Supervalu presentation version 3 final

transcript

Targeting Financial StabilityHayden, Perla, Christine, and Enia

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

SUPERVALU SURVIVALRecommendations for

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

CAUSATION OF SUPERVALU’S STRUGGLE

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

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.

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.

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.

DISCUSSION OF MANAGEMENT AND COMPARISON TO SAFEWAY AND A&P GROCERS

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

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

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

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.

• 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

FORWARD STRATEGIES

The Plan:

Stage 1Identify

Stage 2Downsiz

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

FORWARD PROJECTIONS OF RECOVERY

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.

Supervalu presentation version 3 final

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