Supervalu tumbled as much as 28 percent to $3.80 in extended trading yesterday after rising 2.7 percent to $5.29 at the close in New York. The Eden Prairie, Minnesota-based company’s shares have fallen 35 percent this year, putting it on course for a fifth straight annual drop.
The company, which last month announced layoffs in its Albertsons unit in California and Nevada, plans to accelerate price reductions and cut costs by an additional $250 million over the next two years, it said in a statement yesterday. It has retained Goldman Sachs Group Inc. and Greenhill & Co. to review its options, it said.
What's happening?
“They’ve said it’s all about their ability to execute and get the prices right and get people in the stores, and then they come out and say they’re studying strategic options and suspending the dividend,” Joe Feldman, an analyst at Telsey Advisory Group in New York, said by telephone. “It just makes people wonder ‘Well, geez, what is going on?’”
Walmart is going on, of course. The grocery business is tough because the margins are really thin. Walmart has significant advantages in supply chain and they don't pay union wages, either. Those are competitive advantages that make Supervalu's business model tough to sustain, especially in a crappy economy.
The smartest move that Walmart has made in recent years is introducing their "Neighborhood Market," which provide a smaller assortment than a typical big box, with a heavy assortment of food. These smaller footprint locations allow Walmart to compete in places where real estate is tougher to find. And because of the competitive advantages Walmart has in other parts of the business, Supervalu and other grocers are getting squeezed.
Things change in the world -- as I mentioned in another context earlier this week, there used to be A & P markets coast to coast. Not any more. I remember shopping at Red Owl when I was a kid. That's gone, too. Walmart may be gone as well someday.
9 comments:
Margins are thin, but part of the deal (at least as far as I can see it) is that Wal-Mart is going pretty close to the edge on product quality, especially in groceries. I've been burned a few times by buying produce and dairy products at Wal-Mart, and don't even get me started on the meat aisle.
Typically, produce and dairy from Wal-Mart is about 3-5 days closer to expiration than at other stores. Yes, it saves them money. No, it's not appreciated when I have to throw out their wares because it's gone bad.
I wonder if the next Wal-Mart is going to be on the old K-Mart/Wal-Mart/Target "cheaper" model, or whether one of these days people are going to say "enough junk, I'm going to buy something worth buying."
I wonder if the next Wal-Mart is going to be on the old K-Mart/Wal-Mart/Target "cheaper" model, or whether one of these days people are going to say "enough junk, I'm going to buy something worth buying."
Some people do -- the parking lot at the Byerly's near my house is always packed and it isn't just filled with rich people.
We used to shop at Cub pretty much exclusively but the new Walmart supercenter is closer to our house and it's grocery offerings are huge. We haven't run into any expiration date issues with milk or meat; in fact, my wife would often buy dairy products from the smaller version of the Walmart because of the price and bought the rest of the groceries at Cub.
Then again, our family likely doesn't go through the volume of milk and other consumables that Bike Bubba's does!
The workforce costs vary dramatically. No comment on productivity, not enough info.
Some people are better than others at weighing price vs. quality.
I figured out some time ago that if I ever spent less than about $80 on a pair of shoes, I was going to wear them out in about a year. Spend a little more, and you can buy shoes that will last 5 or more, and are better for your feet besides. (I still have my first pair of Doc Martens that I bought for myself in 2003. I replaced the laces last year.)
Of course, that calculation in terms of groceries has a hell of a lot to do with what you're actually putting in your cart. If you mostly buy fresh (and therefore quickly perishable) items--produce, fresh meat, and dairy--I imagine it wouldn't be too hard to suss out the difference between Wal-Mart and a slightly better grocery store. You don't have to be genius to notice you're throwing half your food away.
If you mostly buy stuff that comes in cans and boxes, it doesn't matter. Might as well shop the lowest price and be done with it.
It would be interesting to know if there is a relationship between places where Wal-Mart is successful (or even dominant) as a food retailer and the general demand for fresh vs. processed foods.
Brian, absolutely right about the shoes. Spend the money.
We mostly buy our groceries at Walmart, except for meat. The produce isn't great, but the alternatives aren't better. The meat is inferior.
be wary of wal*mart house brands as well.
some are as good as the best name brand out there, while others suck.
canned sardines/oysters, a staple for me, are a major steal at wal*mart, though. the same name that sells for $3.50 at the grocery is only $1.58 at wal*mart.
Brian hits on one of my pet peeves; cheap shoes. The last time I bought shoes that would retail for less than $80 (excepting slippers and such), I ended up spending $400 at the podiatrist's.
But not everybody figures that out, and then we wonder why nobody wants to walk anywhere, and why we're all way overweight.
If you mostly buy stuff that comes in cans and boxes, it doesn't matter. Might as well shop the lowest price and be done with it.
I wonder if the next Wal-Mart is going to be on the old K-Mart/Wal-Mart/Target "cheaper" model, or whether one of these days people are going to say "enough junk, I'm going to buy something worth buying."
Spot on. Lot's of good comments. I think there is already an answer to Brian's 'next' store, and it is on the 'enough junk' model: Whole Foods. If there is a smaller but similarly successful story in the retail grocery market over the last 2 decades, this would be it.
I have a couple of vegetarians in my house who are pretty finicky about their produce. So two trips are made to the grocers each week. One to Walmart and one to Whole Foods. Walmart for Canned Goods, frozen veggies, cereal, Frozen Pizzas, Mac and Chees, Pasta, etc. Whole Foods for produce, dairy and fersh foods. The model works well, and when I have been lured into buying produce or meat at Walmart, I have frequently regretted it.
Rich
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