Can SUPERVALU's (SVU) Growth Efforts Drive It Further?

SUPERVALU INC.’s SVU dedicated endeavors to strengthen wholesale business and omni-channel operations along with efforts to turn around retail business have been impressing investors, lately. In the past month, shares of this Zacks Rank #2 (Buy) company have gained 6.5% against the industry’s decline of 0.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Wholesale Business Strategies Boost Performance

SUPERVALU’s Wholesale business has been one of its prime growth catalysts. The company derives a major portion of its revenues from this segment. Notably, sales from this segment grew 52% year over year in third-quarter fiscal 2018, contributing roughly 73% to the company’s total revenues.

Given the importance of its wholesale operations, SUPERVALU consistently undertakes measures to sustain the segments’ growth momentum. Accordingly, the company has been striving to develop the segment’s operations by adding customers alongside retaining and developing business with existing ones. Acquisitions have also been favoring the Wholesale segment’s operations for a while. In this regard, the company completed the buyout of Associated Grocers of Florida in the beginning of the fourth quarter, which along with efficient integration of Unified Grocers underscore its focus on solidifying the Wholesale business. Notably, Unified Grocers contributed sales of about $860 million to SUPERVALU’s Wholesale business during the third quarter. The company is on track to generate targeted synergies from this buyout. Apart from this, SUPERVALU has supply agreements with retailers like Fresh Market Inc. and America’s Food Basket, which is expected to fuel sales growth in this segment.

 

Efforts to Boost Omni-channel Performance
 
SUPERVALU also strives toward improving omni-channel capabilities to resonate with the evolving consumer trends. In this respect, the company is on track to upgrade its website and mobile applications to enhance consumer shopping experiences. The company has also teamed with Instacart for providing same-day grocery delivery services. Additionally, the company signed a multi-year contract with Instacart to launch refreshed e-commerce sites and offer integrated store coupons and loyalty rewards.  

Such developments strengthen SUPERVALU’s position in the grocery segment against the e-commerce king, Amazon.com AMZN and other large retailers such as Walmart WMT and Target TGT, which are constantly developing their omni-channel offerings.

Organic Foods: A Viable Growth Platform  

SUPERVALU strives to improve business effectiveness by focusing more on prospective business areas. Notably, organic food products are becoming increasingly popular owing to rising health consciousness amongst consumers. Thus, the company has been evaluating the growth prospects in the organic foods arena and has partnered with its wholesale merchants to explore opportunities in this category. Further, we expect the company to undertake vital steps to emerge strongly in this category.

Efforts to Revive Retail Segment Performance

SUPERVALU’s sluggish performance in the retail segment has been a hurdle for the company for long. Well, the segment has been grappling with issues such as price competition, competitive store openings and intense promotions. Driven by these factors, the segment has been witnessing decline in identical store sales for the past 11 quarters.

However, the company has put into place several strategies to achieve a turnaround in this segment. These include innovations, greater focus on private brands and the addition of fresh departments. The company intends to boost sales through price investments and promotions along with efforts to improve merchandise displays and offerings. Incidentally, the company has been steadily progressing with its Quick'n Easy meal solutions across a number of fresh product offerings including seafood and meat. The company concentrates on augmenting stores performance by curtailing inventory shrinkages, and making capital investments toward store openings, relocations and refurbishments. We expect that such well-chalked endeavors will bear a positive impact upon the retail segment’s performance in the long run.

Wrapping it Up

We applaud SUPERVALU’s progress with its Wholesale business and efforts undertaken to meet consumer’s evolving needs, especially in the e-commerce and organic foods realm. The company’s efforts to achieve a turnaround in the retail segment are also encouraging. Marching with such potential strategies rolled up in its sleeves, we expect SUPERVALU to continue sustaining in investors’ good books.

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