A shrinking economy, tight customer budgets, and intense competition have made sure that breathing space comes at a premium for retailers. One such example is that of SUPERVALU INC. (NYSE:SVU), which has been facing a lot of difficulty in fighting such situations. Stiff price competition and growing popularity of discount retailers have added to the woes of the grocer, and it faces an uphill task to revive itself.
Inability to Cope Up With the Competition…
Increased efforts by retailers such as The Kroger Co. (NYSE:KR) and Wal-Mart Stores, Inc. (NYSE:WMT) have taken a toll on SUPERVALU, leading to declining sales. This is mainly because peers’ strategies are largely customer oriented and work on making the customer happy.
Even Wal-Mart has got quite competitive with its moves. It has managed to earn a place for itself by continuously striving for innovation at the lowest possible cost. Its low prices as well as expansionary moves made it easy for customers to go to its stores for their daily needs.
In fact, Wal-Mart’s recent initiative to reach out to the crowded places has made the retailer increasingly popular. This has been done so that people have access to Wal-Mart stores in their neighborhood, even if it is a small one. This also reduced the cost structure since smaller stores came with lower costs which proved to be beneficial.
Most importantly, these retailers have adapted themselves to the changing environment and entered the price war. Both Kroger and Wal-Mart lowered product prices in order to compete with dollar stores who were offering lowest prices.
Dollar stores have indeed been a threat to all mass market retailers. Dollar stores such as Family Dollar Stores, Inc. (NYSE:FDO) offer extremely low prices to draw customers’ attention, especially in times of crisis. Family Dollar offers most of its products for $1, which is a great incentive for customers to turn up at the stores for all their needs.
Moreover, it has been expanding its wings into newer segments such as tobacco products which are pushing revenue north. Its continuous success in the consumables division enabled the retailer to add more number of stores each quarter.
All these efforts were absent in SUPERVALU. It stuck to its age old methods and lacked the ability to change with the situation. It could not lower its costs which led to a dull performance and store closures. All these factors hammered the company down leading to a large number of problems.
The Negative Effects…
The prevailing tough environment, as well as a difficult competitive environment led to continuous disappointments in SUPERVALU’s results and the recent quarter was no exception. Due to low consumer demand, store closures as well as a dull holiday season, SUPERVALU couldn’t meet analysts’ expectations. Moreover, even the bottom line has been shrinking since the company has not been able to strategize properly. Huge spending on promotions led to lower earnings.
Finally, the company decided to sell off some of its brands so that it can remain focused on its core operations. This might help it enhance its wholesale operations in a better manner. However, with poor strategies and inefficient cost control measures, it is difficult to be upbeat about the company yet.
The Bottom Line
Along with a lackluster performance, the grocer cancelled its dividends and withdrew its outlook for the year. These are indications enough for a weak and a drowning company. The company has not been able to adapt itself with the changing needs of customers leading to a loss in sales. Its mismanagement of costs has also been a matter of concern.
Additionally, it has been falling weak against competitors. I believe there are no hopes for the company even though it has been shrinking its size in order to become efficient. A prudent investor will always stay away from such a retailer.
The article Is This Stock Worthy of an Investment? originally appeared on Fool.com and is written by Himanshu Poddar.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
