Supervalu Inc. is halving the number of store openings it had planned for its Save-A-Lot limited-assortment discount grocery chain.

Supervalu, Save-A-Lot, Craig Herkert, limited-assortment discount grocery chain, supermarket, store openings, Santiago Roces, Bill Shaner, fiscal 2012 second-quarter results, Russell Redman, Rite Aid, co-branded store pilot, Greenville, John Standley

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Save-A-Lot expansion scaled back by Supervalu

October 20th, 2011

MINNEAPOLIS – Supervalu Inc. is halving the number of store openings it had planned for its Save-A-Lot limited-assortment discount grocery chain.

President and chief executive officer Craig Herkert said the company now plans 80 to 90 new Save-A-Lot stores for the 2012 fiscal year.

That's significantly lower than earlier projections. At its investor meeting in early May, Supervalu forecast 160 new Save-A-Lots for the year, and then in guidance as part of its first-quarter report said that it planned 210 new Save-A-Lot stores for fiscal 2012.

Herkert cited a tough economic climate and new leadership as factors in the decision to scale back Save-A-Lot openings.

"Today's macro environment is proving more challenging than we had originally anticipated, and it is impacting the ability of licensees to obtain financing for new stores," Herkert told financial analysts in a conference call on Supervalu's fiscal 2012 second-quarter results. "In addition, Santiago Roces, our new CEO of Save-A-Lot, has been on board for less than six months. We feel it is appropriate to revise the pace of new store openings in the near term.

"We now expect to add 80 to 90 locations to our store count this year compared to our original expectation of 160," he said. "This change does not alter our commitment to double Save-A-Lot's footprint, as we believe this format is an important part of our growth platform, but it will extend our timeline beyond 2015."

For the second quarter, Save-A-Lot's identical-store sales were up 3%, Herkert said.

At the investor conference, Herkert noted that Save-A-Lot is a pillar of Supervalu's expansion strategy. He said at the time that plans call for the supermarket operator to more than double the chain's size to over 2,400 stores by the end of 2015. Save-A-Lot's retail network encompasses 30% corporate-owned and 70% licensee-operated stores.

Just over a week after the investor meeting, Supervalu announced that it had hired Roces as the new president and CEO of Save-A-Lot, succeeding Bill Shaner, who had held the chief executive post since 2006. Roces previously was senior vice president and general manager of Walmart's small-format division.

As of the end of the 2012 second quarter on Sept. 10, Supervalu said it had 1,294 Save-A-Lot stores. The chain grew by 92 stores last year.

Save-A-Lot also has been engaged in a co-branded store pilot with Rite Aid Corp., but last month the drug chain said it was pulling the plug on expansion plans for the food-and-pharmacy concept.

"Margins in these stores have not been strong enough to take advantage of the sales increases," Rite Aid CEO John Standley said in a conference call on Rite Aid’s fiscal 2012 second-quarter results. "We still like the grocery concept and think it can work in certain of our stores. We have not been able to create an economic model with Supervalu that makes sense for both parties, and therefore we will not be expanding the Save-A-Lot format with them."

Rite Aid and Supervalu began the pilot about a year ago in Greenville, S.C., with the conversion of 10 Rite Aid stores. According to Standley, the 10 test locations will continue to operate as co-branded Save-A-Lot/Rite Aid stores. Under the licensing pact with Supervalu, Rite Aid owns and operates the co-branded stores.