When the struggling Eden Prairie, Minn.-based company unloads its four largest grocery chains, including Albertsons, 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 Supervalus wholesale customers are beset by the same woes that caused Supervalus own retail downfall: an onslaught of competition from Target, Walmart and other low-price chains, combined with a soft economy.
The four chains Supervalu is selling are the ones it bought in 2006 from Boises Albertsons Inc. That deal split the Albertsons chain in two, with Supervalu getting 569 Albertsons including all the Idaho stores and a consortium led by New York private-equity firm Cerberus Capital Management getting 655. Hundreds of Albertsons supermarkets have closed in the years since. The Cerberus consortium is Supervalus Albertsons and the other three chains, which will reunite the two Albertsons chains under the wing of Cerberus Albertsons LLC unit in Boise.
Supervalu still employs an estimated 3,300 people in Idaho, including nearly 1,000 in Boise.
The food wholesaling business is now growing because the number of retailers is declining, said David Livingston, a Wisconsin-based supermarket industry consultant.
Their core market is shrinking, Livingston said. I dont think they can make it grow.
Supervalu, not surprisingly, disagrees. The company says it remains primary supplier to some of the nations 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 Supervalus 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 nations largest food retailers, but it ultimately failed.
The major chains Supervalu picked up in the 2006 deal Jewel, Albertsons, Acme and Shaws 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, Supervalus 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 Supervalus overall growth, but the wholesale business is hardly an afterthought.
It will be a very key point for the company whether or not they grow in wholesale, said John Dean, a Twin Cities supermarket industry consultant.
Growth will be a challenge, given the slow growth of retailers served by Supervalu, Dean said. Yet Supervalu will be able to focus more on its wholesale business after the Cerberus sale closes.
In the past, Supervalu worked very hard to make independent (grocers) stronger, Dean said.
The Idaho Statesman contributed