MINNEAPOLIS -- Supervalu here said it is acquiring Total Logistics as a hedge against further industry consolidation and potential declines in the distribution segment of its business.
"The distribution business is a cash-flow business and a return-on-invested-capital business, and we have continued to steadily improve ROIC in that business every year for the last four to five years," Jeff Noddle, chairman and chief executive officer, said in a conference call discussing the company's third-quarter earnings.
"Long term, we see further concentration of the business, and that's why we are migrating more to a broad supply-chain logistics model where we can offer a variety of services to all kinds of customers as consolidation continues among our traditional customers.
"So the [customer] count will be less, and while I still suspect we will still have organic growth from that business that we'll attract from other [suppliers], the overall pie is not going to get bigger.
"That's why you are seeing us strategically migrate to a different business model, and as we do, I think you'll see some very creative things that will be done in our traditional look throughout Supervalu and also with the exciting addition of Total Logistics, which brings opportunity outside the traditional food business and certainly even into the manufacturer level of the food business."
Supervalu disclosed plans earlier this month to acquire Total Logistics, a Milwaukee-based warehousing and distribution services provider, for about $323 million. Noddle said he expects the deal to close next month.
In response to a question, Noddle acknowledged Supervalu is "really struggling a little bit" at its distribution facility in Tacoma, Wash., which used to supply Haggen, the regional retailer that left Supervalu last year.
"We continue to work on strategies that would enhance that opportunity," he said. "But what occurred there is exactly what we anticipated. We are committed to Tacoma, and at this moment in time, we have no plans to do [anything] in Tacoma other than to generate new volume."
In other comments during the conference call:
Noddle said Supervalu has closed 26 corporate-owned Save-A-Lot stores this year -- a slightly higher closure rate than usual -- as it upgrades most of those units to combination stores.
"Some of those stores, frankly, just aren't going to meet our standards of what we expect Save-A-Lot to look like going forward, so we've had a higher incidence of closings this year, and I think that's very healthy for the process because we want our standard to be achieved in these stores," he explained.
He said Supervalu prefers to maintain an everyday-low-price approach at most of its regional banners while many competitors are investing gross margin in increased promotional activity.
"We just don't get dragged into those short-term efforts because we find they have had little effect. At Supervalu, I'm happy to say we did not see our gross margins erode -- in fact they increased."