Targeting Financial StabilityHayden, Perla, Christine, and Enia

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Discussion of Management and comparison to Safeway and A&P Grocers

Discussion Flow

Turnaround strategies for Supervalu

Causation of Supervalu’s Struggle

Forward Strategies

Forward Projections of Recovery

Q&A

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SUPERVALU SURVIVALRecommendations for

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Recommendations:

• Close 35% of stores nationwide to increase cash on hand and lower SG&A costs

• Reduce overall headcount by 30-40% nationwide

• Close all international locations (Caribbean)• Eliminate 6-9 distribution centers outside

core geographical areas• Reduce employee benefits and pension

contributions • Convert existing Save-A-Lot’s owned by

Supervalu into franchise locations or close them

• Tighten Credit to independent grocery customers

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CAUSATION OF SUPERVALU’S STRUGGLE

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Why is Supervalu Struggling?

• Heavy SG&A costs weighing down financial performance

• Ineffective management of current operations

• Failed attempt to break into the “hard discount” segment

• Distribution network is not focused on supplying just Supervalu stores

• Large debt assumed after purchasing Albertson’s

• Did not close underperforming stores in a timely manner

• Sluggish distribution network

• Too many chains within the Supervalu network

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SG&A Costs have been a major driver of the operational decline of Supervalu. The acquisition of Albertson’s occurred in 2Q 2006, which is reflected in FYE 2007 financials.

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Supervalu’s SG&A Expenses have historically been higher than their peer group…

• Supervalu’s supply chain is regionally heavy but nationally thinner than competitors

• Distribution centers (the life blood grocers) supply Supervalu and independent stores – causing more inefficiency and more lag time.

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The company is lagging in collecting from credit sales to vendors which is being demonstrated through a high DSO score and low Receivables Turnover score. Supervalu’s distribution system from the Albertson’s deal is inefficient and must be reorganized and streamlined in order to be profitable.

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DISCUSSION OF MANAGEMENT AND COMPARISON TO SAFEWAY AND A&P GROCERS

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SUPERVALU's CESOJeff NoddleCEO from June 2001-June 2009

Craig HerketCEO from May 2009- July 2012

Wayne SalesCEO from July 2012- Present

• Led Albertson’s Acquisition in 2006

• Wal-Mart’s “Everyday low Prices” mentality

• Save A-Lot expansion

• Turn around CEO

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Employee Benefits and Pension Plans:

• 130,000 Employees

• 84,000 insured

Benefits:• Medical Insurance• Dental Insurance• Life Insurance• Competitive 401k• Tuition Reimbursement• Vacation and Holidays

Reduce the benefits by 25-30% by fiscal year ended 2017:

Other Changes:• Employees to share more of the

cost of health insurance due to uncertainty with healthcare reform

• Mandate direct deposit for all

employees – more efficient

• No tuition reimbursement for the next 2-3 years

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Stores and Distribution Centers:• 5,000 retail stores

from coast to coast• 35 Production

distribution centers

• Close distribution centers (Idaho, Montana, Utah, etc.) – Low store count

• Close low performance stores across the country

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Safeway Comparison to Supervalu:

• Safeway and A&P are similar because they accumulated a lot of debt just as Supervalu did when they acquired Albertsons in 2006.

• In the 1980’s Safeway was taken private by Kohlberg Kravis Roberts (KKR) and assumed tremendous debt.

• The company chose to close 1,132 stores (over half of the 2,200 store nationwide) to regain profitability during this period.

• Safeway sold all locations outside of the United States and Canada to simplify operations.

• Today, Safeway runs over 1,700 stores in the United States and Canada and is more efficiently operating compared to the 1980’s.

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• A&P experienced financial difficulties in the 1970’s due to:• Lack of Capital • Higher labor costs compared to competitors• Inefficient use of resources

• In February 1975 A&P planned to close 36% stores of A&P’s 3,468 stores.

• By 1977 weekly store sales increased from $37,000 to over $70,000.

• Total sales increasing from $6.4 billion to $7.2 billion despite the many closures.

• However, in 2007, A&P acquired Pathmark for $1.4 Billion thus substantially increasing the debt load just like the 2006 Albertson’s acquisition.

• A&P Filed for bankruptcy in December 2010.

A&P Comparison to Supervalu

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FORWARD STRATEGIES

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The Plan:

Stage 1Identify

Stage 2Downsiz

e

Stage 3Reduce

Stage 4Invest

Invest – Once profitable start investing into current store and distribution locations to maximize returns per square foot.

Identify – Locate underperforming stores and distributions centers for immediate closure (3-6 months)

Downsize – Close selected stores and cut the appropriate headcount to reduce costs

Reduce – Streamline cost centers and optimize distribution channels for more financial synergies

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FORWARD PROJECTIONS OF RECOVERY

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Projected Financial Impact on SupervaluProjected financial improvement based on cost cutting assumptions and low/moderate growth in the regions in which the stores operate. In addition, the team inserted the assumption that current financial partners would refinance an estimated 33% of current or close to current debt obligations.

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Q&A