Dive Brief:

• Farm Fresh Supermarkets may be closing or selling off stores, according to a story in the Virginian Pilot, citing interviews with employees. A Supervalu representative did not return Food Dive’s request for comment.
• Local analysts note that Farm Fresh has struggled to compete with other retailers on price and quality. The Supervalu banner went through a round of layoffs at its Virginia Beach headquarters last year and shifted its buying operations to sister company Shoppers in Maryland.
• The news comes as Supervalu faces mounting pressure to improve or sell off portions of its retail division. Blackwells Capital, which owns a 4.4% stake in the company, ignited a proxy fight recently as it pushed for Supervalu to spin off its retail division. Supervalu’s stock is down 32% this year, and the retail division posted a 3.5% decline in same store sales during the most recent financial quarter.  

Dive Insight:

Store employees interviewed by the Pilot detailed a few ominous occurrences, including the company’s cancellation of recent meetings focused on the year ahead. The facts don’t conclusively point to store sell-offs, though Supervalu’s silence on the matter — representatives did not return calls and emails from the Pilot and from Food Dive — could be telling.

The news wouldn’t come as total surprise. Farm Fresh, which operates roughly 40 stores in North Carolina and Virginia, has struggled to stand out in competitive mid-Atlantic markets, which now includes discounters and specialty chains along with strong brands like Harris Teeter and Publix. Analysts interviewed by the Pilot note the company’s prices are too high, and that close competitors like Food Lion have eclipsed it with remodels and stronger in-store execution.

Last year, Supervalu laid off 21 employees on Farm Fresh’s marketing and operations staff — roughly half of the division and a third of the headcount at the company’s Virginia Beach headquarters. Supervalu shifted some of the chains responsibilities over to nearby Shoppers in Maryland, and hired additional staff there to field the extra work.

Supervalu’s broader retail division, which also includes the Cub Foods, Hornbacher’s, Shop ‘n Save and Rainbow banners, has suffered the same headaches as its Farm Fresh stores. In the Twin Cities, Cub Foods is under fire from Hy-Vee, Target and other competitors that are chipping away at the brand’s leading market share. Supervalu has remodeled some stores with a focus on fresh and prepared foods, but so far these haven’t had an impact on its retail bottom line.

In an earnings call with analysts last month following its Q3 results, CEO Mark Gross said Supervalu would continue to invest in profitable stores while scaling back spending on less promising locations. He also said the company would explore selling the leases on some of its stores — a step activist investor Blackwells has advocated.

Supervalu’s struggles echo those of other conventional retailers. Tops Markets recently filed for Chapter 11 bankruptcy protection, while Winn-Dixie is reportedly headed for the same fate and has recently sold off 15 stores in Mississippi and Louisiana. As alternative formats and major players like Walmart and Kroger continue to turn up the heat, closures and sell-offs from traditional grocers will likely increase.

Supervalu has stressed patience with its retail division for some time as it tries to improve stores’ competitive positioning. But investors have grown very impatient, and with a proxy fight looming ahead of this summer’s board meeting, Supervalu may be taking more drastic measures to improve its balance sheet.