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Company Profile of Supervalu

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Company Profile of Supervalu
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Pratik Kukreja
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Company Profile of Supervalu - May 13th, 2011

Minnesota-based Supervalu Inc. is the leading grocery wholesaler in the United States, supplying products to more than 4,200 stores--regional and national chain supermarkets, corporate owned and licensed retail locations, mass merchandisers, and e-tailers--in 48 states and abroad. The company also offers retailers a variety of business support services, including consumer and market research; private labeling; personnel training; accounting; insurance brokerage and services; store site selection, construction and design; category management; and business planning. Major clients include Bruno's, Dahl's, Jewel, Kroger, and SuperTarget. Supervalu is also the 11th largest food retailer in the United States, running more than 1,000 retail stores across 36 states, including Save-A-Lot, bigg's, Cub Foods, Shop'n Save, Scott's, Shoppers Food Warehouse, Metro, Farm Fresh, and Hornbacker's. In addition, Supervalu has franchise and licensing agreements for stores operated by others companies, including 55 Cub Foods and 764 Save-A-Lot stores.

SUPERVALU INC. (SUPERVALU) is a United States grocery channel. SUPERVALU conducts its retail operations under the Acme, Albertsons, Bristol Farms, Cub Foods, Farm Fresh, Hornbacher’s, Jewel-Osco, Lucky, Save-A-Lot, Shaw’s, Shop ’n Save, Shoppers Food & Pharmacy and Star Market banners, as well as in-store pharmacies under the Osco and Sav-on banners. Additionally, the Company provides supply chain services, primarily wholesale distribution, across the United States retail grocery channel. The Company leverages its distribution operations by providing wholesale distribution and logistics and service solutions to its independent retail customers through its Supply chain services segment. It operates in two segments: Retail food and Supply chain services. During the fiscal year ended February 27, 2010 (fiscal 2009), the Company added 40 stores through store development and closed or sold 112 stores, including planned disposals. In November 2010, the Company announced the sale of its Bristol Farms division (14 stores) to a company formed through a partnership with the Bristol Farms management team and Endeavour Capital.
Retail Food
The Company conducts its Retail food operations through a total of 2,349 traditional and hard-discount retail food stores, including 855 licensed Save-A-Lot stores, located throughout the United States. The Company’s Retail food operations are supplied by 23 dedicated distribution centers and nine distribution centers that are part of the Supply chain services segment providing wholesale distribution to both the Company’s own stores and stores of independent retail customers. The Company operates 1,161 traditional retail food stores under the Acme, Albertsons, Bristol Farms, Cub Foods, Farm Fresh, Hornbacher’s, Jewel-Osco, Lucky, Shaw’s, Shop’n Save, Shoppers Food & Pharmacy and Star Market banners ranging in size from approximately 40,000 to 60,000 square feet. The Company’s traditional retail food stores provide a grocery offering and, depending on size, a variety of additional products, including, general merchandise, health and beauty care, pharmacy and fuel. The Company owns 333 hard-discount food stores operating under the Save-A-Lot banner and licenses an additional 855 Save-A-Lot stores to independent operators. Save-A-Lot food stores typically are approximately 15,000 square feet in size, and stock primarily custom-branded food items generally in a single size for each product sold.
Supply Chain Services
The Company’s Supply chain services business primarily provides wholesale distribution of products to independent retailers and is a company food wholesaler. The Company’s Supply chain services network spans 49 states and serves as primary grocery supplier to approximately 1,940 stores of independent retail customers, in addition to the Company’s own stores, as well as serving as secondary grocery supplier to approximately 550 stores of independent retail customers. The Company’s wholesale distribution customers include single and multiple grocery store independent operators, regional and national chains, mass merchants and the military. The network of distribution centers is consisted of 21 distribution facilities, nine of which supply the Company’s own stores in addition to stores of independent retail customers. In addition, the Company provides certain facilitative services between its independent retailers and vendors related to products that are delivered directly by suppliers to retail stores under programs established by the Company. These services include sourcing, invoicing and payment services. The Company also offers third-party logistics solutions through its subsidiary, Total Logistics, Inc. and its Advantage Logistics operations. These operations provide customers with a suite of logistics services, including warehouse management, transportation, procurement, contract manufacturing and logistics engineering and management services.

Supervalu announced in late 1994 that it would begin to implement a restructuring program called Advantage in early 1995. Over a two-year period, the company eliminated about 4,300 jobs (10 percent of the total workforce) and divested itself of about 30 underperforming retail stores. The Advantage program also centered around three chief aims: revamping the distribution system into a two-tiered system in order to lower the costs to retailers; creating a new approach to pricing called Activity Based Sell; and developing "market-driving capabilities" that would increase sales for Supervalu's retail customers, chiefly through category management. The last of these goals also involved the realignment of the company's wholesale food divisions into seven marketing regions: Central Region, based in Xenia, Ohio; Midwest Region, Pleasant Prairie, Wisconsin; New England Region, Andover, Massachusetts; Northeast Region, Belle Vernon, Pennsylvania; Northern Region, Hopkins, Minnesota; Northwest Region, Tacoma, Washington; and Southeast Region, Atlanta, Georgia. Supervalu took a $244 million charge in 1995 to implement the Advantage program, which was the company's response to increasing market pressures--low inflation, industry consolidation, a slowdown in growth, and changes in the promotional practices of manufacturers--which had yet to hurt the company's earnings but were certain to begin to do so if the company took no action.
In late 1996 Supervalu bought the 21-store Sav-U Foods chain of limited assortment stores from its rival, Fleming Companies. The purchase provided Supervalu its first southern California retail presence. The stores were to be converted to Save-A-Lot stores, and the company made plans to eventually open 200 to 300 Save-A-Lot stores in the area.
Also in late 1996, ShopKo and Phar-Mor Inc., a chain of more than 100 deep-discount drug stores, merged under the umbrella of a new holding company called Cabot Noble Inc.. Although initially Supervalu was to have no stake in the new company, the final agreement gave Supervalu 6 percent of Cabot Noble in order to reduce the amount of financing needed for the merger. Supervalu also gained about $200 million as a result of the purchase of most of its shares in ShopKo. In 1997, the company exited its 46 percent investment in ShopKo, making about $305 million in the net proceeds. Supervalu had also started to take some tentative steps toward expanding its presence overseas, through a 20 percent stake it held in an Australian wholesaler and its agreement to supply products to a new supermarket in Moscow.
By mid-1998, the company had a strong first quarter to boast about, a two-for-one stock split, and opened or completed acquisitions of 73 stores. The company focused its expansion efforts that year to growing the Save-A-Lot unit. That same year, Supervalu began its investment in the pharmacy business: Scott's Foods stores acquired Keltsch Pharmacy of Northeast Indiana, which included 11 freestanding pharmacies and three in-store ones. Supervalu also lost one of its bigger customers, Bellevue, Washington-based QFC, which was acquired by Portland's Fred Meyer.
In 1999, Supervalu reported record sales of $17.4 billion for 1998, and shortly thereafter, still riding the crest of the previous year's revenue wave, acquired Richfood Holdings, Inc., the leading Mid-Atlantic food distributor and retailer. As a result, Supervalu took over the Shoppers Food Warehouse, Metro, and Farm Fresh retail food chains and gained about 800 new customers. Supervalu then divested of Hazelwood Farms Bakeries to focus its investments on core food distribution and retail businesses, but maintained its link with the bakeries (and new owner Pillsbury Bakeries & Foodservice) as a supplier.
Along with various cost-reduction initiatives, Supervalu's continued focus on core businesses and the boost from the Richfood acquisition helped Supervalu see yet another record year for sales: By mid-2000, Supervalu's sales surpassed the $20-billion mark. An ever-growing, increasingly more efficient company, Supervalu was operating more than 194 price superstores (including Cub Foods, Shop'n Save, Shoppers Food Warehouse, Metro, and bigg's), 839 limited assortment stores (including 662 licensed locations under the Save-A-Lot banner), and 85 other supermarkets. It was also the primary supplier to about 3,500 supermarkets and franchises of its own retail chains, and a secondary supplier to approximately 2,600 stores, including 1,350 Kmart stores. The company also joined the Worldwide Retail Exchange, a premier retail-focused, business-to-business exchange, and signed a multiyear national supply agreement with Webvan Group, Inc. of Foster City in California.
As was the trend among wholesalers at this time, Supervalu planned to continue its expansion of retail stores in order to gain more control of its core businesses. By 2001, Supervalu's retail food business represented about 60 percent of total company operating earnings, and was growing even more. One of the company's goals was to increase retail square footage by about five percent for the 2001 fiscal year. The pharmacy side of Supervalu's retail business, however, was apparently not considered a core one, as the company closed 30 stores in three states, 18 of which contained pharmacies.
The distribution side of Supervalu's business took a blow when Kmart ended its contract with the company, resulting in $2.3 billion in reduced revenue for the year. Supervalu also lost a $400 million annual supply contract with the Genuardi's chain, once the East Coast chain was bought by Safeway in mid-2001. Supervalu continued to consolidate its distribution centers and announced that it would cut 4,500 jobs, or 7.3 percent of its workforce.
During fiscal year 2002, Supervalu opened 115 new stores, including 103 Save-A-Lot stores, 11 price superstores, and one conventional supermarket, and closed 49 stores. In mid-2002, the company announced its aggressive plans for 2003: It would open 10 to 15 superstores and at least 150 extreme value food stores. And in yet another move to gain control over its core business, Supervalu announced that it would purchase St. Louisbased Deal$-Nothing Over a Dollar LLC, adding 53 stores to its general merchandise business. Supervalu's Save-A-Lot chain also opened its 1,000th store in 2002.
In June 2002, Supervalu faced an embarrassing major setback, however. The company's shares dropped 22 percent in value after the company announced that profits for its pharmacy business were deliberately inaccurate for three years. While preparing for a scheduled, internal audit, the company discovered that a former Supervalu comptroller deliberately misstated earnings for the company's pharmaceutical stores, artificially inflating profits. Although Supervalu entered into the new millennium with great momentum for expanding its retail business and consolidating its distribution business, any possible long-term effects from the accounting scandal remained to be seen.
Principal Competitors:Ahold USA; Albertson's; Alex Lee; Allou; AWG; Associated Wholesalers; Bozzuto's; C&S Wholesale; D&W Food Centers; Delhaize America; Di Giorgio; Dierbergs Markets; Fleming Companies; Fresh Brands; Giant Eagle; A&P; Jetro Cash & Carry; Krasdale Foods; The Kroger Co.; Marsh Supermarkets; McLane; Meijer; Nash Finch; Roundy's; Safeway; Schnuck Markets; Sherwood Food; Shurfine International; Spartan Stores; Topco Associates; Wakefern Food; Wal-Mart; Winn-Dixie.

Beta: 1.17
Market Cap (Mil.): $2,320.97
Shares Outstanding (Mil.): 212.15
Annual Dividend: 0.35
Yield (%): 3.20
SVU.N Industry Sector
P/E (TTM): -- 18.40 37.56
EPS (TTM): -484.73 -- --
ROI: -13.58 6.64 8.52
ROE: -71.45 8.83 13.70

Public Company
Incorporated: 1926 as Winston & Newell Company
Employees: 57,800 (2002)
Sales: $20.98 billion (2002)
Stock Exchanges: New York
Ticker Symbol: SVU
NAIC: 445110 Supermarkets and Other Grocery (except Convenience) Stores; 446110 Pharmacies and Drug Stores

Key Dates:
1871: Minneapolis wholesale grocery firms--B.S. Bull and Company, and Newell and Harrison Company--merge to form the early forerunner to Supervalu.
1926: Earnings reach $6 million. The company incorporates as Winston & Newell Company.
1954: The company changes its name to Super Valu Stores, Inc.
1955-88:The company acquires 12 regional food wholesalers, primarily in the Midwest, Southeast, and Northwest.
1962: Sales surpass $300 million.
1971: With the acquisition of Shopko, the company begins major investments in the nonfood, general merchandise business.
1989: Supervalu opens its first hypermarket (a Cub Foods-ShopKo combination) in Cleveland, Ohio, and company sales reached $1.28 billion.
1992: The company changes its name to Supervalu Inc.
1999: Supervalu acquires Richfood Holdings, Inc., a leading Mid-Atlantic food distributor and retailer.
2000: Sales surpass $20 billion.
2002: Supervalu opens its 1,000th Save-A-Lot store, and is faced with an accounting scandal centering on its pharmaceutical business.

Name Age Since Current Position
Craig Herkert 51 2009 President, Chief Executive Officer, Director
Sherry Smith 49 2010 Chief Financial Officer, Executive Vice President
Mark Anderson 58 2011 President and Chief Operating Officer - Independent Business
Wayne Shurts 51 2010 Executive Vice President, Chief Information Officer
Julie Berg 54 2010 Executive Vice President, Chief Marketing Officer
J. Andrew Herring 52 2010 Executive Vice President - Real Estate, Market Development and Legal
David Pylipow 53 2006 Executive Vice President - Human Resources and Communications
Janel Haugarth 55 2011 Executive Vice President - Merchandising and Logistics
Peter Van Helden 50 2009 Executive Vice President; President- Retail Operations
Daniel Zvonek 46 2010 Group Vice President - Finance, Merchandising, Marketing and Corporate Planning
David Oliver 53 2011 Vice President, Chief Financial Officer - Supply Chain Services and Interim Controller
Charles Lillis 69 1995 Director
Steven Rogers 52 1998 Director
Edwin Gage 69 1986 Director
Susan Engel 64 1999 Director
Irwin Cohen 70 2003 Director
Ronald Daly 64 2003 Director
Philip Francis 64 2006 Director
Wayne Sales 61 2006 Director
Kathi Seifert 61 2006 Director

11840 Valley View Road
Eden Prairie, Minnesota 55344-3691

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