Supervalu to grow GM: chain to roll out supermarket/dollar store combo format - In the News - Brief Article

DSN Retailing Today, July 29, 2002 by Mike Duff

MINNEAPOLIS -- In a first quarter financials announcement, Jeff Noddle, Supervalu chairman and ceo, revealed the company's strategy for introducing extreme value supermarket/dollar store combination units. The combo stores represent part of a key growth initiative for the distributor/retailer.

In May, Supervalu acquired Deal$--Nothing Over a Dollar to introduce a general merchandising element into its Save-A-Lot extreme value supermarket operation. The company plans to add 100 Save-A-Lot and Deal$ units by the end of the fiscal year, in addition to the 53 acquired dollar stores and six Save-A-Lot/Deal$ combo units.

To support the company's general merchandise initiative, Supervalu is expanding its Grand City, Ill., warehouse, in addition to wrapping up a deal for a second general merchandise distribution center.

"We are already testing several Save-A-Lots with general merchandising and the results are very promising," Noddle said. He added, "Our ability to fully retrofit our Save-A-Lot stores will be a function of the lead time in product sourcing and bringing on additional warehouse capacity, which should be in place no later than next year."

Supervalu won't sit idly until new supply chain capacity comes on line, though. "Until we complete the capacity additions and have our sourcing in place to support Save-A-Lot, we plan to have general merchandise kiosks, at least for the holidays, as a first-stage retrofit," Noddle said.

To increase Supervalu's distribution business, the company will have to look to drive its top-line growth, especially after the chain was losing business from Genuardi's and Kmart. But a boost from Target is helping fill the gap, however.

"Target expanded and consolidated a significant proportion of its primary SuperTarget supply chain business with Supervalu. By the end of the summer, we will supply 74 SuperTargets in 15 states, up from 37 SuperTargets in 10 states we supplied at the end of this first quarter," Noddle said.

In the first quarter of 2002, Supervalu posted sales of $5.8 billion and earnings of $77.2 million, or 57 cents per share on a diluted basis. Meredith Adler, a Lehman Bros. analyst, said Deal$ already is boosting Supervalus business. A first quarter EBITDA gain--reckoned to be 80 basis points by the company--"mostly reflects the positive results of the Save-A-Lot group, which is benefiting from the addition of more general merchandise as a result of the Deal$ acquisition," she said.