Supervalu Leverages Banner Variety

ELLIOT ZWIEBACH

NEW YORK — Supervalu plans to “think more globally” in terms of expanding its various store formats, Jeff Noddle, chairman, president and chief executive officer, said at a conference here this month.

“We made a very conscious decision to introduce a half-dozen Sav-A-Lots in the Pacific Northwest where we already operate Albertsons stores because we thought that style of retailing was missing there, and we opened some Sav-A-Lots on the Texas-Mexico border where we don't operate any corporate stores or supply any independents, because we felt that was the best way to enter that market,” Noddle said in a presentation at the 14th Annual Goldman Sachs Global Retailing Conference. “So we see opportunities, as we supply first-tier independents and small chains in a lot of markets, to take a broad view and think more globally” about using some of its multiple formats to enter new markets.

He said Supervalu is on target to achieve pre-tax synergies of $150 million to $175 million by the end of the third full year after the Albertsons merger, which would come at the end of the first quarter of fiscal 2010.

Most of the synergies gained in the first year — eliminating duplicate overhead and reducing the cost of goods sold — were more than offset by the loss of scale in the company's overall pharmacy business, “but synergies have begun to emerge in the second year through further reductions in the cost-of-goods sold and implementation of best practice standards.

“In year three we will bring Supervalu's expertise in supply chain to store locations,” Noddle indicated.

He said the company is trying to grow its private-label business, noting that neither Albertsons nor Supervalu had great private-label penetration. “That will require us to develop a tier philosophy, do some SKU rationalization and develop a marketing program to support our ‘own brands' program,” Noddle said.

“Albertsons had some great premium private labels we're going to utilize, and we had some lower-end private labels that we're going to utilize,” he added, though he declined to disclose which names Supervalu will retail going forward.

In terms of product rationalization, Noddle said, “Between the two companies we have more than 100 different private labels, and that's not a strong private-label program, so we're hoping to get that down to 20 or 25, though that will take time to execute.”

With more than 80% of Supervalu's total volume now coming from retail, Noddle was asked whether the company might consider selling off its wholesale business. He said that is unlikely to happen in the near term.

“We're in the supply chain business, and it's a great business,” he said, “with strong cash flows from the independent businesses we serve.

“But just because it's our legacy business doesn't make it the right business for us, though it's an important part of our infrastructure today, and some of the synergies we hope to harvest will come from the supply chain side.

“Long term, we have no plans [to sell it], though at some point we may have to ask ourselves if one business compromises the other. But we've seen no evidence of that so far, and we haven't lost any business at all simply because of our new retail business. In time, if we determined there was more value in separating the two businesses, it's possible we could sell, but nothing is imminent.”