Supervalu presentation version 3 final
- 1. Targeting Financial Stability Hayden, Perla, Christine, and Enia
- 2. ON TARGET Discussion Flow Turnaround strategies for Supervalu Causation of Supervalu’s Struggle Discussion of Management and comparison to Safeway and A&P Grocers Forward Strategies Forward Projections of Recovery Q&A
- 3. ON TARGET Recommendations for SUPERVALU SURVIVAL
- 4. ON TARGET Recommendations: • Close 35% of stores nationwide to increase cash on hand and lower SG&A costs • Reduce overall headcount by 30-40% nationwide • Close all international locations (Caribbean) • Eliminate 6-9 distribution centers outside core geographical areas • Reduce employee benefits and pension contributions • Convert existing Save-A-Lot’s owned by Supervalu into franchise locations or close them • Tighten Credit to independent grocery customers
- 5. ON TARGET CAUSATION OF SUPERVALU’S STRUGGLE
- 6. ON TARGET Why is Supervalu Struggling? • Heavy SG&A costs weighing • Large debt assumed after down financial performance purchasing Albertson’s • Ineffective management of • Did not close underperforming current operations stores in a timely manner • Failed attempt to break into • Sluggish distribution network the “hard discount” segment • Too many chains within the • Distribution network is not Supervalu network focused on supplying just Supervalu stores
- 7. ON TARGET SG&A Costs have been a major driver of the operational decline of Supervalu. The acquisition of Albertson’s occurred in 2Q 2006, which is reflected in FYE 2007 financials.
- 8. ON TARGET Supervalu’s SG&A Expenses have historically been higher than their peer group… • Supervalu’s supply chain is regionally heavy but nationally thinner than competitors • Distribution centers (the life blood grocers) supply Supervalu and independent stores – causing more inefficiency and more lag time.
- 9. ON TARGET The company is lagging in collecting from credit sales to vendors which is being demonstrated through a high DSO score and low Receivables Turnover score. Supervalu’s distribution system from the Albertson’s deal is inefficient and must be reorganized and streamlined in order to be profitable.
- 10. ON TARGET DISCUSSION OF MANAGEMENT AND COMPARISON TO SAFEWAY AND A&P GROCERS
- 11. ON TARGET SUPERVALU's CESO Jeff Noddle CEO from June 2001-June 2009 • Led Albertson’s Acquisition in 2006 Craig Herket CEO from May 2009- July 2012 • Wal-Mart’s “Everyday low Prices” mentality • Save A-Lot expansion Wayne Sales CEO from July 2012- Present • Turn around CEO
- 12. ON TARGET Employee Benefits and Pension Plans: Reduce the benefits by 25-30% by Benefits: fiscal year ended 2017: • Medical Insurance • 130,000 Employees • Dental Insurance • 84,000 insured • Life Insurance • Competitive 401k • Tuition Reimbursement • Vacation and Holidays Other Changes: • Employees to share more of the cost of health insurance due to uncertainty with healthcare reform • Mandate direct deposit for all employees – more efficient • No tuition reimbursement for the next 2-3 years
- 13. ON TARGET Stores and Distribution Centers: • 5,000 retail stores from coast to coast • 35 Production distribution centers • Close distribution centers (Idaho, Montana, Utah, etc.) – Low store count • Close low performance stores across the country
- 14. ON TARGET Safeway Comparison to Supervalu: • Safeway and A&P are similar because they accumulated a lot of debt just as Supervalu did when they acquired Albertsons in 2006. • In the 1980’s Safeway was taken private by Kohlberg Kravis Roberts (KKR) and assumed tremendous debt. • The company chose to close 1,132 stores (over half of the 2,200 store nationwide) to regain profitability during this period. • Safeway sold all locations outside of the United States and Canada to simplify operations. • Today, Safeway runs over 1,700 stores in the United States and Canada and is more efficiently operating compared to the 1980’s.
- 15. ON TARGET A&P Comparison to Supervalu • A&P experienced financial difficulties in the 1970’s due to: • Lack of Capital • Higher labor costs compared to competitors • Inefficient use of resources • In February 1975 A&P planned to close 36% stores of A&P’s 3,468 stores. • By 1977 weekly store sales increased from $37,000 to over $70,000. • Total sales increasing from $6.4 billion to $7.2 billion despite the many closures. • However, in 2007, A&P acquired Pathmark for $1.4 Billion thus substantially increasing the debt load just like the 2006 Albertson’s acquisition. • A&P Filed for bankruptcy in December 2010.
- 16. ON TARGET FORWARD STRATEGIES
- 17. ON TARGET The Plan: Identify – Locate underperforming stores Invest – Once profitable start Stage 1 and distributions centers investing into current store Identify for immediate closure (3-6 and distribution locations to months) maximize returns per square foot. Stage 4 Stage 2 Invest Downsize Stage 3 Downsize – Close selected stores and cut the Reduce appropriate headcount to Reduce – Streamline cost reduce costs centers and optimize distribution channels for more financial synergies
- 18. ON TARGET FORWARD PROJECTIONS OF RECOVERY
- 19. ON TARGET Projected Financial Impact on Supervalu Projected financial improvement based on cost cutting assumptions and low/moderate growth in the regions in which the stores operate. In addition, the team inserted the assumption that current financial partners would refinance an estimated 33% of current or close to current debt obligations.
- 20. Q&A ON TARGET