The difficult holiday season, shrinking customer budgets and intense competition for survival have been some of the common problems that companies are facing nowadays. Survival has become increasingly difficult for all. One such example is that of SUPERVALU (NYSE:SVU), a grocer in the United States, which has been facing a lot of difficulty in fighting such situations.
Stiff price competition among industry players and growing popularity of discount retailers has added to the woes of the grocer so much that it has been sucked into a black hole.
Inability to overcome competition…
Increased efforts on behalf of retailers such as Kroger (NYSE:KR) and Wal-Mart (NYSE:WMT) took its toll, leading to declining sales of SUPERVALU in the last few years. This is mainly because peers’ strategies are largely customer oriented and work on making the customer happy.
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Initiatives such as customer loyalty discounts and continuous improvement in customer service attracted more and more traffic into Kroger’s stores, leading to a lower number of customers in its rival stores. Also, it has some great future plans such as adding new flavors to single-serve coffee pods which will drive revenue north and enhance its yogurt business which has already been doing well.
Even Wal-Mart has got quite competitive with its moves. It has managed to earn a place for itself by continuously striving for innovation at the lowest possible cost. Its lower prices as well as expansionary moves made it easy for customers to go to Wal-Mart for every daily need. In fact, Wal-Mart’s recent initiative to reach out to the crowded places has made the retailer increasingly popular. This is done so that people have Wal-Mart stores in their neighborhood, even if it is a small one. This also reduced the cost structure since smaller stores came with lower costs, which proved to be beneficial.
Most importantly, these retailers adapted themselves to the changing environment and entered the price war. Both Kroger and Wal-Mart lowered its product prices in order to compete with the dollar stores who were offering the lowest prices.
The case with dollar stores
Dollar stores have indeed been a threat to all mass market retailers. Dollar stores such as Family Dollar Stores (FDO) offer extremely low prices, which draws customers’ attention, especially in the times of crisis. Family Dollar offers most of its products for $1 which is a great incentive for customers to turn up to the stores for all their needs.
Moreover, it has been expanding its wings into newer segments such as tobacco products which are pushing revenue north. Its continuous success in the consumables division enabled the retailer to add more number of stores each quarter.
All these efforts were absent in SUPERVALU. It stuck to its age old methods and lacked the ability to change with the situation. It could not lower its costs, which led to a dull performance and store closures. All these factors hammered the company down leading to a large number of problems.
As a result…
The prevailing tough environment as well as a difficult competitive environment led to continuous disappointments in SUPERVALU’s results. Due to low consumer demand, store closures as well as a dull holiday season, SUPERVALU’s bottom line has been shrinking. Also, huge spending on promotions have been hampering earnings.
Therefore, the company decided to sell off some of its brands so that it can remain focused on its core operations. This has helped the company to enhance its wholesale operations in a better way and make it acceptable to customers.
The company has not been able to adapt itself to the changing needs of customers leading to a loss in sales and market share. Its mismanagement of costs has also been a matter of concern. Additionally, it has been falling weak against competitors also. Though the company has been able to provide some relief to investors by selling other businesses, it is difficult to say how things will take shape. It is better to stay away from this retailer.