supervalu presentation version 3 final
TRANSCRIPT
Targeting Financial StabilityHayden, Perla, Christine, and Enia
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Discussion of Management and comparison to Safeway and A&P Grocers
Discussion Flow
Turnaround strategies for Supervalu
Causation of Supervalu’s Struggle
Forward Strategies
Forward Projections of Recovery
Q&A
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SUPERVALU SURVIVALRecommendations for
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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
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CAUSATION OF SUPERVALU’S STRUGGLE
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Why is Supervalu Struggling?
• Heavy SG&A costs weighing down financial performance
• Ineffective management of current operations
• Failed attempt to break into the “hard discount” segment
• Distribution network is not focused on supplying just Supervalu stores
• Large debt assumed after purchasing Albertson’s
• Did not close underperforming stores in a timely manner
• Sluggish distribution network
• Too many chains within the Supervalu network
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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.
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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.
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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.
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DISCUSSION OF MANAGEMENT AND COMPARISON TO SAFEWAY AND A&P GROCERS
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SUPERVALU's CESOJeff NoddleCEO from June 2001-June 2009
Craig HerketCEO from May 2009- July 2012
Wayne SalesCEO from July 2012- Present
• Led Albertson’s Acquisition in 2006
• Wal-Mart’s “Everyday low Prices” mentality
• Save A-Lot expansion
• Turn around CEO
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Employee Benefits and Pension Plans:
• 130,000 Employees
• 84,000 insured
Benefits:• Medical Insurance• Dental Insurance• Life Insurance• Competitive 401k• Tuition Reimbursement• Vacation and Holidays
Reduce the benefits by 25-30% by fiscal year ended 2017:
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
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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
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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.
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• 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.
A&P Comparison to Supervalu
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FORWARD STRATEGIES
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The Plan:
Stage 1Identify
Stage 2Downsiz
e
Stage 3Reduce
Stage 4Invest
Invest – Once profitable start investing into current store and distribution locations to maximize returns per square foot.
Identify – Locate underperforming stores and distributions centers for immediate closure (3-6 months)
Downsize – Close selected stores and cut the appropriate headcount to reduce costs
Reduce – Streamline cost centers and optimize distribution channels for more financial synergies
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FORWARD PROJECTIONS OF RECOVERY
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Projected Financial Impact on SupervaluProjected 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.
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Q&A