United Natural Foods to acquire Supervalu

United Natural Foods announced that it plans to acquire Supervalu for $2.9 billion in cash. According to Supermarket News, the deal would create a large, diverse food distributor serving traditional grocery stores via Supervalu, and natural/organic product retailers though United Natural Foods, whose primary customer is Whole Foods.

The acquisition is expected to result in Supervalu's exit from the grocery retail business. Supervalu operates 114 supermarkets under the Cub Foods, Hornbacher's and Shoppers banners. Save-A-Lot had been owned by Supervalu until 2016 when it was acquired by Onex Corporation.

In recent years Supervalu has struggled to compete with larger grocery companies and online food retailers, and as a result has stepped up its wholesale operations. Wholesaling now accounts for 78% of total sales, up from about 44% two years ago. The company's wholesale arm serves a network of 3,437 stores.

The deal is expected to close in the fourth quarter of this year.

Supervalu freezes pay, lays off workers as buyer conducts due diligence

Supervalu, the troubled supermarket chain whose banners in the Philadelphia region include Acme and Save-A-Lot, announced last week it would implement a pay freeze for all employees at its corporate headquarters in Minneapolis, MN. The company said it will also reduce or suspend matching contributions to employees' 401(k) plans starting next year.

Earlier in the month Supervalu announced that the company would layoff 700 people, or approximately 4% of the workforce, at Shaw's and Star Market, both of which operate in New England.

In the mean time, Cerberus Capital Management, which is in talks to buy Supervalu, is still conducting its due diligence. The two companies are familiar with each other, as Cerberus joined Supervalu in buying a stake in Albertson's in 2006. According to published reports, Cerberus currently owns the entity that operates 205 Albertson's stores, while Supervalu operates 564 of them.

Supervalu, which operates Shoppers, Bristol Farms, Cub and Jewel-Osco in addition to the banners mentioned above, has lost more that $2.5 billion over its past two fiscal years, and recently reported its 14th straight quarterly sales decrease. It is the third largest grocery chain in the United States behind Kroger and Safeway.

It has been reported that private equity firms KKR and TPG Capital have expressed interest in purchasing Supervalu, as well as billionaire Ron Burkle.

Buyers looking at Supervalu units, but not the entire company

According to a Bloomberg story last Friday, Supervalu (Albertsons, Acme, Save-A-Lot, among others) has received several inquiries from potential buyers interested in individual units of the company, but would prefer to sell off the entire business as a whole. Supervalu hired Goldman Sachs and Greenhill & Co. earlier in the summer to find a buyer.

Reportedly Cerberus Capital Management is interested in Albertsons, and Ahold (Giant, Stop & Shop) is looking at the Shoppers chain, which operates in Maryland, Virginia and Washington.

Most analysts believe selling the company as a whole would be far more difficult than selling off its units separately, unless a buyer was willing to keep some of the chains and sell off others. That's a risky, venture, though, since such a buyer would be taking on $6.14 billion in net debt along with $1.05 billion in pension obligations.

Save-A-Lot, which has a number of stores in the Philadelphia market, would be the most valuable Supervalu asset, according to a Citigroup analyst who thinks the chain is worth about $817 million.

Currently Supervalu and its 11 chains have approximately 2,400 retail food stores and a wholesale business with 2,660 customers.

Supervalu fires CEO

Craig Herkert, Supervalu's CEO since May 2009, was fired yesterday and replaced by Board Chairman Wayne Sales. Herkert had been under fire by industry experts and journalists for much of his tenure at Supervalu (Acme, Save-A-Lot in the Philly region), and last week the company made news for its announcement that it would explore selling all or parts of the company, in addition to making significant expense cuts.

Sales is credited with turning around Canadian Tire, where he served as CEO from 2000 to 2006. He said yesterday he would take immediate steps to improve sales and cut costs at Supervalu, while improving relationships with Save-A-Lot licensees.

In addition to Acme and Save-A-Lot, Supervalu brands include Albertsons, Jewel-Osco, Shaw's, Cub Foods and Shoppers.

The end may be near for Supervalu, Acme

Yesterday the board of directors for Minneapolis-based Supervalu (Acme, Save-A-Lot) said they are considering the sale of all or parts of the company, and will significantly cut expenses and capital spending.

The announcement came after Supervalu's financial results for its most recent quarter fell below expectations. The company's net earnings of $41 million were down 45% from the same period last year.

According to company leadership, fiscal 2013 capital expenditures would be reduced from previous estimates of $675 million to $450-$500 million, and operating expense cuts of $250 million can be expected over the next two years. In addition, Supervalu has suspended its dividend and replaced its current credit facility with a real estate backed loan.

In a conference call yesterday with analysts, CEO Craig Herkert said the company was not considering bankruptcy, but analysts believe it's a possible scenario considering the difficulty Supervalu will most likely face when trying to find a buyer.

Save-A-Lot, Supervalu's "limited-assortment" brand, is the banner analysts believe would be most attractive to a buyer. Other Supervalu brands include Albertsons, Jewel-Osco, Acme, Shaw's, Cub Foods and Shoppers.

Supervalu surprise - 2nd quarter profit!

Supervalu (Acme, Save-A-Lot) announced last week that it posted a $60 million profit for its second quarter, compared to a $1.47 billion loss for the same quarter a year ago. President and CEO Craig Heckert cited game-themed promotions that were successfully tested in Philadelphia-area Acme stores as a contributor to the company's success.

Despite the profit, same-store sales for the quarter were down 1.8% for the quarter compared to the same period one year ago, and total revenues fell 2.6% to $8.4 billion. Through the first half of their fiscal year, Supervalu's net income was $134 million on sales of $19.5 billion. One year ago, the company reported a $1.4 billion loss for the first half of its fiscal year.

Supervalu operates under many banners, including Acme, Save-A-Lot, Albertsons, Cub, Farm Fresh, Hornbacher's, Jewel-Osco, Lucky, Shaw's/Star Market, Shop 'N Save and Shoppers.

Grocery prices are up, but spending is down

According to the semi-annual Acosta Sales & Marketing report titled "The Why Behind the Why," average monthly spending on groceries is 7% less than it was one year ago. This spending decrease is despite the fact that grocery prices are higher than they were in 2010.

Other report findings include the following:

• Americans spend an average of $94.60 on a routine grocery visit. Last year it was $98.70.
• Grocery spending has been affected by high gas prices. The average shopper will make fewer grocery trips when the price of gas reaches $3.70 per gallon.
• 53% of Americans are paying more attention to what they buy at the grocery store; 43% are buying less food; 41% are using coupons or looking for sales; and 22% are shopping at less expensive stores than they once did.

"Grocery is the next frontier" for malls

The following article from Bloomberg is one of many recent stories to report that malls are adding grocery stores in an effort to lure back shoppers. Younger readers (and this graying blogger) may not recall that, as the article points out, supermarkets were once tenants in many American shopping centers. However, they fled to cheaper locations in the 60s and 70s. Now, with so much vacant mall space, they're beginning to come back.

Heirloom Tomatoes, Coffee Help Attract Foodies to U.S. Malls