MINNEAPOLIS -- Supervalu here said last week it plans to "take Save-A-Lot to a new level of growth" with a new hybrid format following the pending acquisition of Deal$ -- Nothing Over a Dollar, a St. Louis-based general merchandise retailer.
Jeff Noddle, president and chief executive officer, told SN that Supervalu plans to create the new format -- combining Save-A-Lot's traditional food assortments with 3,000 to 4,000 stockkeeping units of general merchandise -- and to test it at several locations this year.
The hybrid Save-A-Lots will run approximately 18,000 square feet -- compared with the current norm of 12,000 to 14,000 square feet -- Noddle said, "and we think we can do 20% of total sales in general merchandise."
Most of the merchandise Deal$ sells is imported from Asia, he noted -- mostly seasonal and in-and-out merchandise.
According to Noddle, Supervalu's ultimate goal will be to retrofit the majority of existing Save-A-Lot units with general merchandise over the next few years -- and to add approximately 100 SKUs of food at the Deal$ locations -- "to offer consumers a little more fun in the stores."
Save-A-Lot, the Supervalu subsidiary that opened its 1,000th store last week in Waterbury, Conn., is a chain of limited-assortment stores operating in 36 states with sales exceeding $4 billion.
The pending acquisition is prompting the company to boost plans this year to encompass 150 new Save-A-Lots -- up 50 units from previously disclosed plans to accommodate additional Deal$ units and some Save-A-Lot combo stores, Noddle said.
Deal$ operates 45 stores in eight Midwestern states specializing in single price-point merchandise, with annual sales of approximately $75 million in stores averaging 9,000 square feet.
Supervalu said the acquisition -- which will include a 120,000-square-foot distribution center in Granite City, Ill. -- is expected to close in May. Noddle told SN that Supervalu will retain the existing distribution model at Deal$, "though we feel we can enhance that side of the business with our expertise."
Noddle declined to discuss the acquisition price.
He said the agreement to acquire Deal$ "is the culmination of a yearlong effort to develop a general merchandise strategy to support the next phase of expansion at Save-A-Lot."
Asked why Supervalu was interested in expanding the stores' general merchandise assortment, Noddle told SN, "We looked at that long and hard for about two years as we sought another layer of growth for Save-A-Lot, and as we studied the retail landscape, we saw a lot of growth in large food and nonfood supercenters but we realized no one was doing an extreme-value combination store, and we saw that as an opportunity for us."
Noddle said Deal$ management will become part of the Save-A-Lot organization once the acquisition is completed.
Noddle made his remarks during a conference call to discuss Supervalu's financial results for the year and fourth quarter ended Feb. 23.
Sales for the year fell 9.9% to $20.9 billion, the company said primarily reflecting the loss of business from Kmart Corp., Troy, Mich., and net income rose 2% to $240.7 million, excluding the impact of restructuring and store closings. For the quarter, sales declined 14.6% to $4.7 billion and net income jumped 14.7% to $70.1 million, excluding the special charges.
In the retail food segment, sales rose 2.1% to $9.5 billion for the year and were flat at $2.4 billion for the quarter following the closing of 49 stores during the year, including an exit from Indianapolis and Pennsylvania; excluding sales from those stores, the company said retail sales were up 6% for the year and the quarter. Comparable-store sales grew 0.2% for the year and 1.3% for the quarter
In the food-distribution segment, sales fell 18% to $11.4 billion for the year and 27.1% to $2.3 billion for the quarter, which the company said reflected the impact of restructuring activities and customer losses, including the termination on June 30 of Supervalu's contract with Kmart and the loss of business with Genuardi's Family Markets, Norristown, Pa., after it was acquired by Safeway.
Noddle said Supervalu's long-term goals include strengthening its retail and distribution businesses; increasing earnings per share by at least 10% a year; and improving return-on-invested capital by at least 15% a year. Looking back over the past year, Noddle said Supervalu improved its retail execution, particularly at its corporate Cub Stores in Chicago; rationalized its distribution network with the closing of six distribution centers, with two more facilities set to close in the next few weeks; reconfigured 13 of its 30 distribution centers to separate fast- and slow-moving merchandise; and reduced inventory on hand by two full days while maintaining high order-accuracy levels and on-time deliveries.
