Supervalu has begun 2005 with a bang by unveiling two new major initiatives that signal its determination to continue diversifying.
In a recent interview, Jeff Noddle, chairman, president and chief executive officer of Minneapolis-based Supervalu, outlined how these moves highlight the company's core strategies and indicated that more developments may be on the way.
Supervalu's growth plans are based on 135 years of experience in the food industry -- and maybe just a little inspiration from the world of hockey.
"We skate to where the puck is going to be," he said, reprising a quote from former hockey star Wayne Gretzky to explain that Supervalu is constantly trying to understand where the industry is headed.
At the start of 2005, Supervalu said it agreed to acquire Total Logistics, a third-party logistics provider, and in March, Supervalu launched a new produce distribution business called W. Newell & Co.
"Supervalu is pursuing unique, out-of-the-box strategies," Noddle said. "We are looking at the long term of what will be important in the food industry, and the supply chain is crucial."
In the case of Milwaukee-based Total Logistics, which provides warehousing and distribution services, Supervalu saw an opportunity to build on its existing Advantage Logistics operation. Supervalu's clients in that operation include Kroger, Atkins and Target. Advantage is expected to fit neatly under the Total Logistics umbrella.
Supervalu also sees an opportunity to become a possible consolidator in the third-party logistics field in the future. The company sees third-party logistics as an activity in growing demand and a good generator of return-on-invested capital. Noddle pointed out that Supervalu has the potential to add value to Total Logistics' business, whose clients include companies in the consumer goods field and in businesses outside of food arena.
"The food industry has a different discipline with the supply chain," he said. "We must be more efficient than some other industries. So we may be able to bring value to some businesses outside of the food industry with a more efficient supply system."
Like Total Logistics, Supervalu's Newell produce strategy involves supply and distribution, but the details of this venture are quite different. Perhaps the biggest difference is that Newell is not an acquisition. Rather, it is a new produce distribution business that consolidates the company's existing Midwest distribution in that category. Volume from five facilities will be consolidated into one: a 155,000-square-foot center under construction in Champaign, Ill. The new facility will serve stores in a seven-state area, and Supervalu hopes to extend the model to other regions to support fresher, faster produce and more variety. This initiative will help Supervalu compete with specialized produce distributors.
"This is a big deal," Noddle said. "It will take at least two days out of the supply chain from grower to store. We hope to further enhance the produce opportunity in other parts of the country."
Underlying the entire initiative is the central place that produce has taken in today's supermarket.
"Produce is a critical element in how retailers will compete with supercenters and other formats," Noddle said. "It is very important for retailer distinction."
Noddle said Supervalu will consider whether the Newell distribution model can be extended to other categories.
"Maybe there are future opportunities in meat and deli," he said. "And we are always looking at specialty foods and natural/organics."
He noted that Supervalu is already handling general merchandise and health and beauty care from regional centers. He added that Supervalu was the first wholesaler to handle prescription pharmaceuticals out of a central distribution center both for its own pharmacies and for other customers' pharmacies.
Noddle declined to speculate on whether these new kinds of distribution models can help reduce the industry's reliance on practices considered inefficient by many, such as forward buying. "I don't want to comment on that, except to say that ultimately any inefficiencies will be wrung out of the system by the competitive nature of the industry."
In its most recent fiscal year ended Feb. 26, Supervalu posted sales of $19.5 billion and net earnings of $385.8 million.
Chuck Cerankosky, food marketing analyst for KeyBanc Capital Markets, Cleveland, said Noddle is wise to think of the company as not merely a wholesaler, but as an efficient distributor of high-turn merchandise.
"Supervalu is one of the few companies with a velocity-based distribution model that relies on information technology," he said. "This direction is transferable to outside of food and grocery categories and outside of the food distribution business."
Cerankosky said the Total Logistics transaction will help jump-start Supervalu's third-party logistics efforts.
John Heinbockel, financial analyst at Goldman Sachs, New York, observed that Supervalu's latest quarter operating results were a "mixed bag," but noted "some clear positives" going forward, including encouraging earnings per share guidance for 2006; a strong focus on return on investment; and the ability to create shareholder value through the use of its balance sheet/cash flows.
Supervalu's retail food segment posted net sales last year of $10.5 billion, representing 54% of the company's total sales. Noddle emphasized that Supervalu is very upbeat about its retail business, and he cited growth plans for the company's Save-A-Lot limited assortment operation. (See story, Page 36.)
Save-A-Lot currently operates close to 1,300 stores, about a third of which are corporately owned and the balance licensed.
Supervalu's regional banner operations consist of more than 260 stores, including price-impact retailers Cub, Shop n' Save, Shoppers Food and Pharmacy, and bigg's. Conventional retail banners include Farm Fresh, Scott's and Hornbacher's.
"We are excited about our regional banners," Noddle said. "We centralize back-office functions, but let our people in the markets make decisions."
Analyst Cerankosky said Supervalu has additional retail opportunities because many properties are on the block in the industry at attractive prices.
Supervalu's food distribution segment posted net sales last year of $9 billion, representing 46% of company revenues. Supervalu's wholesale operations include 24 distribution centers serving about 3,200 independents, as well as the corporate stores.
Supervalu is also pleased with the results of SVHarbor, its Web-based portal, which is being linked to its data synchronization engine.
As it works with both customers and suppliers, Supervalu benefits from its work to diversify its business portfolio, Noddle emphasized.
"Supervalu is in a unique perspective to address the business opportunities from multiple angles," he said. "We can decide if we want to be in retail, wholesale, Save-A-Lot, or some other form or combination in a particular market. We have multiple perspectives: supply chain, logistics, traditional wholesale, retail or a combination of all of the above. This makes us more complicated to Wall Street, but these capabilities are a strength."
Retail store network: Consists of 1,549 stores in 40 states (including Save-A-Lots and regional banner stores).
Regional Banner Group: Consists of 262 units, including Cub Foods, Shop 'n Save, Shoppers Food & Pharmacy, bigg's, Farm Fresh, Scott's Foods and Hornbacher's stores.
Supply operations: Serves as primary supplier to about 2,300 stores and regional banner store network of 262 units, while serving as secondary supplier to about 700 stores.