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American Food & Ag Exporter

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SuperValu’s Management
Of Albertsons Praised

Jim Prevor’s Perishable Pundit, June 7, 2007

It is pretty universally expressed that SuperValu has had a highly successful year since its acquisition of the best parts of Albertsons a year ago transformed the company into a predominantly retail company:

The hometown paper in Minneapolis declares that SuperValu’s Big Bet on Albertsons’ is Paying Off:

The gamble that SuperValu Inc. CEO Jeff Noddle made to acquire the larger Albertsons’ supermarket chain looks in hindsight like a deft move at a time made difficult by increasing consolidation and stiffer competition.

Nearly a year later, Eden Prairie-based SuperValu, which operates the Cub grocery stores and more than a dozen other grocery chains across the country, has racked up impressive gains in sales, earnings and its stock price. With $44 billion in estimated revenue, it has become the third-largest food retailer behind Wal-Mart Stores ($317.3 billion) and Kroger Co. ($59.9 billion). Its shares, which stood at $29.75 last June 1, closed at $48.64 on Friday….

SuperValu reported net earnings of $452 million for the year ended Feb. 24, more than double the previous year’s $206 million. Sales at properties the company owned before the acquisition, including Cub stores in Minnesota, were flat. But sales at the properties formerly owned by Albertson’s grew by 1.8 percent for the year.

Even back in Boise, Albertsons’ old corporate headquarters, the local paper declares 1 Year Later, Albertsons Thrives Under SuperValu:

One year after SuperValu bought most of Boise-based Albertsons, the Minneapolis company seems to have accomplished what Albertsons’ former leaders couldn’t accomplish in five.

SuperValu’s stock has more than doubled. Same-store sales have climbed. The fear in the community that this would be the end of Albertsons has subsided. And to hear at least one Boise store director tell it, employees have calmed down.

One has to give the management team at SuperValu kudos for navigating through this year. It is very easy to mess up this kind of merger, and failing to do so is plenty worthy of praise.

At the same time, we suspect that the hard part is just beginning.

SuperValu was smart in that they acquired good operations and didn’t do anything to mess them up.

But companies don’t do this kind of acquisition to just own autonomous operations and there are bound to be efforts over the next several years to leverage scale.

This is where the difficulty can come in.

Fortunately the executives at SuperValu seem haunted by the ghosts of Safeway’s unhappy acquisition history in which it bought up top performers in Chicago, Texas and Philadelphia and proceeded to substantially weaken their brand equity in each of their markets.

What basically happened is that the acquisitions were attempts to gain scale to compete with Wal-Mart. The utilization of that scale meant rolling out things like private label products across all divisions. The only problem, of course, was that consumers who loved, say, Genuardi’s private label, hated Safeway’s products and brand.

Sales fell, consumer loyalty collapsed and the acquisitions were failures.

SuperValu is now attempting to find areas of opportunity in which highly diverse retail concepts, operating under different banners, with different types of clientele, can still leverage SuperValu’s size.

Prior to the acquisition, SuperValu had set up a produce procurement organization called W. Newell & Co. The expectation was that this concept would be expanded and each perishable division would be set up as a similar operating group.

Now it is unclear what the future is for W. Newell & Co. as well as whether it makes sense to expand the concept to other perishable divisions.

Still, we would say most of the SuperValu executives are pretty optimistic. They place a lot of emphasis on the fact that the company’s top management team has extensive experience in supermarkets. Many of the top executives, if not exactly starting as bag boys, came into the system pretty close at that level. They contrast this management profile with Albertsons last CEO, who had been brought in as a “change agent” from General Electric.

We think this optimism is realistic. The key is that in integrating the acquisition, executives have to keep reminding themselves that scale and efficiency are only valuable as tools in serving consumer needs.

Safeway messed up because it was so focused on producing private label goods efficiently it forgot that no price reduction is efficient if one market wants a spicy sauce and the other prefers bland, and the savings come about by losing half the market.

SuperValu’s executives seem determined to not push scale for scale’s sake but to identify the sweet spots where scale can be put to use in the service of meeting the needs of consumers.

If they hold to that philosophy, this merger will go down in business history as one of the most successful of all time.

Congratulations to the SuperValu team on a successful first anniversary for the new SuperValu. Let us hope there are many more successes to come.

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