added that Albertson’s LLC, the retail group that will include the five former Supervalu banners, would need to be wary of competition in the Northeast for the Shaw’s and Star Market banners in particular.

“You’ve got Walmart moving into the northeast against Shaw’s and Star Market … and it’s gonna start to get messy in the Northeast,” he said. “And they haven’t been through some of the banner wars we’ve seen in the other markets.”

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