Save-A-Lot's sale raises questions about Cub's future

Now that Supervalu is unloading its national discount chain Save-A-Lot, could Cub Foods and the company's other four regional chains be next?

The answer is murky.

On the one hand, Cub and the rest of Supervalu's conventional supermarkets have long been fighting a losing market-share battle, so the company could dump them if the price was right. On the other, Cub and its brethren are important outlets for Supervalu's wholesale grocery business.

Whatever the outcome, Supervalu's once-mighty retail presence — it was the third largest U.S. supermarket operator just four years ago — is down to about 200 stores, the largest collection of which is in Minnesota. There are more than 80 Cub outlets, including 30 franchised locations, mostly in the Twin Cities.

Eden Prairie-based Supervalu's strategic focus is on its wholesale business, which accounts for 45 percent of its sales. Save-A-Lot, which private equity outfit Onex Corp. is buying for $1.37 billion, makes up 27 percent of sales.

Almost all of the rest comes from Cub; Shoppers Food & Pharmacy in the Baltimore-Washington region (54 stores); Shop 'n Save in the St. Louis metro area (42); Farm Fresh in the Virginia Beach-Norfolk, Va., market (41); and Hornbacher's in Fargo-Moorhead (8).

"I don't think they are really strategically viable," Ajay Jain, a stock analyst at Pivotal Research Group in New York, said of the conventional chains. "They are in noncontiguous markets, they are not generally a price leader and they have been ceding market share for a long time."

Same-stores sales at Supervalu's conventional grocery chains together fell 4.5 percent during the first six months of the company's current fiscal year, after falling 2.5 percent during the 12 months ending Feb. 27, 2016. Falling customer traffic is the main culprit.

Supervalu's regional chains "might be better off in another company's hands," Jain said. Supervalu declined to comment on whether it will sell its conventional supermarkets.

Chuck Cerankosky, a stock analyst at Northcoast Research in Cleveland, noted that there's a "very close link" between Supervalu's retail stores and its wholesale operations.

"There would have to be a supply agreement [for Supervalu], which would make it a difficult sell," he said. Also with Supervalu's regional chains underperforming, "if you sold them now, you are selling them in a condition that is clearly suboptimal, which means they'd sell for less."

None of Supervalu's chains in Baltimore, Washington, D.C., St. Louis or Virginia lead the market. In the Twin Cities, Cub is the market leader, despite ceding share. Detailed market-share data for the Twin Cities was unavailable, but Cub still has at least 20 more stores than its next biggest competitor, Target, said John Dean, a Twin Cities supermarket consultant.

The deal included Pick n' Save, a large, underperforming middle-market chain in Wisconsin and Milwaukee's biggest grocer; and Mariano's, a small chain in Chicago in need of capital to continue its fast growth.

But Kroger in September announced that it is reducing capital spending by $500 million in its current fiscal year.

"Kroger doesn't like fixer-uppers," said David Livingston, a supermarket analyst in suburban Milwaukee. "They learned that lesson with Roundy's."

Staff reporter John Ewoldt contributed to this report.