Analysts debate Save-A-Lot's 'dream scenario'
This article is part of a series covering SN's annual Financial Analysts Roundtable, which on Sept. 19 brought together a prestigious group of industry experts to discuss the financial state of the food retailing industry.
Analysts compare American Save-A-Lot against German Aldi.
While Supervalu officials decide upon the ultimate destination for its soon-to-be-sold Save-A-Lot division, analysts are wrestling with another question concerning the discounter’s future: Can Save-A-Lot be a true American counterpart to Aldi?
Like Aldi, the Batavia, Ill.-based division of the German discounter, Save-A-Lot was established as a limited assortment discounter in the Midwest in 1976, and their growth since then has largely paralleled one another. Both companies are focused on what appears to be a large growth opportunity for cheaper and more efficient alternatives to conventional grocery stores. Both companies operated more than 1,300 stores through 2015.
Where Save-A-Lot and Aldi differ is in sales productivity, with privately-held Aldi’s estimated sales of $10.1 billion more than twice Save-A-Lot’s reported $4.6 billion in 2015 revenues, according to SN’s Top 75. They’ve also historically taken different approaches to the customer proposition, with Save-A-Lot leaning more heavily on service fresh departments and a little less on private brand than Aldi. Save-A-Lot has historically tended to appeal to a lower-income demographic than Aldi, sources said.
Save-A-Lot’s looming separation from its distributor and owner Supervalu is expected at any time. The Minneapolis-based wholesaler has floated the notion of spinning the company off to a publicly traded company controlled by Supervalu’s shareholders, but is also considering an outright sale to private equity interests.
“It should be a better competitor to Aldi. I think that’s what the hope is from the investment community: ‘This will be Aldi. I can buy it now,’” said Joe Feldman, senior managing director, Telsey Advisory Group. “But it’s just not Aldi. And comps have slowed. They’ve gone negative.”
“The issue really I think is the business is not nearly as good as some of the dreamers wish this business to be. It’s really a wholesale business primarily that has a lot of commodity focus. I think it’s fine, but I think the multiples that people used to throw on Save-A-Lot and the dream scenario like a Dollar General multiple — nine times, 10 times, 11 times EBITDA. The business is just not nearly as attractive as I think a lot of people wished it to be.”
But Save-A-Lot still has catching up to do from a real estate standpoint, said Chuck Cerankosky, an analyst with Cleveland’s Northcoast Research.
“There’s a couple things that Aldi has done that Save-A-Lot missed the opportunity to match at the time. One is being in these what I call 'division areas' where it’s a nice location that’s close to a rich neighborhood, close to a poor neighborhood. They pull from both sides of the equation there,” he said. “It’s too easy to find a beat-up, Save-A-Lot store and it’s hard to find a run-down Aldi store. There’s some catch up needed at Save-A-Lot.”
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