Supervalu Sells Save-A-Lot for $1.3 Billion

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Supervalu Sells Save-A-Lot for $1.3 Billion

By Weronika Raczek - 10/25/2016
Supervalu, announced the sale of Save-A-Lot business to Onex Corporation, one of North America’s oldest private equity firms, for $1.3 billion in cash.
In connection with the sale, SuperValu and Save-A-Lot will enter into a five-year professional services agreement where SuperValu will provide Save-A-Lot with fundamental services and support its day-to-day operations, including information technology, payroll and finance.  

“We are very pleased with this outcome, how it strategically positions SuperValu for future growth of the services business and how it also provides future opportunities for Save-A-Lot,” said Mark Gross, president and chief executive officer, SuperValu.

Save-A-Lot has been adversely impacted by the reduction of Supplemental Nutrition Assistance Program (SNAP) benefits, in 22 states in which Supervalu operates, compounded by the fact that their level of SNAP sales is meaningfully higher than other retailers. The goals of SNAP are to improve participants' food security and their access to a healthy diet.

These states have either lowered the amounts paid to individuals or have barred them from being able to receive benefits, which has negatively impacted customer accounts and basket size among the customers using SNAP.

“We, too, have lowered retail prices but see limited benefit to being even more aggressive given our inability to offset such reductions elsewhere in our assortment. I believe our licensees understand our thinking and support our approach,” said Eric Claus, chief executive officer and president, Save-A-Lot.
While the company did respond to the competitive prices, it worked vigorously on the product, which then allowed it to be able to increase the overall gross margin, even though these actions were taken. 

“We continue to see deflation and lower levels of SNAP benefits as headwinds to the rest of the year. These external factors simply are what they are," said Claus. "Our job is to operate and merchandise our stores as best we can in this challenging environment.”

Save-A-Lot slowed down the pace of the rollout somewhat so it could better manage the ongoing business and minimize the disruption caused by the new construction and new entries into markets being done inside which did have a negative impact to its second-quarter results.

Although Save-A-Lot doesn’t have a plan to reset all the corporate stores, the ones they would reset should be completed in the third quarter and provide a sales lift to them in the back half of this year. Its merchandising initiatives continue to roll out and be favorably received by their customers.
On the store development front, Save-A-Lot now plan to open up to 70 new stores, which should be about equally split between its licensees and corporate stores, a number that is close to our original plan of 75 stores.

Overall, Save-A-Lot is facing strong headwinds today. But with time, the company believes it will subside and our long- term strategies will take stronger hold.

“When the tide will turn, I believe Save-A-Lot will ride the upside to that wave. We remain very engaged and energized with our initiatives, and I believe that Save-A-Lot has a very bright future,” said Claus.