The growing popularity of dollar stores and mass market retailers has affected the existence of traditional grocery stores. For example, dollar stores such as Dollar General provided most of the products at the lowest possible prices, which forced cash strapped customers to move from other grocers to such dollar stores. In fact, strategies such as providing items for $1 or less have been significant to its growth.
However, grocer Supervalu (NYSE:SVU) made significant efforts to combat competition and stage a comeback. Its recently reported fourth quarter results surprised the investors as it beat analysts’ expectations.
The earnings beat
Revenue climbed 1.4% to $3.95 billion, over year-ago quarter. The top line was driven by higher demand for its products as well as a rise in store traffic. In fact, Supervalu’s same store sales grew 2.1% during the quarter for its Save-A-Lot store network. Also, corporate stores witnessed identical store sales growth of 3.5%.
- Warning! GuruFocus has detected 1 Warning Sign with SVU. Click here to check it out.
- SVU 15-Year Financial Data
- The intrinsic value of SVU
- Peter Lynch Chart of SVU
The retailer performed well not only on the top line, but also on the bottom line. Its earnings jumped to $0.18 per share, as against loss in the prior year’s quarter. This increase in bottom line came in mainly due to cost reduction strategies undertaken by the company.
The grocer’s biggest strength is its network of Save-a-Lot stores which concentrates on providing competitive prices to entice customers. It adopted the “fair price promotion strategy” last year which is helping the retailer to overcome competitive pressures.
Also, “fresh from farm” department is doing well since customers have become health conscious and look for fresh products instead of stored ones.
Moreover, Supervalu’s restructuring efforts have been commendable. It discontinued five of its business units last year in order to remain focussed on its profitable Save-A-Lot segment. Additionally, the company cut 1,100 jobs last year, which helped in controlling costs and increase profits.
Since Supervalu has been able to revive its business, it now plans to expand its presence. It plans to open 65 new stores during this year. Hence, Supervalu stores will be available for customers’ every need.
The grocer has changed store layouts as well as improved its merchandise sets at its Save-A-Lot stores. It has adopted horizontal merchandising sets and has displayed value investments in such a way that it is noticeable to customers.
Further, the company plans to introduce the new coupon-to-card program which enables Supervalu customers to download and get access to their coupons through their phones. Therefore, it makes it easier for customers to access digital coupons as well as link it to their card.
Customers will always be calculative about their spending. Hence, offering lower price for basic goods is a good strategy to attract customers. Supervalu has been able to implement this strategy at the right time, enabling it to stage a comeback. With the efforts of reducing costs and attracting people through various promotional efforts, the grocer should be able to fare well. Moreover, it plans to expand its store network in the current year. However, it faces stiff competition from dollar stores and other big box retailers. Therefore, one should wait till the time is right to get into this growing company.