- Blackwells Capital has intensified its call for Supervalu to dramatically change course and improve its business, according to the Wall Street Journal. The investor, which called on the company to sell stores and install new leadership in October, now wants Supervalu to sell real estate, explore separating its retail and wholesale divisions and possibly even sell its wholesale division, according to a letter obtained by the Journal. Blackwells owns a 4.4% stake in Supervalu.
- The activist investor will take its case to Supervalu’s board, and plans to nominate directors that share its vision. Blackwells said it will also publish a website that lays out its case. “We just need the company to stop rearranging deck chairs and start steering the course of the ship,” said Jason Aintabi, Blackwells managing partner, in an interview with the Journal.
- Supervalu’s wholesale division has made gains of late, with sales growing $1 billion in the most recent financial quarter, and the company maintains that its strategy of improving that business while scaling back on its retail division is a sound one. Still, the company’s stock price is down 32% this year and has been steadily dropping for the past few years.
Will Supervalu finally cut away the anchor that is its retail division? That’s one of Blackwells’ main demands, and it’s one other stockholders seem to share, too, as the retailer/wholesaler’s stores have continued to be a drag on profits.
Supervalu has what CEO Mark Gross has called a “three-pronged growth strategy” that’s focused squarely on the company’s wholesale division. It involves holding on to existing customers while also expanding their business and also adding new accounts. In recent quarters, Supervalu has shown it's able to do this, with new and established distribution agreements growing at a healthy clip.
New business has been growing at such a brisk pace, in fact, that Supervalu has had trouble processing orders. In the most recent financial quarter, the company experienced higher than expected trucking and logistics costs, which cut into profitability. Supervalu missed its price targets, and its stock slipped 13% as a result.
Supervalu needs to improve its execution, but its retail division remains its true Achilles heel. Traditional supermarkets like its Cub Foods and Shop N’ Save are struggling in very competitive markets like the Upper Midwest, where discounters and nimble competitors like Hy-Vee are stealing away market share. Supervalu has remodeled promising stores and scaled back underperforming locations, but that hasn’t improved results. Same-store sales in the most recent quarter fell 3.5%.
In an earnings call with analysts last month following its Q3 results, Gross said Supervalu would continue to invest in profitable stores while scaling back spending on less promising locations. He also said the company would explore selling the leases on some of its stores — a step Blackwells has advocated.
As the Journal notes, a sale of Supervalu’s wholesale business — Blackwells' most strident recommendation — seems unlikely at this point. But the company urgently needs to take action with its retail arm. Strong has said in the past he likes having grocery stores as testing labs to try out services and products for the wholesale division. That’s no doubt helpful, but it’s not enough to justify holding on to those stores as they continue their slide.