Supervalu to Consolidate, Optimize Eastern Supply Chain Network

MINNEAPOLIS - Food retailer/wholesaler Supervalu said it plans to fold its Easton, Pa., Harrisburg, Pa., and Perryman, Md., distribution operations into an existing facility in Lancaster, Pa. as step toward enhancing its logistics network in the eastern U.S..

As part of the plan the Lancaster facility will receive a technology upgrade. By consolidating warehouse volume and incorporating automation technology into the seven-year old, 1.4 million-square-foot Lancaster depot, the company said it will be positioned to optimize the eastern distribution network and leverage technology for improved efficiencies.

"Our overall vision is to deliver the best supply chain services to our corporate and independent retailers," said Janel Haugarth, Supervalu e.v.p. and president and c.o.o. of the company's Supply Chain Services group. "This project enhances our commitment toward that vision. Leveraging the efficiencies of the combined company is one of the inherent benefits of our expanded network."

Supervalu said it expects the entire project will take approximately three years to complete. During this time, it plans to service customers from existing facilities while the Lancaster facility undergoes modifications that include system standardization and technology installation and testing.

"One of our publicly stated milestones of the acquisition is to optimize our expanded supply chain infrastructure," said Jeff Noddle, Supervalu chairman and c.e.o. "The decision to combine the consolidation with the installation of the supply chain automation technology represents an additional opportunity to deliver long-term strategic benefits. Supply chain optimization is a component of our overall synergy range identified with the acquisition. We still expect our total synergies of $150 to $175 million pretax, to be at their full run rate by the end of the third full year following the acquisition or fiscal 2010."

As a result of this consolidation, the company said it expects to incur total after-tax charges over three years in the range of $30 to $35 million. Included in this estimate is approximately $23 to $26 million for lease exit costs related to the leased property as well as severance and other employee related costs. Supervalu said it expects to recognize after-tax charges of approximately $5 million in fiscal 2007, approximately $21 to $24 million in fiscal 2008, and approximately $4 to $6 million thereafter.

According to Supervalu, these charges are components of the previously disclosed total one-time transaction costs associated with the acquisition of Albertson's retail properties. Start-up costs associated with implementing the supply chain automation technology are expected to be minimal in fiscal 2008 and are not included in the one-time transaction costs.

Supervalu operates approximately 2,500 retail grocery locations, and provides distribution and related logistics support services to more than 5,000 grocery endpoints across the country. The company employs more than 200,000 associates.
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