The news that SuperValu has agreed to sell five of its supermarket chains, including Albertsons, in a deal worth US$3.3bn will come as little surprise to those in the industry. The rest of Supervalu could follow suit, but key challenges will remain for whoever holds the reins.
The announcement today (10 January) ends months of speculation that all or parts of troubled grocery chain Supervalu would be sold to New York-based Cerberus Capital Management. Today’s deal paves the way for a full sale to Cerberus further down the line and Cerberus has agreed to buy 30% of remaining Supervalu shares once the deal closes.
The retail chain has been in trouble for some time. In 2011, the group revealed it was conducting a strategic review of its business in response to falling sales and profits. Things have gone downhill since, with the retailer’s share price losing 60% of its value in the past year.
Share losses have been clawed back in recent months, particularly amid speculation that a deal with Cerberus was near, but the group’s performance over the past 12 months still rates way behind key rivals, such as Kroger and Safeway, as well as the S&P500 overall.
Analysts at Cantor Fitzgerald said today they were still digesting the deal. However, in a note released to just-food – originally published yesterday, prior to the deal announcement – the analysts said: “Supervalu is especially vulnerable to the potential for further deterioration in sector fundamentals.
“The relative price positioning of Supervalu remains weak as more price-focused competitors have taken more credible steps in recent years to drive customer traffic while Supervalu has largely chosen to protect margins.”
The analysts added that Supervalu has been under significant pressure to return value to shareholders via its strategic review. Additionally, in the last year, it has been faced with having to shut underperforming stores. It has also lost a number of key executives, including CEO Craig Herkert in July last year, and has been forced to cut staff.
In August last year, replacement chairman and CEO, Wayne Sales, faced one of the biggest challenges in the US grocery sector. That challenge ended today, when Supervalu announced that retail veteran Sam Duncan will replace Sales as CEO and chairman, as part of the Cerberus transaction.
Results released today at least show that Supervalu crept out of the red for its fiscal third-quarter, but only due to a one-off gain. Progress of a sort, then, but plenty more to do. Third quarter sales fell by 5% versus the same three months of the previous year.
Industry stalwart Duncan has around 40 years of retail experience, most recently with OfficeMax, the third-largest office supplies retailer in North America.
A large chunk of his career, however, was spent with Albertson‘s, where he held a number of positions over his 19-year career with the retailer before moving to Fred Meyer, a division of Kroger, in 1992 as VP of grocery. He has also served as president of Ralph’s Supermarket, one of the largest food retailers in Southern California.
He will take up the post of CEO and president of Supervalu in late February. He may well need to dredge the depths of his experience like never before to pull Supervalu up. If and when the rest of the business is sold to the Cerberus-led consortium, meanwhile, the challenges will likely be sold with it.
Regarding the future of Albertson’s, the Cantor analysts said: “We do believe that the Cerberus consortium is uniquely positioned to monetise the Albertson’s stores owned by Supervalu based on its own track record of real estate acquired as part of the Albertson’s break-up in 2006.”