The Supermarkets and Grocery Stores industry had rapidly grown over the past five years, mainly due to stronger domestic economy. The disposable income has also grown over this period, some consumers traded up to premium, organic and all-natural brands, helping to lift industry revenue. Furthermore in next five years this industry is expected to continue its growth momentum due to rising unrestricted income and the rising population.
SUPERVALU (SVU, Financial) is one of the leading names in the grocery industry. The company operates over 3420 stores spread across various U.S. locations. Supervalu’s revenue stream comprises of Independent business, Save-A-Lot, Retail Food and Corporate. The major revenue is contributed from its independent business, Save-A-Lot and Retail Food while the corporate has negligible contribution. The company has been displaying strong performance in the past, and its recently declared results continued to display strong results.
Quarter overview
Consolidated revenue in the fourth quarter of fiscal 2014 grew 1.05% year over year, to record $4,364 million as compared to $3,952 in the same tenure last year. Major contribution of 44.8% to consolidated revenue was from the Independent business. Save-A-Lot and Retail Food contributed 26.1% and 28% while corporate contributed 1.1% to the consolidated revenue.
Revenue contribution from various segments with year over year comparison (revenue in millions)
| Revenue Stream | Q4-2015 | Q4-2014 | % Growth |
| Independent business | $1,956 | $1,821 | 7.4 |
| Save-A-Lot | $1,136 | $999 | 13.7 |
| Retail Food | $1,223 | $1,087 | 12.5 |
| Corporate | $49 | $46 | 6.5 |
Tailwinds
Under the product expansion plan, the company is planning to add more items that will be on the shelf at various stores. Supervalu will add around 150 new items spread across 18 categories. The new addition will cater to wider range of customer and will also be a driver for incremental sales from its existing customers. The company also plans to discontinue around 50 items and focus more on the items with higher margins. To strengthen its brand, the company is also focusing on packaging of its private labeled products as part of its brand evolution programs.
In the fiscal 2015, 46 new stores were opened at various locations and discontinued the operation of 42 stores, the net increase of four stores. The store conversion for the company also helped in adding more weight to the brand Save-A-Lot. This can always leverage growth in the future, for the company.
Journey Ahead
The company plans to start around 100 new stores in the fiscal 2016 and 60% of these are expected to be corporate stores. The company is more focused to increase its footprint of corporate stores and expects to make new entries with Save-A-Lot in various new markets. Furthermore the company targets to start around 40 new stores every year with a predefined objective of having 150 new stores in next 3 years.
Conclusion
Considering the store expansion plans of the company with the key focus on brand establishing, the company is set for growth in the future. Furthermore the company was named as the wholesaler of the year 2015 by Progressive Grocer further puts weight to its brand name and will influence in driving more new traffic at its various stores. Currently the stock is being traded at around $7.85 and this can be a perfect price to buy if we consider the 52-week high-low range of $7.2 - $12.
Investors can press the buy button for SUPERALU.
