Spartan Stores, Inc. (SPTN): Can This Supermarket Retailer Stop the Supercenter Juggernaut?

One of the strategies is that of store localization, where allocation of shelf space and assortments are tailored to the needs of the community. For example, some products are stocked up in advance of certain community specific events. In addition, Wal-Mart also stated its commitment to domestic sourcing at the start of the year, which leads to benefits such as transportation cost savings and shorter lead times.

Not content with being the largest wholesale club operator and the second largest retailer in the U.S, Costco launched its Pharmacy-Benefit Manager Program at the start of the year, stepping into the turf of companies such as Express Scripts. As more companies and their employees sign for this program to save money on prescription drugs, it will also drive more traffic to its warehouses and provide cross-selling opportunities.

This initiative by Costco Wholesale Corporation (NASDAQ:COST) and Spartan Stores’ expansion into the value store format shows that lines are blurring in the area of retail. Companies will be well-advised to define their market space wider and not be reactive.

Spartan Stores is valued at a discount to its peers with a forward P/E and a PEG of 12 and 1.3, respectively. Comparatively, Wal-Mart and Costco Wholesale Corporation (NASDAQ:COST) trade at 1.6 and 1.8 times PEG, respectively.

Conclusion

I don’t live in Michigan and I can’t speak for the people living there in terms of their shopping choices. But, I am a firm believer that the most profitable investment opportunities reside with the contrarian minority. I am cautiously optimistic that Spartan Stores, Inc. (NASDAQ:SPTN) will be able to gain both market share and mind share with its new value store format. In addition, its growth in the distribution segment will allow it to increase its penetration of its higher margin private brands.

The article Can This Supermarket Retailer Stop the Supercenter Juggernaut? originally appeared on Fool.com and is written by Mark Lin.

Mark Lin has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool owns shares of Costco Wholesale. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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