Supervalu considers spinning off its best banner

Minneapolis – Supervalu Inc. is considering spinning off its highly successful Save-A-Lot discount grocery chain into a separate company.



The grocery conglomerate is pondering the move as it faces growing competition from non-traditional vertical players such as mass merchandisers, dollar stores and warehouse club chains, as well as consolidation within the grocery vertical.



Save-A-Lot has consistently provided strong performance for Supervalu in recent years, even as its retail food segment (including banners such as Cub Foods and Shop ‘n Save) has struggled. Save-A-Lot has more than 1,300 stores, including about 430 corporate stores and approximately 900 licensed stores.



Supervalu said spinning off Save A Lot would help it focus more on growing some of its other banners. The retailer has been shrinking its operations in recent years, selling off banners including Albertsons and Jewel-Osco. Meanwhile, Supervalu is facing the impact of mergers such as the recent combination of Royal Ahold and Delhaize Groupe, which created a new super-regional chain along the Eastern Seaboard that will serve 50 million customers weekly and generate annual sales of more than $60 billion.



In Supervalu’s most recent first quarter of fiscal 2016, Save-A-Lot revenue grew 37% to $1.41 billion from $1.36 billion in the prior year period. Corporate Save-A-Lot stores reported 2.8% same-store sales growth.



In contrast, Supervalu’s retail food segment reported only 0.6% same-store sales growth, while new store openings pushed revenue up 28% to $1.45 billion from $1.41 billion. Total net sales at Supervalu rose 3% to $5.41 billion from $5.26 billion.



“We believe Save-A-Lot has significant growth potential,” said Sam Duncan, president and CEO of Supervalu. “During the last two-and-a-half years, Save-A-Lot has repositioned its brand, refocused its efforts on fresh produce and meat, and remerchandised its stores and product offerings to better appeal to a broader group of customers. We believe a separation of our Save-A-Lot business could allow Save-A-Lot, our independent business and our retail food banners to better focus on their respective operations, and pursue strategies specific to their business characteristics and growth potentials, for the benefit of our shareholders, customers, licensees and employees.”



No specific timetable for a separation has been set and a separation of Save-A-Lot is not guaranteed. Supervalu has engaged Barclays and Greenhill to serve as financial advisors, and Wachtell, Lipton, Rosen and Katz as legal advisor, in connection with this possible separation.



In the first quarter of fiscal 2016, Supervalu beat Wall Street expectations for profit. Net earnings soared 42% to $61 million, from $43 million in the same quarter the prior fiscal year. Cost of sales rose at a slower pace than net sales, aiding profit growth.