Several weeks ago, Supervalu announced its poor fiscal first quarter results along with a number of cost-cutting and revenue-making measures in an effort to soften the economic blow on Wall Street. But neither Wall Street nor the business community were surprised by the poor performance of the nation’s third-largest grocery store company.

Supervalu has had difficulties ever since it grew at breakneck speed with the acquisition of many of Albertson’s stores about a half-dozen years ago. The news has been analyzed by financial and retail experts over the past few weeks, and several retail produce industry veterans have weighed in on this story with similar comments.

Virtually no one paints a pretty picture. The company’s stock price has dropped in value by more than two-thirds this year, including almost 50 percent on the day these numbers were released.

And the slide has continued. On Wednesday, July 25, the stock was well below $2; just 40 months ago it was trading at $20 and five years ago it topped $40 per share.

The financial situation

In mid-July, Supervalu reported net sales of $10.6 billion and net earnings of $41 million, or 19 cents per diluted share. This compared very unfavorably to 2011 first quarter figures, when the retailer had net sales of $11.1 billion and net earnings of $74 million, which equated to 35 cents per diluted share. In wake of these numbers, the company’s CEO and President Craig Herkert said that the retailer will “move even more aggressively to lower prices, and anticipate and respond to competitor actions.”

He said that half the company’s stores will have been switched to the “fair price plus promotion” position the company is touting by the end of fiscal 2013 with the rest making the shift in fiscal 2014.

But he acknowledged that strategy could result in even lower revenues and hence, “we will be pursuing deeper and more structural cost savings initiatives. Also, we are adopting more flexible financing facilities, reducing our near-term capital expenditures and suspending our dividend.”

On the expense-reduction side of the ledger, Supervalu expects to pare $250 million in administrative and operational expenses over the next two years. Other cost-cutting measures include reducing capital expenditures in fiscal 2013 from $675 million to less than $500 million, and the aforementioned suspension of the quarterly dividend, which will save it about $19 million for this quarter.

The firm announced that moving forward it is segmenting its two divisions when reporting its financial statement. One division includes traditional retail food stores while the other is the hard-discount stores, which the company operates under the Save-A-Lot banner.

With Mr. Herkert telling investors in a letter “that review of strategic alternatives will be broad-based and include looking at the sale or other disposition of all or part of the company,” speculation is that the separation of divisions will facilitate the potential sale of part of the company.

First quarter retail food net sales were $6.83 billion compared to $7.33 billion last year. Retail food operating earnings were $99 million, or 1.5 percent of net sales. First quarter Save-A-Lot net sales were $1.29 billion compared to $1.28 billion the previous year, primarily reflecting the benefit from 53 net additional stores being operated at the end of the first quarter of fiscal 2013. Save-A-Lot operating earnings in the first quarter were $59 million, or 4.6 percent of net sales.

Expert analysis

Soon after the release of the latest financial statement, business experts weighed in, with most predicting the demise or dismantling of the operation. Produce industry experts said the same thing.

Ron Pelger, a retail columnist for The Produce News, who is also chairman of an industry consulting consortium called FreshXperts, said that the retailer is in big trouble and the only way out may be the unloading of pieces of the puzzle.

He questioned the company’s announced strategy of lowering prices, stating that it did not seem to be a prudent decision in the light of decreasing revenues. “Sales have dropped the last couple of years and if they continue to cut their prices, sales are just going to continue to fall,” he said.

Mr. Pelger indicated that mismanagement is the culprit in Supervalu’s decline. He said that it wants to compete with Walmart, but the Supervalu business model is vastly different and has not proven successful. Walmart, he said, grew organically and though it was at a fast pace, it was managed growth. Supervalu grew through acquisition and it has not been successful.

“The CEO [Craig Herkert] came from Walmart and has a low-price mentality, but that isn’t going to necessarily work,” said Mr. Pelger. “Their biggest challenge is that they owe a lot of money, which is going to tie their hands.”

He believes the low price strategy will further reduce revenues and exacerbate the problem. “They are too big at this point. I think they are going to have to start shaving back, and that will create more problems because when people are worried about losing their jobs, that’s all they worry about and they stop paying attention to what they are supposed to be paying attention to.”

Ultimately, Mr. Pelger believes Supervalu will be sold off in pieces.

Anthony Totta, a colleague at FreshXperts who specializes in market strategy and business development, said that Supervalu needs to refocus its efforts if it is to survive.

“If I were CEO, I’d look at the demographics of all my stores and convert any that had the right demographics to the Save-A-Lot format,” Mr. Totta said. “And then I would develop two to three other formats that work for other demographics and put in a lot of resources to help the retailers create an experience for the consumer in those areas.”

Mr. Totta said the key to retail success is to be consumer-focused — something he believes Supervalu has lost sight of. Over his 35 years in the business, he said he has watched a number of independent wholesalers that supply retailers become retailers themselves through acquisition and “have a rough time of it.” He said a retail operation’s success is dependent completely on keeping its eye on the consumer rather than Wall Street and the company’s stock price. Mr. Totta also indicated that any strategy aimed at propping up the price of the stock and appealing to Wall Street is doomed to failure.

Longtime industry expert Dick Spezzano of Spezzano Consulting finds it hard to believe that the Supervalu CEO continues in that position. He said the firm’s strategy has not worked and the blame lies squarely on the shoulders of Mr. Herkert.

Mr. Spezzano said that the CEO got rid of some of the company’s senior management after he arrived in 2009 and replaced them with his own people. Supervalu also closed many underperforming stores yet it is still losing revenue even though food inflation is on the uptick and an increase in sales would be expected.

He added that the company has done a poor job updating its stores and it has developed no strategy for the growing Hispanic market and for the “fresh format” type of stores, which are doing so well nationwide.

Mr. Spezzano said that there are several scenarios that might play out in the near future. He said the price of the stock is so low that it is now an attractive buy for an investment firm that could come in and, because of the small purchase price, could afford to invest in the stores.

Investors might hold the supermarket giant for a few years while building up the stock price and selling off pieces as that strategy became viable. He also indicated that other supermarket giants, such as Kroger or Safeway, might see value in specific banners that give them a foray into one market or another where they might be underrepresented.

Mr. Spezzano does not believe it is possible that one of the larger retailers will purchase the entire chain, since there is too much duplication and there would be too many Federal Trade Commission requirements for selling off various parts where there is an overlap.

Supervalu serves consumers across the United States through a network of approximately 4,400 stores composed of 1,101 traditional retail stores, including 798 in-store pharmacies; 1,336 hard discount stores, of which 939 are operated by licensee owners; and 1,950 independent stores serviced primarily by the company’s food-distribution business.