Albertsons 2015 Annual Report Download - page 31

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29
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Dollars and shares in millions, except per share data and stores)
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction
with the audited Consolidated Financial Statements contained in this Annual Report on Form 10-K and the information
contained under the captions “Risk Factors” and “Cautionary Statements for Purposes of the Safe Harbor Provisions of the
Private Securities Litigation Reform Act” in this Annual Report on Form 10-K.
MANAGEMENT OVERVIEW
Business Overview
SUPERVALU operates its business in three segments: Independent Business, Save-A-Lot and Retail Food. SUPERVALU,
through its Independent Business segment, is one of the largest wholesale distributors to independent retail customers across
the United States. Save-A-Lot is one of the nation’s largest hard discount grocery retailers by store count. The Company's
Retail Food business operates traditional grocery stores under the five regionally-based banners of Cub Foods, Shoppers
Food & Pharmacy, Shop 'n Save, Farm Fresh and Hornbacher’s, and also operates two retail stores under the Rainbow banner.
The Company leverages its distribution operations by providing wholesale distribution and logistics service solutions to its
independent retail customers and distribution to its Retail Food stores through the Independent Business segment. The
Company's Save-A-Lot distribution operations are leveraged by providing wholesale distribution and service solutions to its
licensees, and distribution to Save-A-Lot corporate stores.
The United States grocery channel is highly competitive and management expects operating results will continue to be
impacted by the effects of operating in a highly competitive and price-sensitive marketplace. The Company monitors product
cost inflation and evaluates whether to pass on inflation or absorb cost increases in the form of incremental investments to
lower prices to customers. Inflation for fiscal 2015 was estimated to be in the low single digits as a percentage, with higher
levels in certain meat and dairy categories.
Fiscal 2015 Initiatives
In fiscal 2015, management expanded its investment into the Company's businesses primarily through lower prices to
customers and increased capital investments. These investments were undertaken as part of a continued focus on the
Company's plans to increase sales and operating cash flow, improve its balance sheet and generate returns for its stockholders.
Management believes these investments strengthen the Company's brands and offerings to its customers and provide a platform
for profitable sales growth.
In addition, management continues to improve the Company's capital structure by de-risking its balance sheet and lowering its
cost of borrowing to increase financial flexibility and reduce its debt and pension burden.
Independent Business
Independent Business continues to target sales growth by affiliating new customers and driving sales to existing customers
while also improving the efficiency of its operations. Independent Business's investment to improve its logistics productivity
and service levels have resulted in better on-time delivery performance to independent retail customers. In addition, a focus on
vendor compliance has increased on-time deliveries from vendors and improved logistics productivity.
The Company’s multi-year supply agreement to provide wholesale distribution to 64 Haggen stores in Washington and Oregon,
comprised of Haggen’s 18 existing stores and 46 stores agreed to be divested as part of the merger between Safeway Inc. and
Albertson’s LLC (the “Safeway Merger”), will predominately begin impacting Independent Business in the first and second
quarters of fiscal 2016. During fiscal 2015, Independent Business began supplying all 18 stores acquired by the Company and
its independent retail customers and franchisees from Roundy’s Inc.
In fiscal 2015, Independent Business’s Eastern and Southeast regions were combined to form the East region, and the Midwest
and Northern regions were combined to form the West region to further streamline the organization, reduce operating costs and
create common region organizational structures that more effectively utilize resources and serve the Company’s customers.