Supervalu to Consolidate DCs

JON SPRINGER

MINNEAPOLIS — In a move it said would optimize its distribution network in the wake of the Albertsons merger, Supervalu here last week said it will consolidate three distribution centers into a single facility in Lancaster, Pa., and outfit that unit with automated technology.

Facilities in Easton, Pa.; Harrisburg, Pa.; and Perryman, Md., will have their operations integrated into the Lancaster location, where Supervalu acquired a 1.4-million-square-foot Acme distribution center as part of the Albertsons purchase last year. The project, including capital improvements to the Lancaster center, is scheduled to be completed over the next three years, with customers serviced from the existing facilities while the Lancaster facility is modified, Supervalu said.

The company said it expects to incur after-tax charges of $30 million to $35 million over three years to cover the costs of lease exits and employee severance. The majority of the costs, $21 million to $24 million, will be recognized in fiscal 2008. Costs associated with implementation of the automation technology are included as part of a $1.2 billion capital budget in fiscal 2008, the company added.

Observers have expected some consolidation among facilities operated by Supervalu since its deal to acquire Albertsons' assets was completed last year. Lancaster, a newer and larger facility than the existing centers, and centrally located between the three others, was a logical choice for consolidating the service, they added.

“Acme was serving less than 150 stores from Lancaster, which was nowhere near the level of its capacity, so from that perspective it comes as no surprise,” Bob Gorland, vice president in the Harrisburg, Pa., office of retail consulting firm Matthew P. Casey & Associates, Clark, N.J., told SN. “As long as they're serving their independent retailer well, I see Lancaster as a central location from which they can reach all their customers.”

The three warehouses slated for closure employ around 600 people, reports said. The Harrisburg center, acquired by Supervalu when it merged with Richfood Holdings in 1999, serves several independents, including New York-based retailers Fairway Markets and FreshDirect, but recently lost a large customer when the Clemens Markets chain was sold to Giant-Carlisle and A&P.

Scott Karns, chief executive officer of eight-store independent Karns Food, Mechanicsburg, Pa., said he expects some disruption when it comes time to change centers, but he also said the change will be a positive for his chain overall.

“There's always a little disruption in a warehouse change, but the Lancaster facility is only 40 miles away,” he told SN. “And I'm expecting that using the same facility as Acme will provide me with a bigger selection of goods to buy.”

John Heinbockel, an analyst for Goldman Sachs, in a research note last week said Supervalu will realize cost savings as a result of the moves beginning in 2009. Using a single, automated facility will allow the retailer to move additional goods more efficiently, he added.