Dive Brief:

• Supervalu reported consolidated net sales of $4 billion in the first financial quarter of this year — a 6.3% increase over last year, according to a company release. Earnings per share were 9 cents, below the 11-cent Wall Street estimate.
• Net sales for the company’s wholesale division increased 12.4% over the same period last year — to $2.56 billion — while Supervalu’s retail net sales declined 2.7% — to $1.39 billion. Comp store sales declined 4.9%.
• “The results generated this quarter by our Wholesale business were outstanding and demonstrate our ability to deliver on our strategy and commitment toward growing this segment,” said Supervalu president and CEO Mark Gross said in the report.

Dive Insight:

Supervalu’s decision to focus on the wholesaling side of its business is looking smarter with each quarter. The company, which divested most of its retail holdings during the past few years — most notably the $1.4 billion sale of its Save-A-Lot chain last year — has increased its sales as a distributor by expanding existing accounts, adding new ones, and acquiring strategic assets in the sector.

During the last year, Supervalu has added lucrative new retail distribution contracts, including The Fresh Market and America’s Food Basket. The wholesale division has also increased its deliveries of produce and specialty goods, which are seeing increased demand from retailers and consumers.

In January, Supervalu announced the $375 million acquisition of Unified Grocers, a California-based cooperative wholesaler that extends Supervalu’s distribution along the West Coast and into the growing Northwest grocery market. The sale, which was finalized in April, shortly after the first quarter drew to a close, will begin showing results in the second quarter of this year.

The company’s retail division, in contrast, experienced its ninth consecutive quarter of comp store sales declines. Price deflation has had an impact, according to Supervalu, though reports show that pressure easing as the year progresses.

Competition in key markets, however, isn’t going to ease any time soon. In Minneapolis, Supervalu’s hometown and home to 70 of its Cub Stores, Hy-Vee has muscled in and stolen significant market share from the chain. Supervalu announced it will update some stores, but the damage may be done as shoppers defect to stronger operators.

Supervalu officials have said they plan to invest in top-selling stores and close underperformers. Earlier this year, the company combined the operations and merchandising staffs of Shoppers Food & Pharmacy and Farm Fresh, two of its flagging brands. In January, Supervalu hired former Target executive Anne Dament as head of retail, merchandising and marketing and charged her with improving sales across its retail footprint.

Still, it’s clear Supervalu is squarely focused on its wholesaling business — and rightfully so. Speaking at the RBC 2017 Consumer & Retail Conference in New York earlier this year, president Mark Gross told attendees he is “first and foremost a wholesaler,” and that he sees the company’s retail stores as a “test lab” to improve its wholesaling business.

Supervalu’s familiarity with the retail side of the industry could help it win contracts from grocers seeking an edge. The company will also need to make further acquisitions in a wholesaling sector that’s being driven by consolidation. Smaller distributors, in particular specialty ones, are being gobbled up by larger competitors seeking to expand in high-margin categories.

As Supervalu continues to grow as a distributor and limit its vulnerabilities in retail, its financial performance should continue to improve.