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MINNEAPOLIS -- Amid a weakening retail sales environment exacerbated by rising fuel prices, Supervalu based here said yesterday it plans to put its 20 corporately owned Shop 'n Save supermarkets in the Pittsburgh area on the block. Industry sources in Pittsburgh said it was the wiser move in an increasingly aggressive retail battleground.
Lee Armbuster, president of Supervalu's New Stanton, Pa.-based Pittsburgh division, told Progressive Grocer he expects many of the locations to be acquired by existing Shop 'n Save independent operators, who currently operate 55 stores in the immediate Pittsburgh area and surrounding markets.
"The Pittsburgh market has become a very competitive one, and we have weighed carefully all of the options available and thus believe that transitioning the stores back to independent ownership is the best way that Supervalu can support its independent owners and the Shop 'n Save banner well into the future," Armbuster said.
In an interview yesterday following the announcement, Armbuster said it was too soon to comment on additional details with regard to prospective buyers, or other plans for the 20 stores. "While I have not yet spoken directly with anyone," regarding potential sites, "I understand some have indicated interest" in several corporate locations, he said.
A factor in the local Pittsburgh supermarket scene since the early 1980s, the retailer-driven Shop 'n Save banner group (progeny of the now-defunct Charley Brothers, and later Wetterau, and subsequently its current owner/supplier Supervalu) formerly boasted a robust fraternity of independents that represented a formidable force in the market.
Today, however, between a declining base of independent owners and a declining population base -- coupled with a churning retail landscape fueled by Wal-Mart's ongoing expansion and market leader Giant Eagle's controversial yet highly successful fuelperks! shopper loyalty program -- the Shop 'n Save group has faced an uphill climb in its quest to gain additional market share.
One local observer who requested anonymity commended Supervalu's move as "the right thing to do. The corporate stores had really begun lacking an identity, and it was becoming increasingly clear that something had to give." For those locations that don't get picked up by existing retailers, the local trade official said, "it would be in Supervalu's best interest to retain the locations, and convert them to their thriving Save-A-Lot corporate format."
Supervalu's decision to divest the stores, which will result in after-tax charges of about $38 million to $43 million, comes as the company wraps up a disappointing quarter. The wholesaler forecasted weaker-than-expected profits for its current fiscal year as high fuel prices curb consumer spending.
"The sales environment has weakened since the first quarter as the impact of higher fuel prices continues to unfold across the consumer spending landscape," Jeff Noddle, chairman and chief executive officer, said in a statement.
For the second quarter ending Sept. 10, Supervalu said it expects earnings per share in the range of 48 cents to 50 cents, excluding charges for selling the Pittsburgh stores. Sales at stores open at least a year dropped by 2 percent.
Noddle said Supervalu's decision to sell its corporate stores will simplify its presence in the region, which for years has operated under split ownership between corporate Shop 'n Save locations and its franchisees. "By eliminating the split ownership of the Shop 'n Save banner in the Pittsburgh market, Shop 'n Save's go-to-market strategy will be simplified," said Noddle, adding: "We remain committed to our strong independent operators whose local customer knowledge and marketing savvy positions them to successfully compete and serve the Pittsburgh customer base."
Noddle further noted that Supervalu remains, "very well positioned for
the long term. Several of our new initiatives have been launched, including W.
Newell & Co. produce and our supply chain technology investments, as well as
the integration of Total Logistics, Inc., which is substantially complete. We
remain committed to our strategy, which includes innovative retail
merchandising programs, network expansion, and the delivery of best-in-class
supply chain services across the grocery retail channel and beyond. The
establishment of our new 18 percent return on invested capital goal guides all
of our important initiatives across the company."
-- Meg Major