Investment fund Blackwells Capital is pressuring Supervalu to sell roughly one-third of its stores and add new members to its board and management team, including a new CFO, according to a letter written by the firm and viewed by The Wall Street Journal.
“We have grown increasingly frustrated with the company’s share-price performance and the lack of clear steps Supervalu’s leadership has demonstrated,” the letter reads, according to the Journal.
A Supervalu spokesperson told the Journal that the grocer will “continue to evaluate and execute on various initiatives as part of our efforts to transform Supervalu and create value for our shareholders.”
It’s not hard to see why Blackwells Capital is agitating for Supervalu to create more value for shareholders: The grocery wholesaler and retailer’s stock price has fallen precipitously over the last two-and-a-half years, from a high of $83.80 in April 2015 to just $15.66 at yesterday’s close.
Blackwells currently holds a 3.6% stake in Supervalu, which currently operates retail groups Cub Foods in Minneapolis-St. Paul; Hornbacher’s in the Fargo, North Dakota-Moorhead, Minnesota area; Shop ‘N Save in St. Louis; Shoppers in Washington, D.C.; and Farm Fresh in Virginia. The pressure comes not long after Supervalu’s CFO left in July as the company — like many other grocers — fights increasing competition and lingering price deflation.
Supervalu has been in the midst of a transformation in recent years, slimming down its retail business and bulking up on wholesale. The company has reduced its store count from 1,500 in 2012 to 220 today — most of which came through the sale of its Save-A-Lot discount chain to private equity firm Onex Corp last year.
At the same time, Supervalu has significantly grown its wholesale footprint, acquiring specialty distributors like Unified Grocers, which it secured this spring for $345 million. The grocer has also focused on firming up its presence in the growing Hispanic market. The company recently purchased Associated Grocers and CEO Mark Gross recently said he sees Hispanic shoppers as a driving force for future growth.
The jury is still out on the long-term impact of these shifts. In its most recent earnings report, net sales for the Supervalu’s wholesale division increased 12.4% over the same period last year — to $2.56 billion — while its retail net sales declined 2.7% to $1.39 billion, and comp store sales declined 4.9%. The company saw its store margins narrow from 2.7% to 1.3% in the last financial quarter, while wholesale margins rose from 2.9% to 3.6%.
Blackwells sees a ripe opportunity for the retailer to further reduce store count and change the makeup of its board. The pressure comes at a time when activist investors are making waves in the grocery space. Most notably, investment fund Jana Partners pressured Whole Foods to sell itself earlier this year — and then cashed out after the natural and organics grocer was bought up by e-commerce giant Amazon. These moves are emblematic of a growing trend of investor activism in the food and grocery space as traditional incumbents struggle to adapt to changing shopping habits and consumer tastes.
“You are going to continue to see that activists will continue to agitate where stock prices are depressed and there is relatively easy things to change the value of the company,” Randolph Burt, a partner at AT Kearney, told Food Dive in a recent interview.