Supervalu's recent performance not so super

Cub Foods shopper
Shopper Lindsay Peterson at a Cub Foods in St. Paul, Minn., on January 20, 2011.
MPR Photo/Nikki Tundel

Eden Prairie-based Supervalu, one of the nation's largest grocery store operators, isn't doing so super these days.

Supervalu has more than $40 billion in annual sales, and its Cub Foods chain dominates the Twin Cities grocery market. But overall, Supervalu's sales, profits and stock price have been slipping in recent years.

In the Twin Cites, Supervalu's Cub stores are still the top performers, capturing about 31 percent of the metro area's supermarket sales. Target is second, with a 14 percent share.

Lindsay Peterson regularly shops at the Cub on Clarence Street, on St. Paul's East Side.

"Compared to Rainbow or Byerly's, sometimes even Festival, I think Cub has a lot better prices than a lot of those other grocery stores, in my opinion," said Peterson.

But other consumers see Cub as expensive.

Shopping at Cub Foods
Shopper Laticia Lewis at a Cub Foods in St. Paul, Minn., on January 20, 2011.
MPR Photo/Nikki Tundel

"I can't do my food stamps here cause it won't last me all month," said Laticia Lewis of St. Paul. "I got to go to Aldi's and Rainbow. Here, the meat and stuff is kind of high."

Price is a real problem for Supervalu. CEO Craig Herkert said so himself in a recent conference call with analysts.

"In far too many cases, we've priced our everyday retails out of line with the market," said Herkert. "Therefore, customers select against us."

Supervalu has begun to respond by cutting prices -- for example, the prices of some meat and seafood have been trimmed by more than 30 percent.

Analysts say Supervalu has been losing sales to Walmart, Target and other grocers that emphasize low prices. That's happening in the Twin Cities and across the country.

In the grocer's most recent quarter, sales nationwide fell. At stores open for at least a year, revenue dropped about 5 percent.

"They're not upscale, and they're not discount. ... when you're in the middle of the road, that's where you find the roadkill."

The problem with Supervalu, according to supermarket analyst David Livingston in Milwaukee, is that it's a middle-of-the-road grocer that doesn't distinguish itself on price or service.

"They're not upscale, and they're not discount," Livingston said. "We've got this hourglass economy in the grocery business, where you've got to be good at one or the other. And when you're in the middle of the road, that's where you find the roadkill."

Supervalu has some 1,500 corporate-owned stores in about 40 states. The stores operate under several banners, including Acme, Shaw's, Star Market, Jewel-Osco, Save-A-Lot and Cub. Supervalu is also a wholesale supplier to nearly 1,900 independent grocery stores.

Part of the problem is Supervalu supersized itself in 2006. The company struck an $18.5 billion deal to acquire more than 1,100 stores that had been part of the Albertson's supermarket empire.

Livingston says Supervalu overpaid for quite a few mediocre stores, which have been dragging down sales and earnings.

"Supervalu borrowed money and bought these stores," he said. "And a lot of industry observers are scratching their heads, like, 'Why would you want to take this on? Why would you want to buy this other company's problems?'"

Investors would like to know as well. They've seen about a 75 percent drop in Supervalu's stock price over the past five years.

Herkert took over as the company's CEO about a year and half ago. He has been reorganizing Supervalu, trying to make it leaner, more efficient and price competitive. But as he told industry analysts, that won't happen overnight.

"We know that the long-term journey is to get all of our prices in line with where our customers expect them," he said.

Supervalu hopes to cut its costs by $175 million in its current fiscal year. That effort includes cutting jobs and closing or selling poorly performing outlets.

Meanwhile, Supervalu plans to bet big on one of its chains that has seen increasing sales. The company plans to open more than 1,000 Save-A-Lot stores. Save-A-Lot's prices are as much as 40 percent lower than traditional grocery stores. And as Supervalu well knows, price really matters these days.

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