COMPANY PROFILE Spartan Stores, Inc. REFERENCE CODE: 84647C12-963F-4966-AC03-6CCE7708A896 PUBLICATION DATE: 5 Sep 2012 TABLE OF CONTENTS Company Overview..............................................................................................3 Key Facts...............................................................................................................3 SWOT Analysis.....................................................................................................4 Spartan Stores, Inc. Page 2 © MarketLine Spartan Stores, Inc. TABLE OF CONTENTS COMPANY OVERVIEW Spartan Stores, Inc. (Spartan or “the companyâ€) is a regional distributor and retailer of grocery items. The company primarily operates in Michigan and Indiana.

It is headquartered in Grand Rapids, Michigan and employed about 8,600 people, of whom 4,100 were full-time employees, as of March 26, 2011. The company recorded revenues of

Company Profilespartan Stores Increference Code 84647c12 963f 4966

COMPANY PROFILE Spartan Stores, Inc. REFERENCE CODE: 84647C12-963F-4966-AC03-6CCE7708A896 PUBLICATION DATE: 5 Sep 2012 TABLE OF CONTENTS Company Overview..............................................................................................3 Key Facts...............................................................................................................3 SWOT Analysis.....................................................................................................4 Spartan Stores, Inc. Page 2 © MarketLine Spartan Stores, Inc. TABLE OF CONTENTS COMPANY OVERVIEW Spartan Stores, Inc. (Spartan or “the companyâ€) is a regional distributor and retailer of grocery items. The company primarily operates in Michigan and Indiana.

It is headquartered in Grand Rapids, Michigan and employed about 8,600 people, of whom 4,100 were full-time employees, as of March 26, 2011. The company recorded revenues of $2,533.1 million during the financial year ended March 2011 (FY2011), a decrease of 0.7% compared to FY2010. The competitive environment and the economic conditions, product price deflation in certain primary product categories along with closure or sale of four retail stores in FY2010 resulted in the decrease of sales. The operating profit of the company was $68 million in FY2011, an increase of 15.9% over FY2010. The net profit was $32.3 million in FY2011, an increase of 26.4% over FY2010.

KEY FACTS Spartan Stores, Inc.Head Office 850 76th Street South West Grand Rapids Michigan USA Phone Fax Address 2,533.1Revenue / turnover (USD Mn) MarchFinancial Year End 8,600Employees SPTNNASDAQ Global Select Ticker Spartan Stores, Inc. Page 3 © MarketLine Spartan Stores, Inc. Company Overview SWOT ANALYSIS Spartan is a regional distributor and retailer of grocery items. It offers products under some of the well recognized regional brands like Spartan, Full Circle, Top Care and Valu Time. The company's strong market presence gives it a competitive advantage.

However, sluggish consumer spending amid weak economic condition in the US could adversely affect Spartan's margins and market share. WeaknessesStrengths Saturation of supercentres in Michigan pushing down the returns on investment Well distributed product mix between retailing and distribution activity Unique brand positioning that caters to the needs of various sections of customers ThreatsOpportunities Sluggish consumer spending due to grim employment scenario Eyeing for economies of scale and operational efficiency Lowering profit margins due to the increasing cost related to healthcare benefits Increasing preference of private labels among the customers Trends support increased demand for food products Rising labor costs Strengths Well distributed product mix between retailing and distribution activity The business operations of the company are well balanced between distribution and retail activity.

According to Metro Market Studies report, the company's distribution and retail operations hold a combined first or second position in terms of market share in the Northern and Western Michigan markets and a third position in other Michigan markets. The distribution segment provides a selection of approximately 43,000 stock keeping units (SKUs) and some 3,600 private brand grocery and general merchandise items. The segment has a well diversified risk structure as no single customer, excluding the corporate-owned stores, exceed 5% of consolidated net sales. Also, for approximately 70% of distribution net sales, the company has supply agreements with its distribution customers or the customers are directly controlled by it, thereby ensuring continuing of sales.

The retail segment has been able to carve a niche for itself by distinguishing itself as a neighborhood market rather than a supercenter. The retail outlets have been set up at convenient locations with Spartan Stores, Inc. Page 4 © MarketLine Spartan Stores, Inc. SWOT Analysis demographically targeted merchandise selections, high-quality fresh offerings and value pricing thereby attracting more customers. The company operates 97 supermarkets and 25 fuel centers across Michigan and some parts of Indiana.

This hybrid business model helps in the close functioning of both the segments thereby optimizing the natural complements of each business segment. The model results in economies of scale and operational efficiencies and also provides sharper market visibility and broader business growth options. Even for revenues Spartan is almost evenly dependent on both the segments; in FY2011, the revenues from distribution and retail segment accounted for 43% and 57%, respectively. This diversification in revenues and operations strengthens Spartan's regional presence and bargaining power. Unique brand positioning that caters to the needs of various sections of customers The products distributed and retailed by the company comprise the national as well as private brands.

Spartan, Full Circle, Top Care, Valu Time, Spartan Fresh Selections and Paws are the corporate brands under which Spartan sells its private label products. Under the private brands, around 3,600 quality products are made available in the categories of dry groceries, laundry, stationary, juices etc. Most of the products offered under the Spartan brand are low in fat, sodium and sugar that address special dietary or nutritional concerns. Under the Full Circle brand, the company offers natural and organic grocery items and milk products. According to industry sources, sales of organic food constituted 4% of the total US food sales in 2010.

Fruits and vegetables accounted for the largest percentage of organic food sales (39.7%) and reached nearly $10.6 billion in sales in 2010, an increase of 11.8% over 2009. If the trend continues, Spartan stands a good chance of increasing its sales revenue from this brand. The Top Care brand aims to provide health and beauty care products that are value priced for the entire family. The Valu Time brand offers 400 value priced products in various categories. These uniquely positioned brands help to meet the requirements of different customer segments.

Products under the private label are comparatively less costly to the national brands and with the economic slowdown many customers have been moving towards private labels. In such a situation, Spartan continues to increase the amount of sales from its line of 3,600 private labels. Weaknesses Saturation of supercentres in Michigan pushing down the returns on investment Most of the Spartan's 97 retail supermarkets are located in the state of Michigan and some in Indiana. In these states, the company also competes with other national and international brands like Wal-Mart, K-Mart, Meijer and others. During past three fiscal years, 21 competitor supercenters were opened in areas where the company operated stores.

The number of supercenters in the state of Michigan alone has grown with a compounded annual growth rate (CAGR) of 9% over 2003–10. In 2003, Spartan Stores, Inc. Page 5 © MarketLine Spartan Stores, Inc. SWOT Analysis there were 78 Meijer and 12 Wal-Mart supercentres in Michigan. The store count stood at 101 for Meijer and 81 for Wal-Mart as of January 2011.

The Michigan market is saturated and any further investment to expand in the area might not give the same return. Most of the Spartan's competitors have national as well as international presence with large scale operations. The economies of scale that these companies have enable them to stretch their profit margins and lower the prices. Presence of a large number of supercenters increases the chances of consumers switching from one store to another, and reduces market penetration opportunities for companies such as Spartan seeking to grow organically. Hence, Spartan can also lose its market share or suffer from thin profit margins in case competitors lower the price of their products.

Opportunities Eyeing for economies of scale and operational efficiency Spartan has been expanding its Grand Rapids facility, as it expects to add new distribution customers to its list. As part of its multi-year supply chain optimization strategy, in the fourth quarter of 2010, the company transitioned its Plymouth, Michigan dry grocery distribution operation to its Grand Rapids facility. This transition improved operational efficiency by increasing inventory turns, warehouse thru-put, and capacity utilization while reducing inventory investment requirements. The company also plans to operate all its supply chain activities from its Grand Rapids, Michigan distribution center. As a result of the closing of the warehouse facility and elimination of certain administrative positions, the company incurred charges of $4.2 million for severance, asset impairment and other related one-time costs in FY2010.

For FY2011, Spartan incurred an after tax net benefit of $0.6 million for a favorable LIFO inventory benefit due to inventory reductions, net of lease termination and additional distribution center closing costs. Further, in the Great Lakes region, Spartan has three major players i.e. Roundy's, Giant Eagle, and Fresh Brands with whom it can partner or enter in to some sort of arrangement to increase its market share and penetration. Consolidation with these companies would help Spartan to improve its economies of scale and compete with multinational companies like Wal-Mart, Target and others. Increasing preference of private labels among the customers Preference for private labels has been increasing in the US since 2006 as consumers have become price conscious and see the quality difference between private label and branded product narrowing.

Private label products are much cheaper across product categories than their national brand counterparts. Even upper-income shoppers are more willing to buy generic, which has traditionally appealed more to shoppers with limited budgets. The private brands reported growth in sales and volume in the US market in 2010. Private label sales increased by more than 2% in the US supermarkets and by over 5% in drug chains in 2010, according to an industry report. Over the past ten years, annual private label sales increased by more than 40% and 95% in supermarkets and drug stores, respectively.

Spartan Stores, Inc. Page 6 © MarketLine Spartan Stores, Inc. SWOT Analysis Spartan currently markets and distributes some 3,600 private brand items including its own flagship Spartan brand; Top Care, a health and beauty care brand; Valu Time, a value brand; and Full Circle, a natural and organic brand. The company has added more than 1,900 corporate brand products to its offering in the past seven years, and has introduced 300 products in FY2011 alone. Currently, Spartan has a good penetration level which can be further increased with its offerings of private labels, fresh and natural food.

With the increase in Spartan's market penetration, the sales of its private label products can also be expected to rise. The growing preference for private labels and Spartan’s offering in this section can help the company increase its market share and revenues. Trends support increased demand for food products Eating at home and eating healthy are important trends that are likely to increase the demand for grocery. The economic downturn, the perception that home-prepared foods are much healthier, a view held by 92% of grocery shoppers according to an industry study, and an unmet desire to enjoy affordable, restaurant-style foods at home have given food marketers the opportunity to recapture mealtime.

According to a recent survey by an industry expert, 86% of the budget-conscious women in the US prepared their meals at home in 2010. Approximately 71% purchased convenience produce (prepared salads, chopped fruits and vegetables, etc.) and approximately 81% purchased convenient forms of fresh poultry and meat regularly. Despite the economy, industry reports suggest that the perishable department has been registering steady growth. This growth is driven by the consumers’ perception of healthy food, increasing working population with lesser time to cook and also increased meal options provided. These trends suggest a large potential market, the spending in which is not entirely discretionary.

The positive trends in the market will lead to increased sales in the segment which will also drive footfall. Threats Sluggish consumer spending due to grim employment scenario The US economy has been growing at a slow pace after the financial crisis it suffered in 2008. Consumption expenditure which forms approximately 70% of the country’s gross domestic product (GDP), grew by only 1.7% in 2010 over 2009. Further, in the fourth quarter of 2011, the personal consumption expenditure grew by 2% over the previous quarter. The growth in the personal consumption rate remained sluggish in 2011 as customers continued to save more.

The average personal savings rate increased to 5.8% in 2010 compared to 4.3% in 2009. The personal saving as a percentage of disposable personal income was 3.7% in the fourth quarter of 2011, over the previous quarter. The unemployment rate, which remained at 9.4% towards the end of 2010, is also one of the reasons for customers keeping their spending at low levels. Though the unemployment rate reduced to 8.5% in December 2011 and 8.3% in January 2012, it still is significantly high. High unemployment rate Spartan Stores, Inc.

Page 7 © MarketLine Spartan Stores, Inc. SWOT Analysis adversely affects consumer spending as consumers feel insecure about the future income prospects. Thus, slow economic growth in the US could adversely affect the company's sales growth. Lowering profit margins due to increasing costs related to healthcare benefits An increasing number of US companies are becoming less competitive because of ballooning healthcare costs. According to Bureau of Labor Statistics, the employer costs for health benefits to the private industry workers increased 3.5% in 12 months to December 2011.

According to the Organization for Economic Cooperation and Development, the US spends approximately $2 trillion annually on healthcare expenses, more than any other industrialized country. As per industry experts, employers' healthcare costs are set to rise in 2012. According to the US Chamber of Commerce, the rising dollar figure has placed a heavy burden on companies doing business in the US and can put them at a substantial competitive disadvantage. For a company like Spartan which employs 8,600 people, footing healthcare costs can present an enormous expense and lower operational efficiency. In March 2010, President Barack Obama signed the healthcare reform law which aims to reduce healthcare expenses.

The reform focuses on decreasing the number of uninsured people by almost 60%. The law also mandates that employers either provide insurance for their employees or pay a penalty that would go toward government subsidies so employees could buy their own insurance. Also, the employers currently providing insurance are expected to see a reduction of $223 per employee in their healthcare spending and the non-insuring companies are expected to pay $316 per worker under the new health spending norms. The company participates in various multi-employer health plans for its union associates, and is required to make contributions to these plans in amounts established under collective bargaining agreements.

The cost of providing benefits through such plans has escalated rapidly in recent years. Therefore, any increase in the healthcare costs could significantly impact the operating cost of the company, affecting its profitability. Rising labor costs Labor costs have risen significantly in the US. In recent times, tight labor markets, increased overtime, government mandated increases in minimum wages and a higher proportion of full-time employees are resulting in an increase in labor costs, which could materially impact the company's cost of operation. As per the US Department of Labor, the federal minimum wage rate in the US rose for the third year in a row to reach $7.25 an hour in July 2010 from an earlier wage rate of $6.55 per hour in 2009.

Furthermore, many states and municipalities in the country have minimum wage rate even higher than $7.25 per hour due to higher cost of living. The federal minimum wage in Michigan and Indiana, where the company primarily operates, is $7.40 and $7.25, respectively. Increased labor costs could increase overall costs and affect the company’s margins. Spartan Stores, Inc. Page 8 © MarketLine Spartan Stores, Inc.

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,533.1 million during the financial year ended March 2011 (FY2011), a decrease of 0.7% compared to FY2010. The competitive environment and the economic conditions, product price deflation in certain primary product categories along with closure or sale of four retail stores in FY2010 resulted in the decrease of sales. The operating profit of the company was million in FY2011, an increase of 15.9% over FY2010. The net profit was .3 million in FY2011, an increase of 26.4% over FY2010.

KEY FACTS Spartan Stores, Inc.Head Office 850 76th Street South West Grand Rapids Michigan USA Phone Fax Address 2,533.1Revenue / turnover (USD Mn) MarchFinancial Year End 8,600Employees SPTNNASDAQ Global Select Ticker Spartan Stores, Inc. Page 3 © MarketLine Spartan Stores, Inc. Company Overview SWOT ANALYSIS Spartan is a regional distributor and retailer of grocery items. It offers products under some of the well recognized regional brands like Spartan, Full Circle, Top Care and Valu Time. The company's strong market presence gives it a competitive advantage.

However, sluggish consumer spending amid weak economic condition in the US could adversely affect Spartan's margins and market share. WeaknessesStrengths Saturation of supercentres in Michigan pushing down the returns on investment Well distributed product mix between retailing and distribution activity Unique brand positioning that caters to the needs of various sections of customers ThreatsOpportunities Sluggish consumer spending due to grim employment scenario Eyeing for economies of scale and operational efficiency Lowering profit margins due to the increasing cost related to healthcare benefits Increasing preference of private labels among the customers Trends support increased demand for food products Rising labor costs Strengths Well distributed product mix between retailing and distribution activity The business operations of the company are well balanced between distribution and retail activity.

According to Metro Market Studies report, the company's distribution and retail operations hold a combined first or second position in terms of market share in the Northern and Western Michigan markets and a third position in other Michigan markets. The distribution segment provides a selection of approximately 43,000 stock keeping units (SKUs) and some 3,600 private brand grocery and general merchandise items. The segment has a well diversified risk structure as no single customer, excluding the corporate-owned stores, exceed 5% of consolidated net sales. Also, for approximately 70% of distribution net sales, the company has supply agreements with its distribution customers or the customers are directly controlled by it, thereby ensuring continuing of sales.

The retail segment has been able to carve a niche for itself by distinguishing itself as a neighborhood market rather than a supercenter. The retail outlets have been set up at convenient locations with Spartan Stores, Inc. Page 4 © MarketLine Spartan Stores, Inc. SWOT Analysis demographically targeted merchandise selections, high-quality fresh offerings and value pricing thereby attracting more customers. The company operates 97 supermarkets and 25 fuel centers across Michigan and some parts of Indiana.

This hybrid business model helps in the close functioning of both the segments thereby optimizing the natural complements of each business segment. The model results in economies of scale and operational efficiencies and also provides sharper market visibility and broader business growth options. Even for revenues Spartan is almost evenly dependent on both the segments; in FY2011, the revenues from distribution and retail segment accounted for 43% and 57%, respectively. This diversification in revenues and operations strengthens Spartan's regional presence and bargaining power. Unique brand positioning that caters to the needs of various sections of customers The products distributed and retailed by the company comprise the national as well as private brands.

Spartan, Full Circle, Top Care, Valu Time, Spartan Fresh Selections and Paws are the corporate brands under which Spartan sells its private label products. Under the private brands, around 3,600 quality products are made available in the categories of dry groceries, laundry, stationary, juices etc. Most of the products offered under the Spartan brand are low in fat, sodium and sugar that address special dietary or nutritional concerns. Under the Full Circle brand, the company offers natural and organic grocery items and milk products. According to industry sources, sales of organic food constituted 4% of the total US food sales in 2010.

Fruits and vegetables accounted for the largest percentage of organic food sales (39.7%) and reached nearly .6 billion in sales in 2010, an increase of 11.8% over 2009. If the trend continues, Spartan stands a good chance of increasing its sales revenue from this brand. The Top Care brand aims to provide health and beauty care products that are value priced for the entire family. The Valu Time brand offers 400 value priced products in various categories. These uniquely positioned brands help to meet the requirements of different customer segments.

Products under the private label are comparatively less costly to the national brands and with the economic slowdown many customers have been moving towards private labels. In such a situation, Spartan continues to increase the amount of sales from its line of 3,600 private labels. Weaknesses Saturation of supercentres in Michigan pushing down the returns on investment Most of the Spartan's 97 retail supermarkets are located in the state of Michigan and some in Indiana. In these states, the company also competes with other national and international brands like Wal-Mart, K-Mart, Meijer and others. During past three fiscal years, 21 competitor supercenters were opened in areas where the company operated stores.

The number of supercenters in the state of Michigan alone has grown with a compounded annual growth rate (CAGR) of 9% over 2003–10. In 2003, Spartan Stores, Inc. Page 5 © MarketLine Spartan Stores, Inc. SWOT Analysis there were 78 Meijer and 12 Wal-Mart supercentres in Michigan. The store count stood at 101 for Meijer and 81 for Wal-Mart as of January 2011.

The Michigan market is saturated and any further investment to expand in the area might not give the same return. Most of the Spartan's competitors have national as well as international presence with large scale operations. The economies of scale that these companies have enable them to stretch their profit margins and lower the prices. Presence of a large number of supercenters increases the chances of consumers switching from one store to another, and reduces market penetration opportunities for companies such as Spartan seeking to grow organically. Hence, Spartan can also lose its market share or suffer from thin profit margins in case competitors lower the price of their products.

Opportunities Eyeing for economies of scale and operational efficiency Spartan has been expanding its Grand Rapids facility, as it expects to add new distribution customers to its list. As part of its multi-year supply chain optimization strategy, in the fourth quarter of 2010, the company transitioned its Plymouth, Michigan dry grocery distribution operation to its Grand Rapids facility. This transition improved operational efficiency by increasing inventory turns, warehouse thru-put, and capacity utilization while reducing inventory investment requirements. The company also plans to operate all its supply chain activities from its Grand Rapids, Michigan distribution center. As a result of the closing of the warehouse facility and elimination of certain administrative positions, the company incurred charges of .2 million for severance, asset impairment and other related one-time costs in FY2010.

For FY2011, Spartan incurred an after tax net benefit of

Company Profilespartan Stores Increference Code 84647c12 963f 4966

COMPANY PROFILE Spartan Stores, Inc. REFERENCE CODE: 84647C12-963F-4966-AC03-6CCE7708A896 PUBLICATION DATE: 5 Sep 2012 TABLE OF CONTENTS Company Overview..............................................................................................3 Key Facts...............................................................................................................3 SWOT Analysis.....................................................................................................4 Spartan Stores, Inc. Page 2 © MarketLine Spartan Stores, Inc. TABLE OF CONTENTS COMPANY OVERVIEW Spartan Stores, Inc. (Spartan or “the companyâ€) is a regional distributor and retailer of grocery items. The company primarily operates in Michigan and Indiana.

It is headquartered in Grand Rapids, Michigan and employed about 8,600 people, of whom 4,100 were full-time employees, as of March 26, 2011. The company recorded revenues of $2,533.1 million during the financial year ended March 2011 (FY2011), a decrease of 0.7% compared to FY2010. The competitive environment and the economic conditions, product price deflation in certain primary product categories along with closure or sale of four retail stores in FY2010 resulted in the decrease of sales. The operating profit of the company was $68 million in FY2011, an increase of 15.9% over FY2010. The net profit was $32.3 million in FY2011, an increase of 26.4% over FY2010.

KEY FACTS Spartan Stores, Inc.Head Office 850 76th Street South West Grand Rapids Michigan USA Phone Fax Address 2,533.1Revenue / turnover (USD Mn) MarchFinancial Year End 8,600Employees SPTNNASDAQ Global Select Ticker Spartan Stores, Inc. Page 3 © MarketLine Spartan Stores, Inc. Company Overview SWOT ANALYSIS Spartan is a regional distributor and retailer of grocery items. It offers products under some of the well recognized regional brands like Spartan, Full Circle, Top Care and Valu Time. The company's strong market presence gives it a competitive advantage.

However, sluggish consumer spending amid weak economic condition in the US could adversely affect Spartan's margins and market share. WeaknessesStrengths Saturation of supercentres in Michigan pushing down the returns on investment Well distributed product mix between retailing and distribution activity Unique brand positioning that caters to the needs of various sections of customers ThreatsOpportunities Sluggish consumer spending due to grim employment scenario Eyeing for economies of scale and operational efficiency Lowering profit margins due to the increasing cost related to healthcare benefits Increasing preference of private labels among the customers Trends support increased demand for food products Rising labor costs Strengths Well distributed product mix between retailing and distribution activity The business operations of the company are well balanced between distribution and retail activity.

According to Metro Market Studies report, the company's distribution and retail operations hold a combined first or second position in terms of market share in the Northern and Western Michigan markets and a third position in other Michigan markets. The distribution segment provides a selection of approximately 43,000 stock keeping units (SKUs) and some 3,600 private brand grocery and general merchandise items. The segment has a well diversified risk structure as no single customer, excluding the corporate-owned stores, exceed 5% of consolidated net sales. Also, for approximately 70% of distribution net sales, the company has supply agreements with its distribution customers or the customers are directly controlled by it, thereby ensuring continuing of sales.

The retail segment has been able to carve a niche for itself by distinguishing itself as a neighborhood market rather than a supercenter. The retail outlets have been set up at convenient locations with Spartan Stores, Inc. Page 4 © MarketLine Spartan Stores, Inc. SWOT Analysis demographically targeted merchandise selections, high-quality fresh offerings and value pricing thereby attracting more customers. The company operates 97 supermarkets and 25 fuel centers across Michigan and some parts of Indiana.

This hybrid business model helps in the close functioning of both the segments thereby optimizing the natural complements of each business segment. The model results in economies of scale and operational efficiencies and also provides sharper market visibility and broader business growth options. Even for revenues Spartan is almost evenly dependent on both the segments; in FY2011, the revenues from distribution and retail segment accounted for 43% and 57%, respectively. This diversification in revenues and operations strengthens Spartan's regional presence and bargaining power. Unique brand positioning that caters to the needs of various sections of customers The products distributed and retailed by the company comprise the national as well as private brands.

Spartan, Full Circle, Top Care, Valu Time, Spartan Fresh Selections and Paws are the corporate brands under which Spartan sells its private label products. Under the private brands, around 3,600 quality products are made available in the categories of dry groceries, laundry, stationary, juices etc. Most of the products offered under the Spartan brand are low in fat, sodium and sugar that address special dietary or nutritional concerns. Under the Full Circle brand, the company offers natural and organic grocery items and milk products. According to industry sources, sales of organic food constituted 4% of the total US food sales in 2010.

Fruits and vegetables accounted for the largest percentage of organic food sales (39.7%) and reached nearly $10.6 billion in sales in 2010, an increase of 11.8% over 2009. If the trend continues, Spartan stands a good chance of increasing its sales revenue from this brand. The Top Care brand aims to provide health and beauty care products that are value priced for the entire family. The Valu Time brand offers 400 value priced products in various categories. These uniquely positioned brands help to meet the requirements of different customer segments.

Products under the private label are comparatively less costly to the national brands and with the economic slowdown many customers have been moving towards private labels. In such a situation, Spartan continues to increase the amount of sales from its line of 3,600 private labels. Weaknesses Saturation of supercentres in Michigan pushing down the returns on investment Most of the Spartan's 97 retail supermarkets are located in the state of Michigan and some in Indiana. In these states, the company also competes with other national and international brands like Wal-Mart, K-Mart, Meijer and others. During past three fiscal years, 21 competitor supercenters were opened in areas where the company operated stores.

The number of supercenters in the state of Michigan alone has grown with a compounded annual growth rate (CAGR) of 9% over 2003–10. In 2003, Spartan Stores, Inc. Page 5 © MarketLine Spartan Stores, Inc. SWOT Analysis there were 78 Meijer and 12 Wal-Mart supercentres in Michigan. The store count stood at 101 for Meijer and 81 for Wal-Mart as of January 2011.

The Michigan market is saturated and any further investment to expand in the area might not give the same return. Most of the Spartan's competitors have national as well as international presence with large scale operations. The economies of scale that these companies have enable them to stretch their profit margins and lower the prices. Presence of a large number of supercenters increases the chances of consumers switching from one store to another, and reduces market penetration opportunities for companies such as Spartan seeking to grow organically. Hence, Spartan can also lose its market share or suffer from thin profit margins in case competitors lower the price of their products.

Opportunities Eyeing for economies of scale and operational efficiency Spartan has been expanding its Grand Rapids facility, as it expects to add new distribution customers to its list. As part of its multi-year supply chain optimization strategy, in the fourth quarter of 2010, the company transitioned its Plymouth, Michigan dry grocery distribution operation to its Grand Rapids facility. This transition improved operational efficiency by increasing inventory turns, warehouse thru-put, and capacity utilization while reducing inventory investment requirements. The company also plans to operate all its supply chain activities from its Grand Rapids, Michigan distribution center. As a result of the closing of the warehouse facility and elimination of certain administrative positions, the company incurred charges of $4.2 million for severance, asset impairment and other related one-time costs in FY2010.

For FY2011, Spartan incurred an after tax net benefit of $0.6 million for a favorable LIFO inventory benefit due to inventory reductions, net of lease termination and additional distribution center closing costs. Further, in the Great Lakes region, Spartan has three major players i.e. Roundy's, Giant Eagle, and Fresh Brands with whom it can partner or enter in to some sort of arrangement to increase its market share and penetration. Consolidation with these companies would help Spartan to improve its economies of scale and compete with multinational companies like Wal-Mart, Target and others. Increasing preference of private labels among the customers Preference for private labels has been increasing in the US since 2006 as consumers have become price conscious and see the quality difference between private label and branded product narrowing.

Private label products are much cheaper across product categories than their national brand counterparts. Even upper-income shoppers are more willing to buy generic, which has traditionally appealed more to shoppers with limited budgets. The private brands reported growth in sales and volume in the US market in 2010. Private label sales increased by more than 2% in the US supermarkets and by over 5% in drug chains in 2010, according to an industry report. Over the past ten years, annual private label sales increased by more than 40% and 95% in supermarkets and drug stores, respectively.

Spartan Stores, Inc. Page 6 © MarketLine Spartan Stores, Inc. SWOT Analysis Spartan currently markets and distributes some 3,600 private brand items including its own flagship Spartan brand; Top Care, a health and beauty care brand; Valu Time, a value brand; and Full Circle, a natural and organic brand. The company has added more than 1,900 corporate brand products to its offering in the past seven years, and has introduced 300 products in FY2011 alone. Currently, Spartan has a good penetration level which can be further increased with its offerings of private labels, fresh and natural food.

With the increase in Spartan's market penetration, the sales of its private label products can also be expected to rise. The growing preference for private labels and Spartan’s offering in this section can help the company increase its market share and revenues. Trends support increased demand for food products Eating at home and eating healthy are important trends that are likely to increase the demand for grocery. The economic downturn, the perception that home-prepared foods are much healthier, a view held by 92% of grocery shoppers according to an industry study, and an unmet desire to enjoy affordable, restaurant-style foods at home have given food marketers the opportunity to recapture mealtime.

According to a recent survey by an industry expert, 86% of the budget-conscious women in the US prepared their meals at home in 2010. Approximately 71% purchased convenience produce (prepared salads, chopped fruits and vegetables, etc.) and approximately 81% purchased convenient forms of fresh poultry and meat regularly. Despite the economy, industry reports suggest that the perishable department has been registering steady growth. This growth is driven by the consumers’ perception of healthy food, increasing working population with lesser time to cook and also increased meal options provided. These trends suggest a large potential market, the spending in which is not entirely discretionary.

The positive trends in the market will lead to increased sales in the segment which will also drive footfall. Threats Sluggish consumer spending due to grim employment scenario The US economy has been growing at a slow pace after the financial crisis it suffered in 2008. Consumption expenditure which forms approximately 70% of the country’s gross domestic product (GDP), grew by only 1.7% in 2010 over 2009. Further, in the fourth quarter of 2011, the personal consumption expenditure grew by 2% over the previous quarter. The growth in the personal consumption rate remained sluggish in 2011 as customers continued to save more.

The average personal savings rate increased to 5.8% in 2010 compared to 4.3% in 2009. The personal saving as a percentage of disposable personal income was 3.7% in the fourth quarter of 2011, over the previous quarter. The unemployment rate, which remained at 9.4% towards the end of 2010, is also one of the reasons for customers keeping their spending at low levels. Though the unemployment rate reduced to 8.5% in December 2011 and 8.3% in January 2012, it still is significantly high. High unemployment rate Spartan Stores, Inc.

Page 7 © MarketLine Spartan Stores, Inc. SWOT Analysis adversely affects consumer spending as consumers feel insecure about the future income prospects. Thus, slow economic growth in the US could adversely affect the company's sales growth. Lowering profit margins due to increasing costs related to healthcare benefits An increasing number of US companies are becoming less competitive because of ballooning healthcare costs. According to Bureau of Labor Statistics, the employer costs for health benefits to the private industry workers increased 3.5% in 12 months to December 2011.

According to the Organization for Economic Cooperation and Development, the US spends approximately $2 trillion annually on healthcare expenses, more than any other industrialized country. As per industry experts, employers' healthcare costs are set to rise in 2012. According to the US Chamber of Commerce, the rising dollar figure has placed a heavy burden on companies doing business in the US and can put them at a substantial competitive disadvantage. For a company like Spartan which employs 8,600 people, footing healthcare costs can present an enormous expense and lower operational efficiency. In March 2010, President Barack Obama signed the healthcare reform law which aims to reduce healthcare expenses.

The reform focuses on decreasing the number of uninsured people by almost 60%. The law also mandates that employers either provide insurance for their employees or pay a penalty that would go toward government subsidies so employees could buy their own insurance. Also, the employers currently providing insurance are expected to see a reduction of $223 per employee in their healthcare spending and the non-insuring companies are expected to pay $316 per worker under the new health spending norms. The company participates in various multi-employer health plans for its union associates, and is required to make contributions to these plans in amounts established under collective bargaining agreements.

The cost of providing benefits through such plans has escalated rapidly in recent years. Therefore, any increase in the healthcare costs could significantly impact the operating cost of the company, affecting its profitability. Rising labor costs Labor costs have risen significantly in the US. In recent times, tight labor markets, increased overtime, government mandated increases in minimum wages and a higher proportion of full-time employees are resulting in an increase in labor costs, which could materially impact the company's cost of operation. As per the US Department of Labor, the federal minimum wage rate in the US rose for the third year in a row to reach $7.25 an hour in July 2010 from an earlier wage rate of $6.55 per hour in 2009.

Furthermore, many states and municipalities in the country have minimum wage rate even higher than $7.25 per hour due to higher cost of living. The federal minimum wage in Michigan and Indiana, where the company primarily operates, is $7.40 and $7.25, respectively. Increased labor costs could increase overall costs and affect the company’s margins. Spartan Stores, Inc. Page 8 © MarketLine Spartan Stores, Inc.

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