New Save-A-Lot owner halts western expansion

Dive Brief:

Save-A-Lot announced last week it plans to close all 13 of its stores in California and Nevada along with one distribution center, according to Supermarket News. The stores were the westernmost outposts for the discount retailer, which has more than 1,300 locations in 37 states.
The decision came down from Onex Corp, the private equity firm that bought Save-A-Lot from former parent company Supervalu for $1.4 billion last year.
Save-A-Lot CEO Eric Claus told Supermarket News that the company has chosen to focus on expanding within its core markets. “We have 13 stores and a DC in a very distant and difficult market to grow in, and we’ve got another 1,400 stores from Colorado to the East served by distribution centers with a lot of room to grow,” he said.

Dive Insight:

Less than two years ago, Save-A-Lot and parent company Supervalu had a grand vision for the discount chain’s western conquest. But those plans largely hinged on an IPO for Save-A-Lot that never materialized, and was no doubt driven by upper management’s experience operating in the western United States. Supervalu CEO Sam Duncan and then-head of Save-A-Lot Richie Casteel both came from Albertson’s, which operates stores throughout the West, including Idaho, California and Nevada.

The short time between its purchase of Save-A-Lot and this most recent announcement suggests that new owner Onex thought this was a bad idea. And to be sure, the areas where Save-A-Lot sought to grow, particularly Southern California, are already saturated with competitors, including long-time operators like Ralph’s, Safeway and Trader Joe’s. Save-A-Lot was also fending off discounters like Aldi and Grocery Outlet that had made recent moves into the region.

This decision to close says a lot about private equity firms like Onex and their management of supermarkets. Recent years have seen more and more of these firms buying up retailers, largely because they offer stable cash flow. Instability in the industry has also left many grocery chains up for grabs at attractive prices.

These new owners are very conservative managers. Whereas supermarket operators like Supervalu have traditionally focused on market share and volume when weighing investment decisions, private equity is all about return on investment. They want to see regular profits, and will cut away excess fat that weighs against those returns.

Private equity tends to be shy about losing money on long-term investments. But they are masters of analytics, and have diverse holdings that can inform an outside-the-box approach to supermarket management. In the low-margin and increasingly fractured food retail industry, these capabilities could be key in the coming years.