SuperValu Inc. (SVU)

SVU 
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SUPERVALU Inc. (SVU)

F2Q10 Earnings Call

October 20, 2009 10:00 am ET

Executives

David Oliver – Vice President of Investor Relations

Craig Herkert – President and Chief Executive Officer

Pamela K. Knous – Executive Vice President and Chief Financial Officer

Analysts

Deborah Weinswig - Citigroup

John Heinbockel - Goldman Sachs

Meredith Adler - Barclays Capital

Edward Kelly - Credit Suisse

Karen Short - BMO Capital Markets

Scott Mushkin - Jefferies & Co.

Mark Wiltamuth - Morgan Stanley

Neil Currie - UBS

Charles Grom - J.P. Morgan

Presentation

Operator

Good morning. My name is [Whitney] and I will be your conference operator today. At this time I would like to welcome everyone to the SUPERVALU second quarter earnings conference call. (Operator Instructions)

Now I would like to turn the call over to David Oliver, Vice President of Investor Relations. Sir you may begin.

David Oliver

Thank you and welcome everyone. SUPERVALU’s call today is webcast and will be available for replay on our website.

Today on the call are Craig Herkert, SUPERVALU’s Chief Executive Officer and President and Pam Knous, Executive Vice President and Chief Financial Officer.

As you know, the information presented and discussed today includes forward-looking statements which are made under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. The risks and uncertainties related to such statements are detailed in our fiscal 2009 10-K.

Craig will begin today’s call by discussing his vision for SUPERVALU. Pam will follow with comments on the quarter and Craig will return with his concluding remarks. After today’s prepared remarks, we will have a question-and-answer session. We are scheduled to run one hour on prepared remarks and one-half hour on Q&A. As in prior quarters, I will be available after the call for additional questions.

I will now turn the call over to Craig.

Craig Herkert

Good morning. Let me begin today’s call by discussing with you my vision for SUPERVALU. On the first quarter conference call I stated that I was confident that my vision would build upon the tremendous assets that make up SUPERVALU’s businesses; specifically, energized associates and outstanding retail store base, highly successful independent retailers and sophisticated supply chain operations. So you will not be surprised if the vision I’m sharing with you today takes full advantage of this very strong base, capitalizing on our many strengths and competitive advantages.

In my first five months I have conducted a comprehensive review of the company, which has included visiting SUPERVALU’s retail stores and supply chain operations as well as talking with employees, independent retailers, vendors and the board. I have also taken stock of the competitive environment and the economic headwinds that the industry and our company face. All of this has helped me develop a new vision for SUPERVALU that will unlock shareholder value and enable us to realize our full potential.

One of my first steps was to engage with my executive time to articulate exactly who we are. This focused us on the unique strengths we possess and formed the basis for our efforts to identify how best to leverage these strengths. So, who are we? SUPERVALU is a uniquely positioned grocery and pharmacy company serving a wide range of customers in neighborhoods nationwide through stores ranging from hard discount to traditional and premium grocery formats. SUPERVALU reaches millions of families with products and services they need through owned, licensed, franchised and affiliated stores.

Today we’ll be post updating SUPERVALU.com where you will find a map that shows the broad range of our newly defined, diverse store network. Each clearly has its strengths. 4,300 stores, both owned and supplied, serving varied neighborhoods across America. This extensive network includes approximately 3,100 traditional and premium stores and 1,200 discount locations. From a longstanding customer base to well differentiated and trusted brands across the country, we have a unique, diverse store network and footprint that can be leveraged for future growth.

We will be America’s neighborhood grocer and the diversity of our 4,300 store network will be at the heart of our strengths. This concept of who we are represents a departure from how the company has viewed itself in the past. Historically SUPERVALU’s focus has been on individual parts which often resulted in others viewing us as multiple businesses. It was easy to reach this conclusion when you looked at our individual components. A dozen retail banners, hard discount Sav-A-Lot operations and/or supply chain reasons serving approximately 1,900 independent retailers. That is not the way we’re looking at SUPERVALU today. We’re on a different path.

The review of our business confirmed that the greatest potential lies in operating not as multiple or distinct businesses but as a wholly integrated entity, a company that sells groceries and reaches its consumers through a diverse network of owned and supplied stores. So what does this mean in terms of how we will move forward? First it means we will leverage our unique strengths to grow by emphasizing geography over banner and ownership, using both owned and supply store formats to grow market share in those markets where we already have relevant share or believe we can build a significant presence.

Looking at the business in this way and operating as an integrated company enables us to choose the format that best serves a given neighborhood, be it a SUPERVALU banner store or one operated by a business partner. Rather than speak in the abstract, let’s look at a real growth opportunity we have in Chicago through this integrated approach. Jewel-Osco, located in the third largest metropolitan area in the United States, operates 185 stores and holds a 36% market share. While this format is a real hometown favorite, it may not be the most appropriate banner to serve all residents that make up Chicago. By thinking of our business both holistically and geographically, rather than by banner and ownership, we will now look broadly at how best to deploy all our formats to meet the unique customer preferences in each part of the city. For example, certain consumers may find that our hard discount offering, Sav-A-Lot, to be more relevant in compelling offerings than Jewel-Osco, in which case we will seek sites that allow us to meet the needs of these neighborhoods.

In our submarkets our affiliated business partners such as Moo & Oink, who already do an outstanding job serving their specific customers, may have the best format. To those of you who may not be familiar with Moo & Oink, they’re a fabulous, multi-store retailer operating stores in Chicago’s south and west sides. These folks have a rich heritage, deep roots in the community and a truly unique vibe that make them a staple to many in Chicago. We are privileged to work with innovative retailers like Moo & Oink and I envision SUPERVALU partnering with them to find new locations to support them in their growth plans.

As you can visualize, this integrated point of view will dramatically change how we grow. As another point of comparison, under previous strategic plans we would have built on Jewel-Osco’s success by driving sales in existing stores and adding new square footage each year. These activities will continue, but our integrative planning efforts will now incorporate an accelerated number of Sav-A-Lots that will serve more areas suited to that format. Other neighborhoods may be more appropriately served by one of our independents as we fully address all submarkets in this geography.

With Chicago as an example, you can see that this integrated approach calls for us to utilize the various formats available to us to drive growth and to increase our total aggregate market share. This focus on key geographies will drive all capital allocation decisions.

Another strength of who we are is the tremendous opportunity we have to fully leverage the size of our diverse store network to achieve best in class product cost by acting as one integrated company that can pass these savings on to our customers, business partners and associates and shareholders. Let me illustrate this potential with a recent success. Recently we completed across the total store network the realignment of a small grocery subcategory, where 65% of the sales were from our own brands line and the balance was spread over three national brands. Historically vendor negotiations for this subcategory did not include the purchasing power achievable by acting as one integrated company. Frankly, many procurement decisions didn’t include all of our own banners, Sav-A-Lot or many of our affiliated locations.

Read the rest of this transcript for free on seekingalpha.com