Supervalu Inc. (NYSE:SVU) and The Fresh Market have entered into a long-term supply agreement. Details of the agreement show that Supervalu will become the primary supplier of The Fresh Market. The Fresh Market is owned by Apollo Global Management LLC (NYSE:APO), which took hold of it in March 2016.
What kind of impact will the distribution deal with The Fresh Market will have on Supervalu’s financial performance?
Disappointing 2Q results
Supervalu didn’t do well in 2Q2016. The company reported a 3.9% decline in revenue while EPS dipped 17.4%. But in that quarter, a number of SVU’s supermarket peers such as Whole Foods Market, Inc (NASDAQ:WFM), The Kroger Co (NYSE:KR) and Sprout Farmers Market (NASDAQ:SFM) reported top line growth.
On top of the disappointing 2Q results, a closer look at Supervalu’s performance in the past few years shows that its top line figure has not expanded at a compound annual growth rate of more than 1% in the last three years.
This is a company under pressure to meet shareholder expectations. That leads to the question of how the deal with The Fresh Market will transform Supervalu.
Some details withheld
Because Supervalu and The Fresh Market didn’t disclose the financial terms of their distribution agreement, it is difficult to estimate the kind of impact the deal would have on the financial performance of Supervalu.
However, there are hints that a large amount of new revenue will be flowing to Supervalu because of the deal with The Fresh Market. In a press release, Supervalu’s CEO Mark Gross talked about The Fresh Market having a tremendous store base and large customer offering.
For perspective, The Fresh Market operates in 24 states and it owns some 176 stores. That should give you a picture of the kind of new customers that Supervalu is bringing on board.
Supervalu will begin supplying The Fresh Market locations in the fall.