THE HISTORY AND- EVOLUTION OF
VOLUN?ARY GEQUN EN
FOOD MSTREBU'E‘EON

Thesis f‘ov Hm Dogma»: of M. B. A.
MICMGAN STATE WWERSXTY

Lee Jerry Strock
1962

THESIS

 

 

LIBRARY

Michigan State
University

 

 

4 __-*.A—-f_ . , ._ ...--—

THE HISTORY AND EVOLUTION OF VOLUNTARY GROUPS

IN FOOD DISTRIBUTION

by

Lee Jerry Strock

A THESIS

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

ARTS .

Q-.-_;.=.;._.......__...._..._...g:..::=.-g;;.

MASTER

   

College of Business and Public Service

1962

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PREFACE

This thesis is a study of the voluntary group movement
from its inception in the 1920's, and will trace the evolution
to its present state of development and successful integration
of the wholesaler-retailer concept in mass distribution. The
writer will attempt to portray an accurate picture of the
independent retail and wholesale grocer of the 1920's and by
following the history and progress of the voluntary groups in
the last four decades, show how well the independent merchant
has progressed under the voluntary group concept.

Through this type of an approach, the author hOpes to
show that the voluntary group movement is a powerful, success—
ful, and very significant force in the food field. The mer-
chants are a modern, vital part of supermarket development.
They are sensitive to the ever-changing, fast pace in retail
mass distribution and capably constituted and evolved to more
than meet present and future challenges. It is through the
concept of wholesaler-retailer cooperation that the voluntary
groups have been able to successfully match, or surpass,
centrally owned chains.

It is also the purpose of this thesis to direct this
work to the attention of the potential as well as the presently

active independent business man, and those interested in

iii
marketing, that the voluntary group system makes available to
the relatively small independent business man the opportuni-
ties for a successful retail operation similar to those of the
central corporate chains. The voluntary offers the advantages,
facilities, and services of the centrally owned chain and in
addition preserves for their members the very important and
vital added advantage of an efficient owner-operator. As the
retail giants get bigger, that important element of personal
interest and relationship becomes more difficult to maintain
and preserve, as contrasted to the voluntary group merchant
who can take quick, appropriate action on the local scene. By
combining the flexibility of an owner—operator with the advan-
tages of big business operations through his voluntary group
membership, places him at a greater advantage than his giant
competitors. The latter have been attempting to minimize and
liquidate these advantages held by the independent voluntary
groups by decentralizing their operations and permitting
greater freedom of action at the important store managerial
level.

Part One of this study will be concerned with defining
and classifying the voluntary, retailer cooperatives, and
centrally owned chains. It will depict the economic and
social conditions basically responsible for the origin of
the voluntary group movement, and will describe its first

three evolutional stages. The influence of the chain store

iv
and super market growth will be analyzed, and this develop-
ment will be augmented by recent historical trends, conditions
and data that have evolved in the industry.

Part Two will describe the modern, low-cost wholesaler
as a complete supply depot. It will also consider the numer-
ous and vital services that voluntary groups offer to their
affiliated retailers, plus the obligations that the retailer
must perform as a member of a voluntary group.

Part Three will examine the obligations and responsibi-
lities of the retailer and wholesaler as voluntary group
merchants.

In conclusion, the author will tender several predictions
that are based on both socio-economic and industry forces,
plus some of his own conclusions gleaned from an extensive
review of the literature available and interviews with some
of the most informed and far-sighted men in the industry.

The evolution and integration of the voluntary groups
is truly the success story of the independent business man
successfully maintaining himself in the highly competitive
market place in mass food distribution. This thesis is
dedicated to those individuals who initiated, pioneered, and
refined the voluntary group type of distribution to its
present effectiveness and efficiency which in 1960 accounted

for 42.5 per cent of independent food sales and 26 per cent

of the total grocery store sales in the United States.1

A further purpose of this study is to broaden the
author's knowledge of the food industry. The subject matter
has given him the opportunity to visualize and absorb mass
distribution by the independent wholesaler and retailer from
a historical and operational viewpoint. Combining the com—
pletion of graduate study in food chain organization and
operation in his college curriculum with this study, has
afforded him the broadest insight into our food distribution

industry.

 

1”Facts in Grocery Distribution, 1961,” Twenty-eighth
Annual Survey, Progressive Grocer, p. F21.

 

ACKNOWLEDGMENTS

I wish to express my gratitude to my Alma Mater,
Michigan State University, for the education that I received.
We are the first University to initiate and develop an under-
graduate and graduate curriculum in Food Distribution, and
this is given within the School of Business and Public Service.

I wish to sincerely thank Dr. Edward A. Brand, at
present Assistant Dean of the School of Business and Public
Service at Michigan State University, and during my student
years Director of the Curriculum in Food Distribution. His
counsel and guidance have helped me immeasurable in writing
this thesis.

I wish to express my appreciation to Alfred Oppenheim,
President of Cressey, Dockham Co., I. G. A. Wholesalers of
Salem, Mass., and to Henry Marshall, Editor-in-Chief of

"Wholesaler Grocer News,"

Chicago, Illinois, for the time
and valuable information received from them in personal inter-
views. Also to Herbert Webb, Red & White Stores, Chicago,
Illinois, and to W. H. Logenbaker, Director of Store Engineer-
ing Department, I. G. A., Chicago, Illinois.

I give my sincerest thanks to the following people and

institutions from whom I received a great deal of assistance

and whole-hearted cooperation by means of correspondence--

Vii
T. G. Harrison and Russell W. Byerly, Chairman and President,
respectively, of Super Valu Stores, Super Market News, ProgreSr
sive Grocer, and Gordon Cook of The Voluntary and Cooperative
Groups Magazine.

I now give very special sincere thanks and appreciation
to my father, Moses S. Strock. Personal interviews with my
father on the subjects of food distribution and voluntary
groups gave me a sound foundation and broad insight spanning
a period of more than three decades. I am grateful for the
benefit of his intimate knowledge and experiences with the
subject matter of this thesis and his cooperation and

encouragement.

TABLE OF CONTENTS

CHAPTER PAGE
PART ONE
THE HISTORY AND EVOLUTION OF THE VOLUNTARY GROUP

I. ORGANIZATION AND CLASSIFICATION OF VOLUNTARY

GROUPS . . . . . . . . . . . . . . 1
Definition of Voluntary Groups . . . . . 1
Classification of Voluntary Groups . . . 1

How Voluntaries Differ from Retail Coopera-

tives and Centrally—Owned Chains. . . . 13
The Four Evolutional Stages of Voluntary

Growth . . . . . . . . . . . . 1?
Advantages and Disadvantages, Strengths,

and Weaknesses. . . . . . . . . . 20

II. VOLUNTARY GROUP HISTORY AND ORIGIN THROUGH

FIRST THREE EVOLUTIONAL STAGES . . . . . . 22
A Store of the 1920's . . . . . . . . 22
The Wholesaler of the 1920's. . . . . . 30

The Advent of the Chain Store and Its

Growth . . . . . . . . . . . . 34
The Independent Battles the Chain Store

with Legislation . . . . . . . . . Al
The Birth of the Voluntaries--The First of

the Evolutional Stages . . . . . . . 47

ix

CHAPTER I PAGE
The Second of the Evolutional Stages . . . 52
The Third of the Evolutional Stages . . . 60
The Birth of the Super Market ‘. . . . . 65

The Impact of the Super Market on Voluntar-
ies and Chains. . . . . . . . . . 72
Adoption of the Super Market's Methods and

Philosophy . . . . . . . . . . . 80

PART TWO

THE FOURTH EVOLUTIONAL STAGE--
THE MODERN VOLUNTARY GROUP

III. THE VOLUNTARY WHOLESALER AT THE WAREHOUSE LEVEL 91
Establishing the Modern, Low-Cost Warehouse. 91

The Modern Warehouse as a Complete Supply
Depot. . . . . . . . . . . . . 113

Voluntary Wholesalers' Sales Growth and

Expansion . . . . . . . . . . . 116

IV. EFFECTIVE SERVICES AND FUNCTIONS THAT
VOLUNTARIES PERFORM . . . . . . . . 122
The Need for Effective Services. . . . . 122
The Order Form . . . . . . . . . . 127
Financing . . . . . . . . . . . . 132
Accounting Service . . . . . . . . . 136

Merchandising, Advertising, and Promotions . 150
Store Engineering . . . . . . . . . 154
Supervisory Personnel--The Field Man . . . 158

Store Location and Development . . . . . 160

CHAPTER PAGE
Personnel Training and Development . . . 161
Perishables . . . . . . . . . . . 163

The History of Private and National Brands. 165

Addition and Progress of New Lines . . . 175

PART THREE

THE RETAILER AND WHOLESALER

V. OBLIGATIONS OF THE RETAILER AND WHOLESALER. . 178
Selection of Profitable Customers. . . . 178
Concentration of Purchases . . . . . . l8O
Pricing Plans of Voluntaries . . . . . 183
Proper Store Identification. . . . . . 187
Follow Through on Promotions . . . . . 187

Cooperation on Order and Delivery Schedules 188

VI. VOLUNTARY RETAILERS' SALES GROWTH AND
EXPANSION. . . . . . . . . . . . . 189

VII. PUBLIC RELATIONS . . . . . . . . . . 193

VIII. OPERATIONAL AND FINANCIAL REPORTS OF
VOLUNTARIES AND CORPORATE CHAINS--COMPARISONS

AND RATIOS . . . . . . . . . . 195

PART FOUR

THE FUTURE
IX. PROJECTIONS FOR THE FUTURE . . . . . . . 205
Perpetuation of the Voluntary Group . . . 205
Predictions . . . . . . . . . . . 211
Conclusions . . . . . . . . . . . 213

BIBLIOGRAPHY . . . . . . . . . . . . . . 218

TABLE

10.

11.

12.

13.

LIST OF TABLES

A Study Made by the Federal Trace Commission
on Sales and Profits of Retail Grocery
Chains from 1919 through 1930

Profit and Loss Statement for the Average
Grocery Store in the Louisville Survey as a
Percentage of Sales for the Year 1929.

Condensed Profit and Loss Statement of the
Retail Store Operation of the Great Atlantic
and Pacific Tea Company as a Percentage of
Sales for the Years 1929 to 1935

Year of Origin of 115 Voluntary Food Groups
in the United States . . . . .

Comparative Sales of Independent and Chain
Retail Grocery Stores Year 1929.

Numberof Stores of Leading Food Chains from
1921 to 1931 . . . . . . . . . .°

Sales of Leading Food Chains from 1921 to
1931. . . . . . . . . .

Chain-Independent Share of Grocery Sales from

1933 to 1957 . . . . . . . . . . .

Savings Effected by Duplicating Chain Methods
of Mass Buying and Cooperative Merchandising

Number of Voluntary Retail Groups, 1930, and
Their Memberships . . . . .

Wholesaler-Retailer Cooperation

A Study Made by the Federal Trade Commission
on Gross Margin of Sales for Grocery Chains
from 1919 through 1930.

Condensed Profit and Loss Statement of the
Retail Store Operation of the Great Atlantic
and Pacific Tea Company as a Percentage of
Sales for the Years 1929, 1933 and 1935

PAGE

28

29

30

33

38

40

40

47

52

57
62

66

67

xii
TABLE PAGE

14. National Income and Employment in the United
States for the Years 1929 to 1936 . . . . 68

15. Operating Statement of the Big Bear for the
Year 1933 . . . . . . . . . . . . 74

16. Total Number of Stores and Number of Unprofit-
able Units of the A. & P. Company for Years
1933 to 1941 . . . . . . . . . . . 79

17. Total Number of A. & P. Stores, Number of
Super Markets, Total Sales, and Super Market

Sales for the Years 1936 to 1943 . . . . 79
18. Changes in the Division of Sales Among Food

Stores from 1929 to 1948 . . . . . . . 81
19. Analysis of Superette Sales for 1960. . . . 84

20. Services extended to Retailers During 1949 by
Voluntary and Unaffiliated Wholesalers by
Percentages . . . . . . . . . . . 87

21. Per Cent of Total U. S. Grocery Store Sales
from 1947 to 1956 . . . . . . . . 88

22. Charting Present Figures Against Costs of
New Warehouse. . . . . . . . 107

23. Charting Present Figures Against Costs With
Conveyor System . . . . . . . . . 108

24. Reduction of Voluntary Wholesalers' Margins
as Compared to Unaffiliated Wholesalers,
1950 to 1955 . . . . . . . . . . . 112

25. Lines Handled by Grocery Wholesalers During
1960. . . . . . . . 114

26. The Number of Buying Offices to be Called on
at the Distributor Level to Make Products
and Promotions Available at the Retail Level 114

27. Retail Sales per Buying Office for 1959. . . 115
28. Average Number of Items Handled by Voluntary

Wholesalers from 1950 to 1960 . . . . 115
29. Comparison of Lines Other than Dry Groceries

Handled by Voluntary Wholesalers in 1949
and 1960 . . . . 116

TABLE

30.

31.

32.
33.

34.

35-
36.

37.

38.

39.

40.
41.

42.

43.

44.

46.

47.

Sales Gains by Type of Wholesaler 1960
vs. 1959 . . . . .

Wholesale Grocer Sales Percentage Gains Over
Pervious Year.

Wholesale Grocery Sales for 1960

Nine Top Volume Voluntary Wholesalers and
Their Estimated Retail Sales for 1960.

Services Rendered by Voluntaries in 1959
Sample of Portion of an Order Book

Types of Wholesale Grocers Using Pre-Printed
Order Forms and Percentage Using Them.

How Voluntary Wholesalers Aided in Financing
New Stores in 1956 . . . . . .

Merchandising Services Rendered by Voluntaries

in 1959.

Engineering Services Rendered by Voluntary
Wholesalers in 1959. . . .

New Stores Built and Remodeled in 1960

Lines Handled by Voluntary Wholesalers 1939
to 1959 . .

Share of Non-Foods Sales in Super Markets
for 1960 . . . . . . . . . .

Percentage of Voluntary Wholesalers Handling
Non- Foods for Years 1939, 1949, 1954, and

1959

Number of Stores Served by Affiliated
Wholesalers from 1939 to 1959

Number of Cases Handled by An Order Puller
Per Hour in Varying Size Orders. .

Share of the Grocery Business Since 1947 for
Chains, Unaffiliated Independents and
Voluntary and Cooperative Groups . . . .

How Independent Retail Sales Divide by
Voluntary, Cooperative, and Unaffiliated
Stores for 1960 . . .. .. . .

xiii

PAGE

118

118

119

120
127
130

132

135

151

156
157

164

175

176

180

181

189

190

xiv
TABLE P AG E
48. Sales Gains by Size of Chain for 1960 . . . 191

49. Margins, Expenses, and Profits for 53 Food
Chains Classified by Sales Volume, 1960 . . 201

FIGURE

\OCDNO‘xUl-D'UO

10.

LIST OF FIGURES

One- Store Warehouse with Complete Assembly
Line Built in 1940 . . . .

Floor Plan of a Modern, Complete Supply Depot
of a Voluntary Wholesaler, Erected in
June, 1959.

Accounting Service Agreement

Fees Charged by H. O. Wooten Grocer Company

Information Needed for Original Entry

Weekly Store Report

Check Register Forms

Form for Bills Unpaid.

Form for Returning Inventory to Retailer

Profit and Loss Statement Prepared by

Accounting Department for One of Its
Retailers

PAGE

96

110
142
143
144
145
146
146
147

148

PART ONE

THE HISTORY OF THE VOLUNTARY GROUP

CHAPTER I

ORGANIZATION AND CLASSIFICATION OF VOLUNTARY GROUPS

Definitions of'Voluntary Groups

 

Voluntary groups are wholesaler-sponsored groups that
are "organized on the initiative of a wholesale grocer seeking
to bring about a more effective combination of wholesale and
retail functions through merchandising affiliation with a
selected group of retailers.”1

Another definition is as follows:

The wholesaler-sponsored or voluntary group is a group
of independent retailers, organized by a wholesaler, who agree
to buy all or a major part of their merchandise needs from
the wholesaler in return for specified services rendered. The

sponsoring wholesaler is called a voluntary group wholesaler.2

Classification of Voluntary Groups

 

Craig Davidson, in his book Voluntary Chain Stores

 

which was written in 1930, when the voluntary group movement
was still in its infancy, sub—classified voluntary groups

according to the following categories:

 

1M. M. Zimmerman, The Super Market (New York: McGraw-
Hill Book Company, Inc., 19557, p. 13.

 

2U. S. Department of Commerce, Business Service Bulletin
BSB, May, 1957, p. 206.

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The individual voluntary chain, operated by a whole—
saler on his own plan, without affiliation of any
character, except local cooperatives.

The syndicate voluntary chain (name and plan only)
operated by a wholesaler on a franchise plan, with a
national name and trademark which is used by the whole-
saler in an exclusive territory. Buying is done
entirely by each wholesaler individually. [An example
is the Nation-Wide Food Stores.]

The syndicate voluntary chain (complete servic;)
operated by a wholesaler on a franchise plan, with a
national name, trademark and private brands. As much
as possible of the buying is done by headquarters and
all wholesale members pool their pgrchases. Complete
merchandising service is rendered.

The two types of syndicated voluntary groups are
referred to today as national voluntary groups and are dis-
tinguished by the relative degree of control that they
exercise over their retail members in the areas of both
buying and services. There are four national voluntary
groups today, Independent Grocers Alliance, Red and White
Stores, Clover Farm Stores, and Nation-Wide Stores. The
stock in the syndicate is usually owned by the wholesale mem-
bers. As stockholders, each member wholesaler has a voice in
formulating policy and electing a board of directors. The
board of directors usually represents all regional divisions
included in the national syndicate.

There are today a substantial number of wholesalers

operating as non-syndicated voluntary groups on their own plan

 

3Craig Davidson, Voluntary Chain Stores (New York:
Harper and Brothers Publishers, 1930), p. 6.

 

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and initiative, the volume of sales comparable to that of

many large chains.

Whether an unaffiliated or syndicated type of voluntary

is the most desirable today is dependent upon the judgment of

each wholesaler and his particular situation. Some of the

factors contributing to the wholesaler's decision are as

follows:
1.

2.

Organizational strength of the wholesaler.
Potential ability and willingness of management.
Reputation in his territory with his retailers,
and his need for the strength and prestige of the
syndicate.

Rediness of the wholesaler to think and act
"retail minded."

Resources to supply all the retailers' needs

through his own voluntary wholesale house.

Some of the advantages accruing to an unaffiliated

voluntary wholesaler are as follows:

1.

He can more readily adopt policies for his par—
ticular local needs.

He is more flexible to changing conditions and herd
He has greater freedom in selecting super market

members.

Some of the advantages to be gained by being a fran-

chised national voluntary are as follows:

 

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L.

E

 

 

1. Gains benefit of national buying power, and the
benefits of the prestige of a nationally adver-
tised syndicate label.

2. Gains buying assistance and merchandising benefits
in the areas of non-foods and general merchandise,
which is a considerable factor today. To an extent,
these features are also available to the unaffili-
ated voluntary grexps.

3. Gains the benefits of syndicate headquarters
management counsel and assistance.

4. Gains and benefits accruing as a national syndicate
develops and improves their national image with the
public. This is accomplished by institutional
advertising both on a national and regional scale.
In addition, the syndicate label is advertised on
both a national and regional scale, and is accom-
plished while promoting sales national and regional
in scope.

The ability to successfully develop a national image and
still retain the identity of the retailer as an independent
local merchant, neighbor, and good citizen, is a powerful
weapon with which to woo the consumer. In the area of private
label and company image, there are many unaffiliated voluntary
wholesalers who have, over the years, developed strong sec-

tional private labels and satisfactory regional images.

The basic difference between the syndicated voluntary
group with name and plan only, and the one with complete
service was the relative degree of control that they exercised
over their retail members. The theory of the loose degree of
control was based upon the assumption that the form of the
voluntary group was comparatively unimportant and that no
syndicated plan for a voluntary group can create a success
where it is not deserved.

It was maintained by the supporters of minimum control
that the institution is still "the lengthened shadow of a man
and it's the man, not the plan, that fails or succeeds.”1+

During the 1920's and the 1930's, when the voluntary
groups were in their infancy, the relationship between the
independent wholesaler and retailer was based upon varied
agreements, which may be divided into four classes:

1. The store purchase contract.

2. The gentleman‘s agreement.

3. The simple contract covering store signs and

advertising.

4. The "tight control" contract.

The store purchase contract provided for the purchase
of the store by the voluntary wholesaler and operation there-

after by the previous owner with a division of the profits.5

 

uIbid., p. 9. 5Ibid., p. 25.

——_—

 

 

 

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The gentleman's agreement was usually in the form of a
pledge card as follows:
I promise to the best of my ability to support the
lines of merchandise handled by all cooperators in this
plan in consideration of the help they are according to
us as individual grocers to meet present competition.
......ler6hanté .........
The simple contract covering store signs and advertising
was the contract of the Nation—Wide Food Stores in the 1930's,
and in effect was simply an agreement that the independent
retail merchant would pay so much weekly pay
for advertising, with provisions for placement and removal of
a store sign. The Nation-Wide plan today continues to maintain
a "loose control" contract, with added provisions of exclusive
franchise of Nation-Wide label, restricted store territory and
stipulated fees for services.7
The "tight control" contract attempted to cover every
phase of the operation of a voluntary group between wholesaler
and retailer. The retailer of the 1920's was generally uned-
ucated and many were illiterate. Elaborate contracts, written
in lengthy legal form, frightened him and rarely did he under-
stand what he was signing. He understood generally that the

wholesaler would give him highly competitive staples at

special prices and sell him a sign, some paint, and some form

 

Ibid., p. 25. 7Ibid., pp. 46-47.

 

of advertising, but usually he had very little idea of the
real cooperative basis upon which the contract was drawn.

Operators of voluntary groups had found in their early
dealings and experiences that any type of contract did not
automatically result in procedures specified in the contract.
If the retail customer did not feel like living up to the
contract, the voluntary wholesaler overlooked it and let him
have his way. This was obviously an unfair and unsatisfactory
situation, and was due at that period, to the weaknesses of
the wholesaler developing the voluntary group.

The problem of effective voluntary group cooperation
between retailer and wholesaler was not one of a particular
type of contract, but one of educating the retailer of that
day to the theory and organization of the voluntary, and of
the necessity of emulating the chain stores in their more
modern methods which resulted in low prices to the consumer.
Unless the retailer was thoroughly sold on the very good
reasons for cooperating, no contract in the early days was
capable of maintaining his cooperation.

The Red and White Voluntary contract was an example of
the "tight control” as described in the days of the birth of
the voluntary movement. The contract contemplated one hundred
per cent purchasing through the wholesaler sponsor, and so far
as possible a complete stocking of the Red and White private

labels, namely: Red & White, Green & White, and Blue & White

8
brands. While total purchasing from one's supply depot today
is an understood and accepted efficient method of purchasing
and merchandising, in the 1930‘s this was considered a revolu-
tionary idea and required much persuasion and persistent
application by the wholesaler.

Until the Red & White organization was able to educate
its members as to the reasons why it was to their advantage,
from a selfish viewpoint, to concentrate all purchases through
one wholesaler, and to push the private label brands, there
was constant cheating on this score by Red & White retailers
in spite of the fact that they had signed ironclad contracts.
This situation was not limited to the Red & White organiza-
tion, but was experienced by every voluntary wholesaler of
that era.

The Independent Grocers' Alliance is the outstanding
example of the syndicate voluntary group. It was organized
specifically as a syndicate, rather than outgrowth of the
wholesaler's efforts to establish his voluntary, as was the
case with the other syndicated voluntaries. The I. G. A.
franchises were definitely the "tight control" type both over
the I. G. A. voluntary wholesaler as well as his retailers.
The wholesaler was required to pass certain rigid qualifica-
tions as to his financial position, retailer good will and

his willingness and ability to work along the lines of the

 

81bid., pp. 26—28.

franchise. The I. G. A. retailers were required to concen-
trate their buying through this jobber, agree to remodel
their stores under direction of their store engineers, and
agree to follow the directon of headquarters. These contracts
were revolutionary for the early voluntary days and required
a tremendous amount of positive and energetic selling and
promotional talent to educate and convince the retailer of
that day.9

The Clover Farm Stores voluntary, which was organized
in 1926 by the Greene-Babcock Company, wholesale grocers of
Cleveland, Ohio, spread as a syndicate voluntary to all parts
of the country. COOperation between the wholesaler and re-
tailer in the 1920's and 1930' seemed unnatural. They were
suspicious of each other and had dealt at arms length for
many years, since the basis for their dealings was exclusively
buyer and seller. The closest and continual contact of the
voluntary with the retailer gradually taught the retailer that
it was only through mutual cooperation that they could suc-
cessfully fight a common enemy, the chain store. The Clover
Farm voluntary franchise called for tight controls over the
voluntary and his retailer.lO

Except for Red & White, the Nation-Wide voluntary is

the oldest franchised voluntary today. It was led by Lewis

 

9Ibid., p. 38. lOIbid., p. 65.

10

C. Shave of E. C. Hall Company of Brockton, Massachusetts,
who was the first person ever to address a Wholesalers' con-
vention on the subject of voluntary chains, and took place in
Rochester, New York in 1926. Prior to 1928, Mr. Shave organ-
ized his first voluntaries under the name cf Better Service
Food Stores, in Brockton, Massachusetts, and surrounding
areas. In 1928 the name was changed to Nation-Wide Food Stores,
and franchises were issued to other wholesalers in New England.
The first company outside Lew England to secure a Nation-Wide
Food Stores' franchise was the General Grocer Company of St.
Louis in 1929, for 13 states in the Middle West.

The Nation-Wide franchise to its wholesalers and to its
retail members is one of exceptionally loose control. Quoting
Mr. Shave on this theory, during the 1930's, he stated:

The retailer is free to act as he chooses and he is
always his own boss in every situation. Each and every
one in this cooperative movement is entirely independent
in all business matters. The wholesale grocer selected
as the distributor for a given territory is not permitted
to contract with, or otherwise force, the independent
retailer to bind himself in any 'way whatsoever. The
wholesaler must operate more economically and efficiently
in order to keep the retailer's trade. He must give him
real service to hold his business because the retailer is
at liberty at any time to trade with whom he sees fit,
although Nation-Wide retailers find that by trading with
one wholesaler they help themselves and the wholesaler
to Operate more economically.

To quote Mr. Shave further:

The Nation—Wide plan depends entirely upon the retailer's
intelligence and sense of fair play. He is free to think
and to do as he pleases, in this fastest growing of all
cooperative movements. There are no contracts and he
signs but one paper, which permits the Nation—Wide Stores
Company to trespass upon the store property in order to

11
remove the Nation—Wide sign in the event that the inde-
pendent falls below the standard of other Nation-Wide
Stores or should the retailer sell his business to an
undesirable merchant. Except for this, the members of
the Nation-Wide Stores are not obligated in any way.

They paint their own stores, they have the final say as

to how their stores should be run, they adopt any mer-

chandising plan they want, and are in every way indepen-

dent of other Nation-Wide stores.ll

While it is true to a limited extent that "It's the man,
not the plan, that fails or succeeds," the history of the
evolution and integration of the voluntary groups has shown
that it was essential to have a well organized plan for both
the voluntary wholesaler and his retailers, with definite
obligations and tight controls relating to them. The need
to meet the chain store competition in the past four decades
called for the independents to emulate and duplicate chain
store methods. These results could only be obtained by close
cooperation of the wholesaler and retailer operating under
clear cut and well defined programs, enforced by both the
syndicate headquarters and the voluntary wholesaler.
Enforcing a well organized voluntary plan assisted the

weaker voluntary wholesaler to develop his wholesale organ—
ization and equip himself to sell his retailers on his plans.
The contracts that required the retailer to participate in
the entire program and subscribe to all the services, gave

the wholesaler and retailer the working base needed for them

to compete with the chains.

 

llIbid., pp. 46-47.

12

The "tight control" contracts, coupled with a consis-
tent and vigorous program of educating the wholesaler and
retailer to the advantages and necessity of the voluntary
group, was responsible for the eventual progress and develOp-
ment of the movement. To have continued to permit the volun-
tary plan to be predicated upon the retailer's intelligence
and sense of fair play and allowed to do as he pleases would
have eliminated the primary needs of the independent merchants,
which was direction, supervision, and education under well de-
fined plans placing an obligation upon him as a thinking and
progressive merchant associated with a voluntary group.

The unusually strong and progressive wholesaler was
capable of developing his own voluntary wholesale house and
retail groups and had the foresight and ability to organize
and progress on his own without the aid of a syndicated volun-
tary. There are many independent voluntaries today who are
outstanding successes. They, too, have operated under the
strict enforcement policy and it is unlikely that they would
have been the success they are today if they permitted them-
selves and theirretailers to vacillate and had not held to
high degrees of responsibility.

The high degree of integration of the voluntary of feds?
has come about through the gradual acceptance by the wholesaler
and retailer of the necessity of each being held accountable

for their contribution to the voluntary system of distribution.

 

 

 

 

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13

1i;VW'Voluntaries Differ from Retail—Cooperatives
and Centrally-Owned Chains

A voluntary group is a group of independent retailers,
c>rmganized by a wholesaler, who agree to buy all or a major

'pzart of their merchandise needs from the wholesaler in return
The sponsoring wholesaler

fYDr specified services rendered.
12

1.8 called a voluntary group wholesaler.

A retailer cooperative group is a group of independent

ruetailers who own and operate a wholesale establishment which
13

143 called a retailer cooperate warehouse.

A centrally owned chain is a group of stores organized
Eirld created through the use of its capital by combining whole-
555118 and retail functions under one control.

As the early chain stores developed the new idea of non-
C317edit and non—delivery and educated customers to pay cash
I7c>r their groceries and save through low prices, both whole-
ESEllePS and retailers, in the beginning, believed that the way

t:c> meet chain competition was to imitate chain buying methods.

'ITPdlis, he could sell as cheaply and put the chains out of busi-

The chains were receiving quantity discounts and price

r163:3s.
advertising and

C3"C>Ir1cessions in return for chain-wide stocking,
(3%fi~ssplay, and the Hadvertising allowance" was emerging.
This situation was the basis of the formation of the

ESEi—Zr‘lybuying pools. Basing their action on the assumption

1:hléat buying was the sole advantage of the chains, local retail

\

 

12U. S. Department of Commerce, Business Service Bulletin,

BS E-eoé, May, 1957.
l3lbid.

_—

lulbid.

 

 

14
gI?C)C€PS developed plans for informal pooling of orders, which,
WTlEBU combined with quantity buying and pool-car buying, resulted
111 certain instances in substantial reductions in the delivered
cc>st of merchandise. However, if the independent retailer was
tc> obtain the advantages and privileges that the chains were,
hue must place himself in a position to offer the manufacturers
true same reasons for granting them.

So long as they failed to attack the problem of chain
S1:ore competition in all the areas in addition to buying, these
gglroups were ineffective and transitory. To overcome their
flaindicap, these buying groups moved into merchandising and
£1Civertising, but purchased their regular requirements through
Eiriy source of supply. It then became apparent to these re—
tSEiilers that the success of the chains was due only in small
E3611%;to purchasing advantages. The success of the chains in
fi.r1novating new cost cutting methods in their operations proved
tSCD the retailer that nothing less than an ability to emulate
13}113 chain in all phases would be the answer to meeting this
3r1€EXN kind of competition.
Many of these early buying groups found that a logical
53 tZEep in their development was to purchase an existing whole—
E3€ille house or to form a new one. The individual retailer
irl‘aested money for the purchase, receiving shares of stock,
EilflCi thus a retail cooperative was formed. The members of the
(3‘:><3perative vote and elect their officers and board of direc-

1:<:>Zt"s, and usually the board hires the paid manager.

15
Although voluntaries and cooperatives have many things
iri czommon, they are fundamentally two different types or or-
g;1x<1:i_zations. They both, in their fullest development,

seek
.Eiccomplish the same thing,

tc> namely: to integrate the whole—
sale and retail functions.

In accomplishing this, there are three basic factors

triza.t: differentiate them. First, in a voluntary the initia-

ti_\7<e to organize comes from the wholesaler, whereas in a co-

OEDEecrative such initiative springs from the retailers.

Second,
'bYlea voluntary wholesaler continues to own the wholesale estab-

1¥i£shment and thus preserves the separate status of the
Wholesaler and retailer, while the COOperative is organized

1337 establishing its own wholesale house, rather than integrate
Vviiflla.voluntary wholesaler. Third, the cooperative ties the
‘Vfiolesale and retail functions together with the use of their
(Dan capital, in contrast to the voluntary. However, there

E5till is the similarity that individual ownership of the retail

EStores is retained by the individual retailers and not surren-

Cieered to the wholesale or central corporation.

The central chain is distinguished from both the volun-
TSEiry and cooperatives by the fact that the central chain has

f'LJ.ll and complete control over its retail units, assumes

5331'] .1.
4.. .AL 1..

f.inancial responsibility for such units, bears all the losses

()1? the retail units and supplies all the initial and Operating

Cleipital for these units and the central warehouse.

 

16

The basic difference between the voluntary and the

cerrnytzral chain is the separation of ownership of the wholesale
hCYL1.ESE’and the independent ownership of the retailer of his
st:c>:r°e. In a voluntary group the wholesaler does not surrender
ir1Ci:i_vidual ownership nor does the retailer surrender his

own e rship.

The voluntary group depends on cooperation which is
VC>]_11ntary and contractual between the wholesaler and retailer
afis contrasted to the chain store system of combined wholesale
ar1<i retail functions tied together by capital. The individual
EstSOre assumes full financial responsibility for its acts. All

EDINDfit earned by the store is retained by its owner and when a
Estore fails and is forced to close, the loss is borne by the
CDwnerand his creditors. None is shared by the voluntary
‘Vtiolesaler except as a creditor, if the retailer owes him
rnOney, and none is shared by the other members of the voluntary.

DIFFERENCES AND SIMILARITIES OF VOLUNTARY,
COOPERATIVE, AND CENTRAL CHAINS

 

 

Type of Organization How Originated
Voluntary . . . . . . . Wholesaler Sponsored
Cooperative . . . . . . Retailer Sponsored
Central . . . . . . . Corporation Sponsored

Ownership of Wholesale Warehouse

 

Voluntary . . . . . Separate independent ownership
Cooperative . . . . Ownership by retailers
Central . . . . . Ownership by central corporation

Ownership of Retail Stores

Voluntary . . . . . Individual retail ownership
Cooperative . . . . Individual retail ownership
Central . . . . . Ownership by central corporation

17
Legal Liability for Wholesale Establishment

Voluntary . . . . . Separate corporate liability
Cooperative . . . . Separate corporate liability
Central . . . . . Corporation liable

Legal Liability for Retail Units

Voluntary . . . . . Individual retail owners liable
Cooperative . . . . Individual retail owners liable
Central . . . . . Corporation liable15

Tflnfie Four Evolutional Stages of Voluntary Growth

 

Dr. Rudolph L. Treuenfels, who is Executive Vice-Presi-
Cieent of the National-American Wholesale Grocers Association
Eirad a recognized authority on voluntary groups, has divided

tune development of the voluntary movement into four stages.

The first stage, which started in the early 1920's, was

tflde initial effort to organize voluntaries. During this first
IDeriod, both wholesalers and retailers believed that the way
txa meet the new competition by the economy chain stores was
tn) imitate chain store buying methods. A great deal of
Ennphasis was placed on quantity buying and price concessions.
Tfidis was the first stage of voluntary group development.

The second stage began in the late 1920's and into the
Eiaifly'l930's. Wholesalers took the lead in organizing volun-
‘téiry groups. They urged their retailers to change their
rnethods to semi-self-service and other forms of modernization,
IDllt progress was limited because of inexperience. The whole-

E3alers failed to organize effectively and lacked men of the

\

15Interview with Moses S. Strock, recognized authority
C)r1 Voluntary Groups, May 27, 1961.

18
‘blfiiea right calibre and experience to do the work. During this
§>€3cI~iod there began to emerge the syndicated voluntary, offer-
iqugg wholesalers and retailers merchandising benefits and
sseazrvices aimed to emulate the chains and put the retailer in
a. competitive position. Remodeling of stores under the direc—
t:i_on of a store engineer was requested by the voluntary, and
Esealf-service was encouraged.

The third stage started in the late 1930‘s and lasted
llrltil World War II was over. The voluntary wholesaler, by
tdnis time, considered his functions in terms of total retailer
I?equirements, with an opportunity to build his own volume
13hrough better retail merchandising and services in all depart-
nflents of voluntary group members. Tighter control was being
rnaintained right down the line, from the syndicate headquarters
130 the voluntary wholesaler and to his retailer. This period
rnarked the entrance of the super market into the retail dis-
txribution field which created a revolution in mass retailing.
Tflae integration of the wholesaler—retailer relationship showed
51 greater development during this evolutional stage in an
Eiffort to be competitive and emulate the new threat--the
EHJper market.

The fourth, or current evolutional stage is the present
E3uccessful integration of the voluntary group. To a great
E3Xtent, the sharp competition of the super markets of both

iIndependents and chains had driven out many of the least

€31?ficient merchants, the better ones survived, and the general

 

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19
i1.€3xlel of ability was higher. This current period sees the
:r’eessults of evolvement of the steady improvement and exten-
ss:143n of the wholesaler-retailer teamwork in the voluntary
IT1c>vement. The formula of progressive wholesaling and the

Iéeesulting advances in retailing through voluntary groups con-
fstnued to confirm the fact that the independent retailers
Eijffiliated with these groups were making the greatest
strides.l

The voluntary groups are thriving in this modern super-
rnarketing era. The wholesalers have established modern, low
czost warehouses, effectively mechanized with modern office
'techniques and equipment. They have set up complete supply
(iepots through these warehouses, and supply their retailers
:in all departments at low prices, which enables the retailers
'to be competitive. The voluntary wholesaler supplies complete
sservices and modern merchandising and promotional assistance,
zand guides the retailer through supervisors in store effici-
ermy'and management.

The voluntary wholesaler assumed strong leadership and
Cieveloped the closest cooperation between wholesaler and re-
13ailer. This was accomplished by gaining control over the
FNJrchasing and operating methods of his retailers and by this
nJeans he was able to make his good accounts better and to
Ehahieve super market status to share in the sales volume of

‘tlde retail food business.

\

l6Dr. Rudolph L. Treuenfels, "Voluntaries' Aid Vital in
IProgress," Supermarket News, March 22, 1954, p. 8.

 

 

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20

Afii*\rzantages and Disadvantages, Strengths and Weaknesses

The voluntary group is a proven success and is capable

<3f? loringing out the best in both the retailer and wholesaler

iIt: :is based on common need, common sense, and common results.

'Fkiea wholesaler leads by education and persuasion and the re-
1:ELfi_lers support him because of self-interest and conviction.

“Etiee voluntary wholesaler knows that his success or failure is

Ffirwadicated upon that of the retailer, and the latter realizes

13k1at he cannot be a competitive factor without the contribution

Inside by the wholesaler. The lack of strong central control in

51 'voluntary is perhaps the most important factor in judging

‘bfle strength of the central chain and the weakness of the

‘JCDluntary group. The voluntary must obtain cooperation by

the central chain by instructions and command. The

persuasion,
‘Vwoluntary wholesaler cannot fire an inefficient merchant or

Ftis unsatisfactory employees, and must either continue to try

‘t<> teach and educate, or withdraw his franchise from the re-

'téiiler and thereby lose this volume of business.
The greatest advantage of the voluntary is the personal

liriterest of the owner-operator. The voluntary independent

(DVWner has the opportunity to be more flexible, personally
Cievelop a good store image and can move very quickly in making

CiEECisions. A combination of owner-operator interest with all

tl’leneeded requirements of modern mass merchandising supplied

13:? lqis voluntary wholesaler places him in a very advantageous

position.

 

 

 

 

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The voluntary groups have a tax advantage over the

crklzagins. Members of these groups are independent merchants
ajrici as such each store pays taxes based upon the individual
s.t;<3re's profits. The profits of the unit stores of the cor-
I><>:rate chain are pooled and taxed as one corporate profit,
vfkiich.places them in a much higher tax bracket.

As an example, BOO independent stores, each making an
Eirinual net profit of $20,000 before taxes, collectively will
Ebeay much less of a tax than BOO chain store units which earned
El similar profit. This is because corporate chain profits are
Fwooled and the tax will be based on the aggregate profit of
8111 its stores. Each independent store will pay a tax on
$320,000, while the corporate chain‘s tax will be based on 10
filillion dollars.

The voluntary group will usually have fewer labor prob-
lxems than the corporate chain. In the latter, the employees
111 each store and in each warehouse work for the same corpor-
Eition and it is much easier for labor unions to organize them.
Ida the voluntary group, where the employees work for indepen-
<3<ent retailers and independent wholesaler establishments,
OI‘ganization by unions is much more difficult because of the

rnany stores involved and the relatively small number in each
Llrlit. However, the unions in the past few years have been
61CItive in the wholesale food industry and have unionized a

Egreat many voluntary group warehouses.l7

\

I) 17David J. Schwartz, "An Exploratory Analysis of the
EB‘velopment and Present Status of Voluntary and Cooperative

Eil?cnuxsierpod Marketing" (Research Paper Number 2, Georgia
tEite Collegecfi‘Business Administration), p. 34.

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CHAPTER II

VOLUNTARY GROUP HISTORY AND ORIGIN THROUGH

FIRST THREE EVOLUTIONAL STAGES
m Store of the 1920's

The stores of the average independent retailer in the

:LSBEO'S were "friendly places of business, neighborhood

rfleeting places, where women spent the time of day while

Waiting to be served. Women didn‘t seem to mind waiting

because it gave them the chance to visit with the neighbors."1

The competition of the retailer grocer consisted of

Crther merchants like himself. The stores were generally dirty

axid cluttered, they carried too much of the wrong kind of

Extock, and his bookkeeping was inadequate. The uncontrolled

Cldarge account, the delivery wagon or truck, the open cracker-

barrel, the dust—gathering prune box, the coffee—mill on the

<3Gunter, were components of the store of the 1920's.2
No customer could possibly wait on herself. She did not
lirlow where the merchandise she wanted was located, nor the

price, and often the grocer himself did not know. The retail

\

r11 l"Doomed in 1920, The Independent is Stronger, Healthier
1.klan.Ever," The Progressive Grocer, Vol. 31, No. 10 (October,
952), p. 210.

2Zimmerman, op. cit., p. 9.

 

23
g;r*<><3er weighed out soap chips from a 25 to SO pound drum,
ssc>ilxj bulk coffee and ground it to order by hand, and sold
<3c><2fl<ies and crackers out of the big cracker-barrel or wooden
t>c>:<. Prunes were also sold from 25 pound bulk wooden boxes

izklzat were opened, displayed, and covered with a glass or
IDEiner cover to keep the flies and dust off. Crackers often
Cieume in bulk canisters, and cheese, rice, beans, and peas
vveare sold in bulk quantities.3
The retailer carried on his business with very little
(lkiange. His knowledge of merchandising and the physical lay-
<31Jt of his store remained unaltered from one decade to another.
lif'he made more than his family's groceries out of the busi-
rless, it probably was because he was a shrewd trader and
lDought sharply, or had a way with the women that gave him an
exjge on his brother grocer in attracting trade.
Most of the labor was furnished by the grocer's family.
ILarge families were vital in running a grocery store. Meats
Vvere out to order, and rarely displayed in platters.21L
The retail store was dark and dusky. A well-lit store
VJas unusual. "Electricity cost money, and if business were
n<One too good, the retailer would not turn on the light until

int became so dark that he hurt his shins on a box of lemons in

3Davidson, op. cit., p. 1.

)
IZimmerman, op. cit., p. 99.

 

 

 

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24
tries aisle."5 Most lighting fixtures consisted of two drop

Cc)rwds with porcelain reflectors, and one-hundred watt bulbs

weelrea considered sufficient illumination for a 25 x 50 foot

stcanre. Yellow walls and oak fixtures absorbed a great deal

of‘ ZLight, which resulted in an over-all dull appearance of
the store. 6

In remodeling old stores and building new stores at

theat time, a height of not more than seven feet was recom-

mernded for the shelving, which was made of wood. The store

recuiired stepladders and package hooks for hard to reach mer-
chandise.7

Advertising and merchandising by the independent retailer

‘Was practically nonexistent. The only merchandising he did was

that of suggestive selling, selling another or additional pro-

duct, size, or brand. Advertising consisted of window signs

usually handwritten and oftentimes half oblitereated by rain

Or peoples' fingers. The sidewalk display was the major theme

in grocery merchandising.8

In the early store layouts, a large amount of space was

allotted to work counters for the following three reasons:9

5Davidson, op. cit., p. 135.
6Loc. cit.

7Ibid., p. 88.

Zimmerman, op. cit., p. 99.

9Davidson, op. cit., p. 111.

25

1. To collect and wrap grocery orders.

2. To weigh goods and collect money.

3. To have a handy place to answer the phone and write

up orders.

The average grocer would receive most of his orders by
telephone in the morning and he or his clerk would proceed
to fill them. The work counters were cluttered, unpleasant,
and generally were a gathering place for Junk. This same
criticism applied to the old—fashioned glass show cases.

A typical conversation between a customer and a clerk
in the 1920‘s ran something like the following:

"And then I'd like a bottle of catsup.

Yes 'um, which will you have, Heinz, Snyders, or
Our Own brand?

Oh: Heinz, I guess.

Yes ‘um, what size, large or small?

Small.

Yes 'um, and what else?

What is the price of the large size?

Twenty-three cents.

Well, that is all right, I will take the small size."10

The retailer was accustomed to buying from several

wholesalers and dealt with the latter's salesmen. It was not
unusual and the practice for a retailer to buy from as many
as three or four wholesale grocers, using the method of

wheeling and dealing. The salesman would sell the retailer

 

26
anything in any quantity, and often regardless of whether the
customer could or could not pay for it. The retailer would
attempt to match prices of his many wholesalers and buy the
various items from the one who had the lowest prices on par-
ticular items. However, in the final analysis the wholesaler
would average his mark-up on each order by pricing unquoted
items higher than normal.

The salesman would sell a quantity of an item to a re—
tailer who would buy an abnormal amount to obtain a lower
price. This merchandise often would remain in his inventory
for three or four months before finally selling out, and his
inventory turnover per year was very low. Also, by being un-
balanced in inventory, at times he was unable to finance his
regular purchases and his always climbing accounts receivable.11

Credit and delivery was the heart of the independent re-
tailer‘s operation. However, the retailer often let his
credit accounts get out of hand so that they often were larger
than his inventory. Progressive men of that time felt that
the best way the independent could hold his trade was by the
extension of credit. It was felt that credit and delivery
were essential services that would enable the independent mer~
chant to hold his trade more firmly than ever.12

It is important to know the conditions and operations

of the store in the 1920‘s because the chain store started

 

11Interview with Moses S. Strock, May 27, 1961.

12Davidson, op. cit., p. 232.

 

 

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27
and flourished by improving upon the methods or lack of
methods of the independent retailer.
A list of the conditions were as follows:
1. Uncontrolled charge accounts.
2. No merchandising.

No advertising.

All service.

Poor store layout.

Untidy stores.

Poor buying resulting in high cost of goods.

CID-\lmU'l-t'w

Little or no bookkeeping records.

9. High overhead——no cost records.

The net result of the independent retailer's operation was
high prices to the consumer. In many instances the chains
retailed merchandise at lower prices than the independent
paid his wholesaler for it. This was occasioned by a com—
bination of the chains selling ”loss leaders" at below cost
or at cost and the wholesaler selling to the retailer at high
margins.

Early studies of figures of the independent retailer
and the chain store arerevealingirltmat they point out the
savings to the consumer by improved chain methods.

The Louisville grocery survey that was published by
the United States Department of Commerce and conducted during
1928-1929 revealed that the average gross margin of the inde-

pendent retail food store in Louisville was 25.81 per cent.

 

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28
In January and February, 1931, the Federal Trade Commission
secured similar statistics from retail grocery stores in the
Detroit metropolitan area. This showed the gross margins of
chains to be 18.96 per cent of sales and that of the indepen-

dent to be 25.93 per cent.13

TABLE 1. A Study made by the Federal Trade Com-
mission on Sales and Profits of Retail
Grocery Chains from 1919 through 1930.a

 

 

 

Year Gross Margin
1919 16.92
1922 19.57
1925 20.56
1927 20.60
1928 20.92
1929 20.65
1930 20.94
Average percentage for period . . 20.58
Average operating expenses
for period . . . . . . . 18.48
Net profit for the period . . . 2.lO %

aFrank J. Charvat, Supermarketing (New York: The
MacMillan Company, 1961), p. 22

 

 

13Zimmerman, op. cit., pp. 14-15.

29

TABLE 2. Profit and Loss Statement for the Average
Grocery Store in the Louisville Survey as
a Percentage of Sales for the Year 1929.a

 

 

 

Sales . . . . . . . . . . . . 100.00
Cost of sales . . . . . . ., . . 74.19
Gross margin. . . . . . . . . . 25.81
Expenses:
Miscellaneous 2.53
Owner's salary 4.01
Other salaries . . . . . . 6.31
Rent . . . . . . . . . .98
Utilities. 1.23
Delivery . . . . . . . . 2.77
Advertising . . . . . . . .31
Insurance. . . . . . . . .15 18.29
Net Profit . . . . . . . . 7.52

 

 

aU. S. Department of Commerce, Distribution Cost
Studies Number 1, Louisville Grocery Survey, Part
IIIA, (Washington, D. 0.: Government Printing Office,
1932), pp. 15-23.

Other studies of independent store operations showed
gross margins closer to 20 per cent and profits from 1.6 to
2.6 per cent of sales.11+

The Great Atlantic and Pacific Tea Company for the
year 1929 operated 15,150 stores, with average weekly sales
of $1,317.00 per store. (See Table 3.)

The Federal Trade Commission published statistics for
1929 showing the gross margin for chain stores as a group for
that year was 18.99 per cent, and for independents 23.01 per
cent of sales. These figures supported the fact that the

chains were underselling the independent grocer at that time.15

 

Ibid., p. 23. 15lbid.

 
 

 

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30

TABLE 3. Condensed Profit and Loss Statement of the
Retail Store Operation of the Great Atlantic
and Pacific Tea Company as a Percentage of
Sales for the Years 1929 to 1935.a

 

 

 

1929' 1933 1935
Sales . . . . . . . . 100.00 100.00 100.00
Cost of sales . . . . . 81.64 78.10 80.50
Gross margin. . . . . . 18.36 21.90 19.50
Total operating expenses. . 15.52 19.08 17.56
Net profit . . . . . 2.84 2.82 1.94

 

 

aUnited States v. The Great A & P. Tea Company, U.S.
Circuit Court of Appeals, 7th District, Docket 9221,
Records and Briefs, Vol. II, p. 162.

 

 

The period of 1920 to 1930 found the chain stores at
their peak, and the independent retailer at his lowest level
of efficiency and ability to compete. It became essential
that, with the assistance of the wholesaler, he educate himself
to offer the public savings in their food budget by duplicating
the methods of the chains. The measure of success of each in—
dependent retailer depended upon how quickly he learned this

lesson and applied the knowledge.

The Wholesaler of the 1920's

 

While the food chains attained an important retailing
position in the early 1920‘s, the wholesaler faced many prob-
lems.

The wholesalers were located in multi-story warehouses

which required the use of elevators for handling merchandise.

 

 

 

 

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31
This was a slow and costly procedure. Materials handling was
a matter of moving and assembling each individual unit, and
equipment was limited to two-wheel hand trucks.16

The need for salesmen to obtain orders was a very costly
expense that the chains did not have to bear. The retailer
purchased from three or four wholesalers. Because of this
practice, the wholesaler was always uncertain whether his cus-
tomers would give him a large, small, or any order. The
selling expenses of the wholesaler of the 1920‘s were often as
large as a modern wholesaler’s total operating expenses. These
selling costs offered the greatest possible area for reduction
of wholesaler's operating costs and was later effected by the
introduction of the order form.

The wholesaler offered his customers no assistance in
merchandising, advertising, or services of any nature. He
thought he did a good job if he could supply groceries to his
retail customers and earn a satisfactory profit. Whether or
not the retailer could sell this merchandise did not matter to
the average wholesaler. He was unconcerned with any matters
beyond the sale of the merchandise.17

In the areas of finance and credit, the wholesaler ex—

tended generous credit to his retailers and used this as a

weapon to secure business and maintain his high price structure.

 

l6Ned Fleming, "100 Years of Food Distribution,” Whole-
sale Grocer News, Vol. 28, No. 3 (June, 1953), p. 23.

 

 

l7Grant Gore, "There‘s Been a Revolution in Grocery
Wholesaling, Too," The Progressive Grocer, Vol. 31, No. 10
(October, 1952), p. 321.

 

32
13k163 retailer was thus assisted to finance his own large
axcczounts receivable and inventory, which was usually excessive

zarid out of balance. This situation resulted in excessive ac-
cc>unts receivable for the wholesaler, raised his capital re-
Cvairements and costs, and increased his bad debts. Eight to
ten turns per year of accounts receivable were average as
compared to the present day practice of obtaining check with
order, and thereby eliminating to the greatest extent accounts
receivables.18
The average wholesaler's inventory was large and un-
balanced in relation to his volume, and resulted in a slow
turnover rate of from four to eight turns per year, as compared
to the average 13 to 25 turns per year today.19
The wholesaler of the early 1920‘s was self-satisfied
and felt he was operating as cheaply as he could. He did
little in the way of self-criticism, and while the retailer had
the wholesaler and other critics to tell him what was wrong
with his business, there was no one at that time to act as
monitor for the wholesaler, but himself.
While the wholesaler was lecturing the retailers on the

necessity for change, reduction of stock, restriction of

 

18Ned Fleming, "Our Problems . . . Our Opportunities,"
NAWGA Executive Bulletin, August 30, 1957, pp. 2-3.

19Fleming, loc. cit.

 

 

 

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33
CieefLivery territory, elimination of old-fashioned counters and
f?1.xtures, and adoption of the principle of purchasing all mer-
czriandise from one source of supply, he violated these principles
“1:1 operating his own wholesale business. _The wholesale grocer
(If the 1920‘s needed to get his house in order and get his
costs down.

The advances made by the chain stores during this decade
created a necessity on the part of the independent for competi-
tive weapons, which gave rise to a remarkable development in
food distribution-~the voluntary group. This revolutionary
concept brought about many changes in the wholesaler-retailer
relationship. The late twenties saw many old-line wholesale
grocers embrace the voluntary movement. They engaged in co—
ordinated buying at lower margins, merchandising and advertising,
and attempted as far as possible to duplicate the functions of
the corporate chains.

The voluntary movement was the result of the success of
the chain store system which by 1920 had established itself
as a factor in food retailing and by 1929 accounted for 45.7
per cent of all the retail food sales in the United States.20

The majority of the wholesalers were slow in adopting
the voluntary group concept and thereby assist their retailers
in meeting the chain competition. The following chart is a

record of the number of voluntary groups organized between 1915

 

20U. S. Department of Commerce, Census gf_Business, 1930
(Washington, D. 0.: Government Printing Office, 1930).

 

 

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33a
Eirid 1929 and exposes the lack of growth in comparison with

fzkie chain store system during the same years.

TABLE 4. Year of Origin of 115 Voluntary
Food Groups in the United States.a

 

 

 

Year of Number of
Organization Voluntary Groups
1915—1920 1
1920 l
1922 2
1923 2
1924 2
1925 4
1926 10
1927 24
1928 24
1929 45
Total 115

 

 

aChain Store Inquiry, Cooperative Grocery Chain
(Washington, D. C.: Government Printing Office,

1932), p. 9.

 

 

The voluntary wholesaler faced an arduous and difficult
task in establishing and developing the spirit of voluntary
cooperation between the retailer and himself. Business had
been conducted between them for many years on a "horse-trading"
basis of give and take, and they were suspicious of each other.
The education of the retailer by the wholesaler in the volun-
tary concept of food distribution required strenuous and con-
sistent application and attention.

How he improved the wholesaler-retailer status in
combating the influence of the chain stores and the rise of

the super markets, will be treated in a later chapter.

34
_3:1ee Advent of the Chain Store and Its Growth
In the preceding pages, the definitions, classifications,
311C3 organization of voluntary groups has been outlined. The
Stzatus of the wholesaler and retailer of the 1920's was des-
olzibed so that the situation regarding food retailing of that
period can be understood in the light of the entrance of the
food chain into the retailing field.

The first element that contributed to the tremendous
changes that took place in food store operations in the early
Twentieth Century, was the introduction in 1899 of the first
packaged trademarked food by the National Biscuit Company and

named "Uneeda."21

The period starting with World War I brought a new kind
of competition, which was a threat to the independent retailer.
The chain store idea of mass distribution educated the con-
sumer to save money in their food budget by paying cash and
taking their groceries home with them. The elimination of
credit and delivery was established in the mind of the consumer
as money-saving.

Prices were almost double in 1920 from what they were in
1914 and the consumers were extremely price conscious. The

independent merchant was being pictured as an inefficient

 

21"March of Progress,’ The Progressive Grocer, October,

1952, p. 162.

 

  

 

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,-

 

 

35

Iéeetailer, profiteering during these war years by over-pricing
his merchandise. 22
Several studies conducted by the United States Govern-
naent agencies substantiated the claims that the chains were
'prdcing their goods at considerably lower margins than the
independent retailers. A study by the Federal Trade Commis-
sion showed that the chains for the year 1919 operated on a
gross margin of 16.92 per cent, in 1922 the margin was 19.57
per cent, and in 1925 was 20.56 per cent.
The Louisville grocery survey published by the United
States Department of Commerce and conducted during 1928 and
1929, revealed that the average gross margin of the indepen-
dent retail food store in Louisville was 25.81 per cent.
Other statistics bear out the fact that the chain stores were
operating at much lower gross margins than the independents,
and these figures did not take into consideration that the
chains were owning their goods at a much lower cost than the
independent retailer could buy from his inefficient and usually
high priced wholesaler of the 1920's.23
The dawn of the 1920's was a fertile time to introduce

improved methods of distribution. There was a large increase

 

22Theodore N. Beckman, Harold H. Maynard, and William
R. Davidson, Principles gf Marketing (New York: The Ronald
Press Company, 1957), pp. 103-207.

 

 

23Zimmerman, op. cit., pp. 14-15.

36
1.11. the city growth, which was especially advantageous for the
Eblromulgation of chain store growth, because the costs of ad-
XIeartising and supervision were low. Automobiles and improved
rwoads enabled those in rural areas to visit cities more often.24
The chains capitalized on the increase in packaged goods
that was beginning to come into the market in greater quantity
and wider variety, and which the consumers wanted and purchased.
The chain store methods of buying at special quantity discounts,
of price cutting and ”loss leader” selling, plus new ideas in
merchandising, advertising, stock control, and turnover and
the application of cash and carry and self-service practices,
threatened to take over the food business from the independent
retailer.25
The chains were able to expand rapidly with a minimum
of investment. The elimination of credit and delivery made
possible the cash and carry store of that era. The typical
A. & P. economy store Operated on an investment of $3,000;
$1,000 for fixtures and equipment, $1,000 for merchandise,
and $1,000 for operating capital. Most of these stores were

run by one man who closed the store when he went to lunch.

The low prices offered, attracted consumers and subsequent to

 

4
2 Beckman, loc. cit.

 

2
5Beckman, op. cit., pp. 198-199.

37
VJ<>:r1d War I it became a symbol of patriotism to save money,
nxexterial and manpower, and to be seen carrying groceries home
:Exrom the store.26

The independent retailers of the 1920‘s were satisfied
tx: continue their way of operating, and the rank and file
with few exceptions kept running their stores in the same
old-fashioned manner.

If he felt secure in his being able to hold his trade,
he found his customers being converted to cash and carry
shoppers. He often found himself in a situation where he
extended credit to many customers who shopped in his store
only when they had insufficient cash to shop in the chains
and in the few independent self-service stores of that day.
The independent lacked the imagination, ability and leadership
to hold or regain his position. His feeble attempts at the
outset in meeting chain competition was a sympathy plea to
his customers not to patronize the chains and he did not re-
cognize or duplicate the efficient chain store methods.

The chain store system experienced an amazing period of
growth during the 1920 decade and had become an important

factor in food retailing. In 1914 there were 500 parent

chains with 8,000 outlets, which in 1930 increased to 995

 

26Joseph J. Trout, "The Chain Stores Sharpened Competi-
tive Spirit, Resulting in Better Stores for All," The
Pgogressive Grocer, Vol. 31, No. 10 (October, 1952), pp. 182—
l 3.

 

38
'p>exrent firms with 62,725 retail units.27 In 1919 the chains
Cij_d 5 per cent of the total retail sales, while in 1929 they
51c:counted for 30 per cent of the sales volume.28 A striking
eocample is the progress made by the Great Atlantic and Pacific
rI‘eaCompany. In 1920 they operated 4,544 stores, while in
1925 that number had increased to 14,034. This expansion
meant that for five years there were six store Openings a day
every business day in the week. Their sales during the cor-
responding period soared from 194.6 million to 440 million.
Many other chains experienced similar growth during this
period.29
The comparative sales and number of stores of the chains
versus the independent retailers as of 1929 for the entire
nation, in grocery sales, is shown in the following table.

TABLE 5. Comparative Sales of Independent and
Chain Retail Grocery Stores Year 1929.a

 

Average Annual

 

 

Number of Sales Per
Type Stores Total Volume Store
Independent Retail
Stores 285,641 $4,964,440.580 $17,380.
Chain Retail Units 62,725 2,885,350,000 46,000.
Combined Total Sales 7,849,790,580
8M. M. Zimmerman, The Super Market (New York: IcGraw-

 

Hill Book Company, Inc., 1955), p. 3.

 

27Zimmerman, op. cit., p. 2.

28Beckman, op. cit., p. 193. 29Trout, loc. cit.

 

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39

It is interesting to note that in 1929 while the indepen-
dents did a volume of business a little less than double the
chains, the retail store unit of the chain did three to four
times the volume of that of the independent store.

The tremendous increase in sales volume of the chain
stores necessarily had to come from somewhere besides the
population increase and its surge and growth was largely at
the expense of the independent merchant, who feared that the
chains were going to take over the food business and drive
them into bankruptcy. The chains had forced margins down any-
where from six to ten per cent and independent grocers encoun-
tered difficulty in making a profit, due to inefficiencies of
their store lay-out, extension of credit and service, and high
costs of goods purchased. In addition, the one stop food
market began to emerge, and by 1929 headed the type of food
stores with 31.1 per cent.30 (U. S. Census of Business, 1929).

To illustrate the rapid growth of the chain stores, the
following two tables contain the number of stores and sales
volume of the then leading fifteen chains from 1921 to 1931.

The rate of expansion of the chains during the 1930‘s
resulted in many communities being saturated with retail food
stores. The chains faced increasing expenses, stationary
gross margins, and decreasing profits, even in the face of

increased sales and number of stores. Units of different

 

30The Progressive Grocer, October, 1952, p. 65.

TABLE 6.

from 1921 to 1931. a

Number of Stores of Leading Food Chains

40

 

 

 

 

 

 

1931 1930 1929 1926 1921
Great A. & P. Tea C0. 15,670 15,737 15,418 14,811 5,217
Safeway Stores, In. 3,527 2,691 2,660 766
The Kroger 00- 4,884 5,165 5,557 3,397 1,575
American Stores Co. 2,806 2,728 2,644 1,983 1,152
First National Stores 2,546 2,548 2,549 1,681
National Tea Co. 1,512 1,600 1,627 840 261
The Grand Union Co. 708 709 705 526 450
H. C. BOhaCk CO. 741 694 504 390 186
Daniel Reeves 782 735 698
Dominion Stores 572 526 517 423 122
Childs Food Stores 111 114 112 108 89
Loblaw 99 99 94 41 6
Fender's Stores 423 412 411 324
Southern Grocery Stores 399 375 404 249
Jewel Tea CO. 1,334 1,280 1,215 1,090 1,005
3M. M. Zimmerman, The Super Market (New York: McGraw—

Hill Book Company,

TABLE 7.
1931.

 

Inc.,

1955), p

Sales of Leading Food Chains from 1921 to
(000 omitted)a

 

 

1931

1930

1926

1921

 

Great A. & P. Tea Co.
Safeway Stores

The Kroger Co.
American Stores Co.
First National Stores
National Tea Co.

The Grand Union Co.
H. C. Bohack Co.
Daniel Reeves
Dominion Stores
Childs Food Stores
Loblaw

Pender‘s Stores
Southern Grocery Stores
Jewel Tea Co.

$1,008,325 $1,065,807 $574,087 $202,434
2

46,784 219,285 50,537
244,371 267,094 146,009
135,226 142,770 116,902
107,634 108,197 59,038

76,658 85,246 53,658

35,640 38,117 26,240

35,354 33,299 21,159

31,149 34,007

25,200 24,119 15,257

24,303 26,551 26,137

17,010 18,435 7,717

14,378 15,975 10,722

14,299 16,180 10,428

13,743 15,522 14,568

44,851
86,068

AC“)

1 '6 , C 1-) _,;
21,889
12,493

3,461

21,941
695

11,210

 

aSame as above.

41

chains began competing with each other. Each chain wanted
the best locations and offered extremely high prices for them,
thus building up an excessive rental burden. At the same
time, the more severe competition made it impossible to in-
crease the gross margin to take care of increased operating
expenses, with a resulting lowering of net profits.31

A part of the great chain store expansion was unsound,
and was guided by financial promoters rather than food execu-
tives. Some chains went into real estate speculation that
had no relationship to their food operation. Some chains
failed, and some merged with other food chains. The majority
of the failures were the result of unsound promotions and
real estate activity, and had no bearing on the soundness of
the chain store system.32

A highly competitive atmosphere sharpened procedures
and kept those chains that continued to exist, active and
growing. This proved to be one of the most difficult periods
for the independent retailer and many went out of business.
The advent of the chain stores sharpened the competitive
spirit of all food distributors, resulting in better stores

for all.

The Independent Battles the Chain Store With Legislation
What effect did all the growth and expansion, and new

methods and concepts of the chains have on the independent

 

31Trout, op. cit., p. 184.

32Ibid.

42
retailer?

Reluctant, or incapable of using the efficient methods
of the chains, the independents first attacked the chain com-
petition by attempting to develop public Opinion against them.
They capitalized on some of the anti-chain resentments and
encouraged public antagonism against them. They pictured the
independent as a good citizen and neighbor and the chains as
"Wall Street" financiers.33

Mass meetings of retailers were held in many parts of
the country and anti-chain organizations were formed. Con-
sumer sentiment was aroused against their expansion and sales
growth. The chains were accused of the following misdeeds:

l. Took money out of the community.

2. Forced local retailers out of business.
Depersonalized the community.

Destroyed opportunities for young men.‘

Did not carry their portion of the local taxes.

GUT-{1’00

Practiced unfair competition by loss leaders and
cost selling.

Tended toward monopoly.

Disorganized distribution.

9. Raised marketing costs.

10. Compelled the manufacturer to sell for less, but

34

no savings passed on to the consumer.

 

33Zimmerman, op. cit., po 8. 34Ibid., p. 3.

43

Sources of anti-chain sentiment on the part of the public
can be traced to the expansion-mad days of the twenties. In
the competitive rush of expansion, chains often restored to
unfair price cutting and buying practices. This did not
always lead to lower prices for shoppers, for quite often, this
price cutting in one competitive area was balanced on the
chain's books by higher prices in non-competitive areas.

Even those shoppers who benefited by the lower prices,
and who continued to shop at chain stores, were not kindly
disposed toward chains because of an inherent loyalty to the
small business typical of many Americans. While this senti-
ment on the part of shoppers may seem paradoxical in the face
of their continued support of chains by buying there, it was
an important factor in the passage of several state and munic-
ipality tax bills directed against chains, many of which were
carried by popular vote. A

The chains, too, fell victim to deficiencies in their
accounting procedures which allowed unscrupulous managers to
Juggle prices and weights around for their own personal advan-
tage. This dishonesty on the part of some managers was
fostered by chain accounting procedures which allowed little
or nothing for normal shrinkage. The managers were expected
to produce a certain sales figure for a given amount of mer-
chandise, and many resorted to shortweighting customers in

35

order to do so.

 

35Trout, op. cit., p. 184.

44
This was never a deliberate practice on the part of
chains and management was always aware of the danger of the
practice. Nevertheless, it was one of the chinks in the
chain store armor that had not yet been corrected and resulted

H

in many cries of short-weight" directed against chain stores.

The independents capitalized on this anti-chain feeling
and their anti-chain organizations collected hundreds of
thousands of dollars to foster legislation to try to tax the
chains out of existence. The chains erroneously felt that
customers were friends, and did very little in the way of
fostering good public relations. This lack of friendliness
on the part of the chains left them wide open to the attacks
on them that were developing.

The independents were successful in capitalizing on
anti-chain feelings of the period. The first bill that called
for taxation of chains on a different basis than independent
stores was introduced and defeated in 1923. However, the
first such bill to be passed, and to have its constitutionality
upheld by the United States Supreme Court was one introduced
in Indiana in 1929.

This Indiana Tax introduced the principle of taxing
chain stores on a different basis than independent stores.

The main feature was a graduated tax on the number of stores

36

operating by any one company in the state.

 

36The Progressive Grocer, October, 1952, p. 186.

 

45

Under its terms, there was a license tax of $3.00 per
year on individually owned stores. Then the tax increased
to $10.00 per year on each store up to five; $15.00 per year
on each additional store up to ten; $20.00 per year on each
additional store up to twenty; and $25.00 per year on each
additional store in excess of that number. In 1933 the top-
bracket figure was raised to $150.00 per store.37

The Supreme Court decision in 1931 on the Indiana Tax
paved the way for other states to pass similar bills. By
1938, 20 states had chain store tax laws, with taxes running
as low as $1.00 for the first unit in Alabama and for over 20
stores $112.50 per store; to Texas taxing $750.00 per store
for those chains operating more than 50 units.38

By 1941 chain store tax laws were in effect in 28 states.
The majority of these laws were passed by legislative action,
but there were several instances where the imposition of such
taxes depended in one way or another on the result of a 1
popular vote. In 1931 a Portland, Oregon referendum resulted
in a chain store tax being enacted by a slim majority; in 1934,
a Colorado state tax on chains was imposed as the result of
balloting that saw 132,160 votes cast for the tax, and

106,359 against.39

 

37Ibid., p. 186.

38Zimmerman, op. cit., p. 5.

39The Progressive Grocer, op. cit., p. 187.

46

The principal feature of the chain tax law was a gradu-
ated tax rate on the number of stores operated by any one com-
pany. In all situations the tax was levied only on the stores
within the physical boundaries of each state. However,
Louisiana based their tax rate on the number of stores within
the organization, although the tax was paid only on those
stores within the state.“0

Although the chains fought back, they were slow to
realize the benefit of developing and maintaining good public
relations to combat the anti-chain feelings. The first sub-
stantial attempt by the chains in public relations came about
when a chain store tax bill was to be voted on by popular
ballot in California in 1936. The chains of that state were
determined to wage an all-out effort against the bill. In
the thirteen-month period that the chains had to battle this
legislation, they learned some invaluable lessons on public
relations that benefited not only the California chains, but
all the others as well.“1

The California chains hired a large advertising agency
to bring their message to the public, which the agency suc-
ceeded in doing. The result of the vote was against the tax
1,369,778 to 1,067,443. This victory in 1936 in California
turned the tide for the chains as far as taxation went. While

there were other measures introduced in other states, the

trend died down. Since 1941, no new bills have been enacted,

 

uoBeckman, op. cit., p. 205. AllTrout, op.cit., pp. 184-86.

47
and several bills enacted prior to that year have since been
modified or repealed.42

The consumer continued to patronize the chains in ever-
increasing numbers as the inducement of low prices, wider

variety of goods and combination stores won over the loyalty

of the independent merchant. (See Table 8.)

TABLE 8. Chain-Independent Share of Grocery Sales.a

 

 

Year Chains Independents
1933 34 66
1943 29 71
1947 34 66
1954 36 64
1955 36 64
1956 37 63
1957 38 62

 

aRobert w. Mueller, "Food Marketing Through Wholesalers-
The Food Industry‘s Newest Success Story,” Address to Annual
Convention--National American Wholesale Grocers Association,
March 18, 1957, p. 6.

Some alert independent merchants realized that in order
to compete with the chains it would be necessary to duplicate
chain methods. These ideas formed the basis for cooperative
buying and merchandising, and marked the beginning of the
voluntary group movement in the United States, in 1921.

The Birth of the Voluntaries-~The First of the
Evolutional Stages

 

Thoughtful and capable wholesalers and retailers reasoned

that the solution to their problems would not come about by

 

ugThe Progressive Grocer, October, 1952, p. 186.

 

48
attempting to tax the chains out of business. They had come
to realize that the chain store was a new kind of competition,
one of new methods, resulting in lowaécosts to the consumer.

They believed that the threat of the chain could be
minimized and met by matching their buying methods. They
believed that the advantage gained and maintained by the
chains was due exclusively to their superiority in the pur-
chasing area. The chains were obtaining quantity discounts
and price concessions and the retailer thought if he could
buy as cheaply as the chains, he could sell as cheaply and
thus liquidate their competition};3

The ability of the chains to order in large quantities
for many outlets through a central office enabled it to secure
the lowest possible prices on the most favorable terms, and
to receive additional allowances or rebates for quantity
buying, advertising, and store display allowances. There was
no Robinson-Patman Law at that time and discriminatory rebates
and allowances were practiced quite frequently, although the
manufacturer ran the risk that one company might discover
that another had secured a more favorable deal.

The chain store buyers possessed and further developed
considerable skills in the business and art of buying, and

44
devoted the major part of their time to the buying functions.

 

uBDavidson, op. cit., p. 3.

1mBeckman, op. cit., pp. 198-199.

49
To combat these buying advantages enjoyed by the chains,
, the wholesalers and retailers of the early 1920's put their
heads together and joined hands to battle a common enemy.
The chains had introduced them to new ideas they had never
encountered before and the voluntary group was born of dire
necessity and was actually the beginning of a new life for
those retailers and wholesalers who deserved to live.

Thus, the beginning of the voluntary group was based
upon the idea of buying groups of retailers who concentrated
their purchases through one wholesaler to obtain quantity
prices and concessions.

The retailers soon found out that pooling purchases to
obtain greater buying power and thus lower prices was only
part of the answer in meeting chain store competition. The
reasons were as follows:

1. They found that there were only a limited number

of items that they all bought in sufficiently

large volume, and they were accustomed to buying
different brands and different qualities at various
prices. In these items they could get sufficiently
large volume only if all were willing to mutually
agree on the items, prices, and quality. This was
a first step toward centralization of policies.

2. It was the policy of the central chains to sell

many nationally advertised brands below cost as

"loss leaders' and make up their losses on their

50
own highly profitable private brands. This type of
selling forced the voluntaries into the creation of
their own private brands so they could meet chain
competition. These private brands had to be
promoted in order to get enough volume so they could
be bought and sold profitably. This lead to central—
ized merchandising and advertising.

In these ways the attempts of the voluntary groups to
meet the buying and merchandising advantages of the central
chains brought them gradually toward centralization of policies
and functions of merchandising, and sales promotion. Later,
they hired specialists, and in this way adopted another advan-
tage of large-scale operation.

The father of the voluntary groups in the United States
is Smith M. Flickinger. He operated a wholesale grocery, the
S. M. Flickinger Company, Buffalo, and set up a chain of
stores to provide retail outlets for its wholesale volume, in
the early days of chain competition. A group of independent
retailers in Buffalo and surrounding towns suggested that the
Flickinger Company work out some plan whereby they could
derive the benefit of concentrated purchasing. Mr. Flickinger
conceived the Red & White Stores plan of wholesaler-retailer
cooperation based upon the principle of the concentration of
purchases by a group of retailers through a single wholesaler
and put it into action in 1921. This marked the birth of the

45

voluntary group in food distribution.

uSDavidson, op. cit., p. 32.

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51

The second leader of the voluntary movement was Lewis C.
Shave of Brockton, Massachusetts, the founder of Nation-Wide
Stores. Mr. Shave was the first to arouse the interest of the
wholesalers and retailers generally as to the possibilities of
the voluntary being able to fight fire with fire.46 He was the
first person to communicate the voluntary group's importance
to the manufacturers when, in 1926, in Rochester, New York,
Mr. Shave addressed a wholesaler grocery convention on the
subject of voluntary groups. Even the father of the voluntary,
S. M. Flickinger, did not bring before the manufacturers,
wholesalers, and retailers as clearly as Mr. Shave did, the
actual merchandising tactics of the chain store and how they
might be applied by the wholesaler and retailer. Mr. Shave
can well be considered to be a pioneer, and possibly the father
of the integration of the wholesaler and retailer for quantity
low-priced buying and the securing of the advantages of manu-
facturer's advertising allowances, which was a considerable
factor.47

The voluntary group wholesalers used their mass buying
power of their groups not only to obtain lower prices and
concessions on carload and pool-cars purchases, but in addi-
tion were able to lower their costs on perishable goods. By
duplicating chain store methods of mass buying and cooperative
merchandising on the part of the retailer, they were able to

effect savings as follows:

 

461212-: p. 46. 47Ibid., p. 46.

52

TABLE 9. Savings Effected by Duplicating Chain
Methods of Mass Buying and Cooperative
Merchandising.a

 

 

Item Savings
Crackers and biscuits 5% to 23%
Bread 5% to 15%
Fruits and vegetables 5% to 25%
Meats 5% to 10%
Store and delivery equipment 5% to 25%

 

 

80. Fred Rost, Distribution Today (New York:
McGraw—Hill Book Co., Inc., 19337.

 

During this period of the birth of the voluntary group,
stress was placed exclusively on buying and price concessions.
Eventually, it became apparent that cooperative buying in and
of itself, and coupled with some limited advertising, were not
the solutions to their mutual problems of chain store competi-

tion.

The Second of the Evolutional Stages

The second stage began in the late 1920's, extended into
the early 1930's, and marked a period in which some wholesalers
took the initiative in organizing voluntary groups and offering
its members limited services in an attempt to emulate the
chains and be competitive with them. Also, some far-sighted
and able wholesalers realized there must be radical changes
in their operating methods. The chain competition was devas-
tating and it became necessary for the wholesaler and retailer

to work together to survive.

53
During the 1920's, J. Frank Grimes, the founder of The

Independent Grocers Alliance, was associated with William
Thompson and Company, Chicago, certified public accountants.
For many years he had audited the books of many wholesale
grocers and observed that they were losing ground rapidly.
He recognized that the retailer and wholesaler had to join
together to equal chain organization efficiency. The basis
of Mr. Grimes' plan was to demonstrate to the independent the
reasons for his plight and teach him how to keep down his
expenses, raise volume, and thereby lower prices.48 In 1926
he sold his idea to the William T. Reynolds Company of Pough—
keepsie, New York, a wholesale grocer, which became the first
member of Independent Grocers Alliance. A meeting was organ-
ized, to which the Reynolds Company invited all the retail
merchants in their area, and Mr. Grimes, with his dynamic
personality, convinced these disorganized retailers of the
merits of his plan and the voluntary group theory.1+9 In 1930
the syndicate had built an organization that consisted of 35
wholesale grocers with a retail membership of 8,000 stores.
Its growth was due in large part to the organizing ability

and aggressiveness of its founder and his associates.50

 

uaDavidson, op. cit., p. 38.

49Zimmerman, op. cit., p. 1.

50Davidson, op. cit., p. 38.

is as

54

An outline of the original I. G. A. plan of operation

follows:

1. Rigid qualifications for wholesale members
2. Salesmen converted into supervisors

3. Concentration of buying by retailers

4. Agree to remodel stores under supervision
5. Agree to follow directions of headquarters
6. Self-service stores

7. Repricing merchandise

8. "Grand opening--Hello sale”

9. Follow up by headquarters

10. Changing methods of credit supervision

11. Cleaning house for the wholesaler

12. Budgeting voluntary group expenses.51

The Clover Farm Stores voluntary chain was organized in

1926 by the Greene-Babcock Company, wholesale grocers of

Cleveland.

Among the contributions made by this voluntary

are the following:

1.

Organized and developed group newspaper advertising,
paid by contributions from the retailers and by
advertising allowances from manufacturers and packers.

Arranged for the wholesaler to provide a retailing
export on fruits and vegetables.

Encouraged the wholesaler to assist members in their
purchases of equipment and supplies at savings due
to quantity discounts.

Developed a program whereby wholesale grocery sales-
men were converted into supervisors.

 

51Ibid., pp. 38-45.

55

5. Chain organization type of order sheets were
adopted.

6. Assisted the wholesaler to develop supervised order-
ing and inventory control with resulting stock
turnover increases.

7. Assisted the wholesaler with the weekly window posters
and price cards furnished by him to his group.5

As described previously, under Mr. Flickinger the Red and
White voluntary group was the first to organize. As their
organization grew, they developed the system of concentration
of purchases by the retailer from one wholesaler, and also
set up a central buying organization from which the whole-
saler made his purchases. The merchandising of their private
label was stressed and supported by national advertising.53
The voluntary wholesaler member of a syndicate usually

paid a fixed franchise fee to headquarters and an additional
amount for each retailer in his group.

The American Institute of Food Distribution had found
that during this period, the retailer paid the wholesaler a
weekly fee and the figure of $3.50 was found to be about the
average. The wholesaler extended the following services to
his retailers in the voluntary group for this fee:

1. Advertising cooperation

2. Merchandising

3. Store Management services.
The retailer agreed to:

l. Concentrate his buying with his voluntary wholesaler.

 

52Ibid., pp. 64-71. 53Ibid., p. 32.

56

2. Maintain store at accepted standard of efficiency.

3. Cooperate in purchasing, marketing, and merchan-

dising.

The voluntary groups sponsored by wholesalers existed
under a variety of different arrangements and many were loosely
held together. The response of the retailers during this
second evolutional stage, to the various types of activities
that were initiated by the wholesaler‘s headquarters, depended
upon the degree to which each retailer was willing to put his
future into the wholesaler's hands. Under these circumstances,
results were found to vary greatly.

The Nation-Wide Food Stores voluntary group pioneered
group advertising, cooperative purchasing agreements with
manufacturers and retailers, published weekly trade letters,
suggested improvements in store arrangement, and placed experi-
enced chain-store engineers at the service of the retailer.

As described in a previous chapter, the Nation-Wide plan was
based on ”loose control" of the retailer, who was free to do

as he pleased. This lack of a tight contract with firm control
was an illusiveness which did not benefit either the wholesaler
or retailer under the voluntary chain operation. Active
organizing by these four voluntaries communicated the idea

to wholesale grocers who began to realize that their progress
depended upon duplicating chain methods. Those who wished to
maintain independence in buying and operating organized volun-

taries of their own.

57

Some leading independent voluntaries were: the Edwards
Company of Cleveland; United Purity Stores of Seattle that
were sponsored by a group of northwestern wholesalers; Arrow-
head Stores, Buffalo, New York; Quality Service Stores,
Roanoke, Virginia; Urma Stores, Louisville, Kentucky; Rainbow
Stores of the Berdan Company, Toledo, Ohio, established its
voluntary group with 35-40 stores operating as Rainbow Cash
and Carry, but it did not prove successful. National Grocer
of Detroit, Michigan, abandoned the voluntary idea because
nearly all the store owners in Detroit were foreign born and
developed their own chain. Happy Hour Stores of Campbell
Holton and Company of Bloomington, Illinois operated their
voluntary in 116 towns in Illinois and Iowa. Victoria Inde—
pendent Stores of Laporte-Martin Ltd., Montreal, Canada, held
a tight control over their members and required a sound finan-
cial condition as a prerequisite to membership.54

Constant education and supervision was required on the
part of the wholesaler who sponsored a voluntary chain. As
voluntary groups were developing in this second stage, many
failed to persevere. The task was a combination of too much
work, loaded with too much expense and too many problems of
personnel and management. Many wholesalers operated their
voluntary groups as a sideline to their regular wholesale
grocery business, treating the voluntary as a temporary exped-
iency. Some relied upon retailer committees and a represen-

tative or two from the wholesaler to manage the voluntary

 

54Davidson, op. cit., pp. 50, 52, 62-64, 72.

58
group. The latter usually was inexperienced, with very little
knowledge of the theory or practice, and not of management
calibre. Some of the wholesalers operated with two distinctly
separate divisions, one, the traditional wholesale function,
the other, the voluntary group system.

This lack of organization and foresight led to confusion,
a lack of decision, an overlapping of authority, and a frequent
breakdown of management. However, the "willing-to-try-it"
attitude gradually had to give way to the wholesaler who
devoted his entire organization to the success of his voluntary
group, which shortly thereafter became the nucleus of the busi-
ness.55

An indication of the slow but certain progress that was
being made may be observed by the following figures:

TABLE 100 Number of Voluntary Retail Groups,
1930, and Their Memberships.a

 

 

 

 

No. of No. of Retail
Organizations Members
Cooperatives 175 7,235
Retail-owned wholesalers 103 18,076
Wholesaler-sponsored groups 273 34,311

 

aM. M. Zimmerman, The Super Market (New York: McGraw—
Hill Book Company, Inc., 1955), p. 13.

 

 

55Davidson, op. cit., pp. 19-20 and 23.

59

In order to obtain factual information regarding the
progress being made between the independent wholesalers and
retailers in duplicating chain store methods, the American
Institute of Food Distribution conducted a survey in 1930.

It was found that in a group of 413 wholesaler-retailer groups
with 58,085 member stores, the following services were provided: T

41,893 independent retailers used group newspaper
advertising.

47,462 members used weekly handbills.

 

‘—-— v..- Fl

5,345 members used group radio advertising.

42,559 members participated on the group window
poster program.

111 of these groups employed supervisors to cooper-
ate with their 17,946 members for better results.

The tabulation of voluntary groups by the Institute
during 1933 recorded 444 voluntary wholesalens, and 60,896
affiliated retailers. Another tabulation in 1936 showed a
total of 508 voluntary wholesalers, an increase of 44, and
77,889 affiliated retailers, an increase of 16,993 retailers.

By 1932, the voluntary groups accounted for 30 per cent
of the total value of food sales and were achieving a position

of importance.56

 

56Gordon C. Corbaley, ”100,000 Retailers," American
Institute of Food Distribution, 1936.

60

The Third of the Evolutional Stages

 

The third stage of the voluntary group development
started in the late 1930's and lasted until World War II was
over in 1945.

Out of the uncertainty and diversity of operating
methods there emerged a fundamental philosophy of the volun-
tary group movement that enabled the industry to keep abreast
of developments. This philosophy was described by Mr. J. W.
Tyler, President of Nargus, in an address before the National
American Wholesale Grocers Association in 1933, in which he
said:

I realize that I dare not attempt to forecast what
the retailer-wholesaler relationship may be 25 or 30
years from now. I feel, however, that it will be
quite safe for me to state this personal opinion-~it
is no longer a question between the wholesaler and
the retailer, but a question of the relationship be-
tween the wholesale and retail functions. These two
functions, regardless of their structural form,
ownership, or setup, must work in harmonious relation-
ship to meet competition for public favor. Whether
this will be effected between the independent whole-
sale grocer and the independent retail grocer, or
through a retailer-owned wholesale house and its group
of independent retail grocery members, or through all
of these, is not as important as the fact that the
wholesale function must serve the independent retail
function to successfully maintain its position as the
economic distributing power of this nation.

It is apparent from Mr. Tyler's speech that in 1933
and a little earlier, the philosophy of the voluntary whole—

saler being ”retail-minded” was established.

 

57J. W. Tyler,"Prophetic Forecast," Wholesale Grocer
News, Vol. 32, No. 11 (February, 1958), p.

61
The voluntary group was attempting to accomplish what
the chains had succeeded in doing, to integrate the wholesale
and retail functions and yet maintain the independence of the
wholesaler and retailer. This is the meaning of the word

"voluntary" and how it differs from the corporate chain,

which ties the retail and wholesale functions together by 1
means of capital. The chain makes one sale, to the consumer, :
which is also the goal of the voluntary.58 A graphic picture 1
of this may be seen in Table 11. i

i

 

The road to closer cooperation and mutual benefits
was being cleared by vigorous and capable voluntary whole-
salers. A list of the improvements in the following areas
were accomplished:

Modern store layouts and stores

Stock arrangements and displays

Reduction in credit and sales for cash

Self service

Uniform store signs, painting, lights and

ventilation .

Advertising, handbills, newspapers, radio,

window posters

Buying allowances and advertising allowances

Competitive buying by wholesaler, quantity dis-

counts

9. Concentration by retailers in buying from whole—
saler

10. Pricing merchandise for competition and profit

11. Combating loss leader competition

12. Stock control and records

13. Credit losses

14. Store locations

15. Modern merchandising

l6. Conversion of salesmen to supervisors.59

CDN O'\ U‘l-II‘UUIDH

 

H

58Guy Wilson, ”The Voluntary Group, Wholesale Grocer
News, Vol. 33, No. 3 (June, 1958), pp. 23-24.

 

59Davidson, op. cit., pp. 88—239.

62

TABLE 11. Wholesaler—Retailer Cooperationa

Wholesaler Retailer

 

 

AREA OF CONFLICT
(Before Integration)

 

 

 

 

(After Integration)

aU. S. Department of Commerce, Effective Grocery

Wholesaling (Washington, D. 0.: Government Printing Office,
October, 1941), p. 23.

 

any;

~

UA-

'I¢ A

1.1V

 

.Vcfiv

 

pa

v.
~v

‘v ..
An.

~\»
0.-

u
'n

 

 

During the 1920‘s the voluntaries grew slowly and
surely until by 1929 they had made some progress. From 1930
to 1939, the wholesaler-sponsored voluntaries made startling
gains, increasing from 273 to 521 wholesalers, and increasing
their retail members from 34,311 to 81,081. In 1933 the
average group consisted of 125 members, and in 1936 consisted
of 118 members, attesting to the fact that the voluntaries
were now becoming selective, and basing their membership on
quality and cooperation, rather than quantity.60

The voluntary groups of this era who were the most suc-
cessful and enjoyed the greatest loyalty and enthusiasm from
their retailers, were the ones who were ”hard—boiled" and‘
unyielding in their demand that the members play fair and do
as the organization decided.

Unless he was aggressive, positive, well-informed, and
retail minded, the wholesaler found his group of retailers
breaking down into individual units again. The ability to
command and obtain the cooperation of the retailers required
the tightest control by voluntary groups; whether by contract
or education, depended upon the wholesaler and the character
of the retailers with whom he was dealing. If the retailer
realized that his fullest success depended upon his complete
cooperation, then education was sufficient. Otherwise, a

strictly enforced contract was required to be the basis of

cooperation.

 

6OPaul Sayres, Food Marketing (New York: McGraw-Hill
Book Co., Inc., 1950), p. 79.

 

64

By this time the wholesaler realized that no voluntary
group could be successful and meet its future competition if
it was not a tightly-knit group, unified in its buying,
selling, and advertising, and making available to its retail-
ers all the services and aids essential to his serving his
customers in the efficient manner of his chain store competi—
tors.

With the coming of World War II the growth of the volun-
taries was largely curtailed for various reasons. New members
could not secure a large enough share of available "short"
merchandise; and fixtures, equipment, and critical building
materials were not available. Controlled brands lost some of
their value as a competitive weapon, because the percentage
markups allowed under wartime price ceilings permitted the
retailer to sell manufacturers‘ brands at the same price as
controlled brands.

Hence, the voluntary groups emerged from the war years
about as numerically strong as they had been when the war
broke out, but in dollar value of sales they had made consid-
erable headway against the corporate chains. From 1941 to
1945 the voluntaries increased their dollar volume of sales
by more than $1.5 billion dollars from $3,165,100,000 to
$4,700,000,000, while in the same period the corporate chains
showed an increase of only 870 million dollars, from
$3,820,000,000 to $4,690,000,000. One of the principal

reasons for this larger gain was that, on the whole, voluntary

65
groups had been more loyal to their sources of supplies in

the past and so managed to get a greater proportionate share

 

of the available merchandise when supplies were scarce.61
The Birth of the Super Market
We have observed the history and progress of the volun- fl

tary from its beginning as a buying group to match the chains
buying methods, and the creation of the syndicate and whole-

saler sponsored voluntary groups. Through self-education and

 

application, the wholesaler and retailer developed the spirit J
of cooperation and administration, resulting in both groups
devoting themselves to the successful application of the
voluntary system. As a result, by the late 1920's and early
1930's the voluntary groups began to successfully compete
with the chains by emulating chain store methods and modern-
izing their operations.

The retailing picture in 1930 showed the retail food
business divided between the chains, independents, and volun-
taries. In 1928 available figures gave the chains about 40
per cent of the nation's food business. Despite the rise of
voluntaries, during these early stages they required much
more organization and experience and the chains continued to
maintain an advantage over the independents.

Even though the chains had succeeded in lowering the
over-all margins resulting in some lower prices, the ultimate

savings by the food retailers to the consumers in 1930 was

 

61Ibid., p. 97.

not great.

increased

66

In fact, the gross margin of retail food chains

from 16.92 per cent of sales in 1919 to 20.94 per

cent in 1930, an increase of slightly more than 4 per cent.

TABLE 12. A Study Made by the Federal Trade Com-

mission on Gross Margin of Sales for
Grocery Chains from 1919 through 1930.

 

 

Year Gross Margin--Per Cent of Sales
1919 16.92
1922 19.57
1925 20.56
1927 20.60
1928 20.92
1929 20.65
1930 20.94

 

 

The
per cent.
The
cent, and
The
The Great

1933, and

average percentage for the above period was 20.58

gross margin for chain stores in 1929 was 18.99 per
for independents, 23.01 per cent of sales.62

following table is a breakdown of the operations of
Atlantic and Pacific Tea Company for the years 1929,

1935. In 1929 they operated 15,150 chain stores,

with an average weekly sales of $1,317 per store.63

 

62Federal Trade Commission, Chain Stores, Final Report
on Chain Store Investigation, December 14, 1934, p. 67.

 

63Un1ted States vs. The Great A. a P. Tea Co., U. s.

 

 

 

Circuit Court of Appeals, 7th District, Docket No. 9221,
Records and Briefs, Vol. II, p. 162.

67

TABLE 13. Condensed Profit and Loss Statement of
the Retail Store Operation of The Great
Atlantic and Pacific Tea Company as a
Percentage of Sales for the Years 1929,
1933, and 1935.

 

 

 

1929 1933 1935
Sales 100.00 100.00 100.00
Cost of sales 81.64 78 10 80.50
Gross margin 18.36 21.90 19.50
Total operating
expenses 15.52 19.08 17.56
Net Profit 2.84 2.82 1.94

 

 

These figures indicate that although the chains were in
a better competitive position than the independents, their
distribution costs were high and were increasing, and there
did not appear to be any prospects of lowering their costs
of distribution.

In 1930 our economy was beginning to slow down and was
the start of the depression years. The number of employed
persons dropped 9,341,000 between 1929 and 1932 and unemploy-
ment was at a figure of 12,300,000 persons. National income
dropped from about 83 billion in 1929 to 40 billion in 1932,
a drop of more than 50 per cent in three short years.64

The farmers could not sell their crops or livestock and

were able to sell only at prices so low that they could not

pay the interest on their mortgages. Foreclosures of mortgages

 

6“U. S. Bureau of the Census, Statistical Abstract pf
the United States, 1940 (Washington, D. C.: Government
Printing Office, 1940), p. 315.

 

68

TABLE 14. National Income and Employment in the United
States for the Years 1929 to 1936.

 

 

 

National Income Number of
Year (in billions) Employed
1929 $83.3 35,563,000
1930 68.9 33,122,000
1931 54.3 29,715,000
1932 40.0 26,222,000
1933 42.5 26,133,000
1934 50.3 28,402,000
1935 55.9 29,725,000
1936 65.1 31,858,000

 

 

on farms was a common incident during these years. Manufacturing
was at a stand-still and the manufacturers and processors could
not sell what they had and their inventories filled the ware-
houses.

A symbol of the early 1930‘s was the many street corner
vendors of apples. We had developed mass production, but at
that period it was standing still, our purchasing power was at
an all time low, and our distribution system had progressed
very little. The chain store system had made little contribu-
tion to the over-all lowering of prices and cost of distribu-
tion.

The wholesalers and retailers of the 1930‘s were carrying
large inventories and did not know how to move these surplus
stocks. The necessity and challenge of the depression years
was to bring prices down so that the pennies of that day could
provide a maximum of purchasing power by providing lost cost

foods for the consumer.

69

Our genius for mass production had provided a surplus
of foods and products, but we were unable to match our mass
production with an ability to distribute the goods econom-
ically by mass distribution. The economic and psychological
time was ripe for the mass distribution, low—priced super
market. The availability of buildings with large areas at
low rentals and surplus quantities of merchandise presented
an opportunity to establish huge markets.65

This was the picture of food retailing and wholesaling
in 1930 when the super market entered the food distribution
scene.

A super market is defined as a highly departmentalized
retail establishment, dealing in foods and other merchandise,
either wholly owned or concession operated, with adequate
parking space, doing a minimum of $1,000,000 annually. The
grocery department, however, must be on a self-service basis.66

Another definition is:

A super market is a departmentalized retail food store
having four basic food departments; self-service groceries,
meat, product, and dairy, plus any number of other departments,

with the establishment doing a minimum yearly volume of

$375,000.67

 

65Trout, op. cit., p. 186.

66Zimmerman, op. cit., p. 18.

67Frank J. Charvat, Supermarketing (New York: The Mac-
Millan Co., 1961), p. 7.

 

70

The philosophy and judgment of the early super market

merchants was based upon the following elements:

1.

That an overwhelming percentage of householders
own automobiles.

That much of the family shopping is habitually
done with the aid of a family conveyance.

That the distance to be covered is seldom consid-
ered when there is a bargain at the other end of
the trip.

That the low cash price on a well-known or a
continually used article or a number of items will
suffice to draw a crowd.

That the price advantage offered by the super
market stimulates buying in larger quantities,
which generally results in more rapid consumation.
That so long as the super market seleCts a pr0per
location and continues to offer sufficient advan-
tages in price, it will attract the necessary
trade regardless of state of prosperity or depres-
sion in the nation‘s economy.

That low overhead and low prices would combine to
generate a large volume of business in a great
many departments carrying a wide variety of mer-

68

chandise under one roof.

 

681bid., p. 47.

71

Although super markets emerged in force during the
thirties, they were not absolutely new. Self-service stores
and super markets, although they were not called that, had
opened on the West Coast by a group of Southern California
merchants in 1912.69

In 1916 Clarence Saunders opened his first self-service
store in Memphis, Tennessee under the name of Piggly Wiggly
and at the peak of the company‘s success operated 2,600 Piggly
Wiggly stores throughout the country. Mr. Saunders popular-
ized the self-service concept more than any other man and
developed the turnstile and the checkout counter.7O

However, the history of the super market industry is
generally reckoned as of August of 1930, when Michael Cullen
opened his first ”King Kullen" market in Jamaica, New York.
It was an immediate success and by 1932 Michael Cullen was
operating eight super markets in which the grocery depart-
ments alone were doing a volume of 6 million dollars. By
1935 he had 15 units in operation and was in the process of
organizing on a national scale. At the same time he had ’
organized a King Kullen franchise to bring in the smaller

independents under a voluntary group plan. The contracts had

 

69Trout, op. cit., p. 186.

7OCarl Dipman, HFood Retailing——A Restless-Ever-Changing
Business," The Progressive Grocer, Vol. 31, No. 10 (October,

1952), p. 330.

 

 

been drawn, printed, and published, but at the age of 52

Michael Cullen died, and his plans were never executed.71

The Impact of the Super Market on the
Voluntary and Chain

 

 

The independent merchant was the originator of the super
market and in the early 1930‘s all super markets were operated
by the independent merchant. These super markets took volume
from both the chains and the independents.

The battle of the chains versus the independents was
now substituted for the battle of the independents and chains
versus the super markets. In the locations where the super
markets operated, the small market lost 30 to 40 per cent of '
sales volume. Although many people in the food trade believed
that the super market was a product of the depression only and
would soon disappear, the super market continued to make in-
roads in the volume of competition and were thriving and
expanding at a very fast rate.72

Following the success of King Kullen markets, the second
one to pioneer in the super market industry was the Big Bear,
that opened in Elizabeth, New Jersey in December, 1932 in an
abandoned factory of the Durant Motor Car Company. The first
three days of the opening of the Big Bear, they did a sales

volume of $31,861.71, a fantastic figure for those days. The

next week the consumers came, took their groceries away with

 

1
7 Zimmerman, op. cit., pp. 31-39.

72Gore, op. cit., p. 324.

73
them, and left $75,518.67. They kept coming back each week,
many driving from places 50 miles and more distant. They
bought food, cigars and tobacco, drugs and cosmetics, radios,
auto accessories, and other products.73

There were eleven concession departments leased on a
sales percentage basis as follows:
1. Meats
2. Fruits and vegetables
Dairy products
Fresh baked goods
Candy
Cigars and tobacco
Cut-rate drugs and cosmetics

Electrical and radio supplies

Auto accessories

KOODNQUW-E‘UJ

10. Soda and luncheonette
ll. Paints and varnishes74
The following is the operating statement of the Big

Bear for the year 1933.75

 

73Zimmerman, 0p. cit., pp. 39-42.

71;Ibid., p. 42.

75Ibid., p. 43.

74

TABLE 15. Operating Statement of the Big Bear for
the Year 1933.

 

 

 

 

 

 

% of
Dollar ' Sales
Grocery department sales $2,188,403 100.00
Cost of sales 1,925.795 87.99
Gross profit $ 262,608 12.01
Expenses
Rent $15,516 .71
Payroll 79,545 3.64
Light and heat 7,881 .35
Advertising 28,974 1.32
Handling 20,157 .93
Administration 11,248 .51
Clerical 6,915 .32
Insurance 3,523 .16
Miscellaneous 7,462 .34
Taxes 1,094 .05
Depreciation 219 182,534 .01 8.34
Net profit from grocery
operation $ 80,074
Rental from concessions 86,434
Net Profit $ 166,508

 

 

The United States Census of Distribution for 1929 showed
the average rental expense of the independent grocer was 2.84
per cent of sales and that of the chain stores was 2.56 per
cent of sales. The super market rental was very low for the
type of buildings they required, and the rent received by the
super market owner from the merchants who leased the conces-
sions resulted in the super market operator having no rental

expense for his operation.

75

The annual sales per employee were 60 to 100 per cent
above the national average. Payroll expense was 30 to 50 per
cent below the average store, which was equivalent to a saving
of about 3-1/2 per cent and more.

Thus the net reduction effected on only these two items
of operating expense totaled about 6 per cent of sales, or
approximately 33-1/3 per cent of the national average of total
operating expense for food stores. When other savings effected
because of the volume of operation under a low overhead are
brought in, the total savings were 8 to 10 per cent on the
average, which was about 50 per cent of the national average
of total operating expenses for food stores.

The chains and independents were faced with a new com-
petitor sponsoring a revolutionary system of mass distribution
under one roof, with a low overhead and high volume generated
by low prices and many items in one retail store. With an
overhead of 12 per cent, he was able to develop a very satis-
factory net profit, while the chains were operating with an
overhead of slightly more than 20 per cent and the independents
with 23 per cent.

Very few economists or experts in the field of distri-
bution understood the significance of King Kullen and Big
Bear, the forerunners of the super market revolution in retail
distribution. They did not realize that the key to the suc-
cessful retail operation of that day was low, low prices to

the consumer. The latter was willing and even eager to travel

76
to pick them up on a self-service basis and pay their cash to
make the savings. With large and diversified stocks and de-
partments, this developed high volume under one roof, which,
when coupled with a low overhead, resulted in satisfactory
profits and returns on investment.

Not realizing the significance of the super market at
the onset, the chains and service independents joined in a
common cause to fight the super market. They attempted by
legislation and pressure of newspapers to stifle the super
market, using the same tactics the independent retailer used
in the 1920‘s to attempt to combat the progress of the chain
stores. They turned to their food associations, newspapers,
trade journals, politicians, and legislatures for action to
slow down and impede the progress of the super market. Legis—
lation was introduced in the New Jersey Assembly to outlaw
selling at cost or below cost and a Senate resolution was
introduced on March 6, 1933 to investigate super markets.

The Grocery Manufacturers of America, then known as The
Associated Grocery Manufacturers of America, had received such
a tremendous number of complaints in regard to the super
markets selling their products at cost or below cost, that
on February 24, 1933 they passed a resolution condemning the
distribution practices of Big Bear as uneconomic and unfair.
They also recommended that each manufacturer act individually
in attempting to prevent the resale of his products at cost
or below cost. The association framed and recommended legis—

lation to correct the price cutting.

77
The retail merchants, both chain and independent, did

not realize that people would drive 25 and 50 miles and more

to shop in factory buildings, with rough fixtures and sacri-

fice service, to save money. They continued to fight the

super markets with some of the following tactics:

food
have
down

than

1. Local drives were initiated to license all retail
stores, and refuse to license super markets.

2. Parking limitations were imposed on super markets.

Many local ordinances imposed.

Union picketing.

Pressured newspapers not to accept ads of supers.

O\UW DUO

Retail associations pushed legislation to curb
supers.

There were some in the food industry who realized that
distribution was changing and their small units would

to be replaced with larger combination markets, marking
prices, and doing a volume of business of $100,000 rather
the $1,000 their present small markets were doing.

The process of recognition of the time for change and

adoption of super market methods was described by John Hart-

ford,

then president of A. & P., when he testified in Septem-

ber, 1945 in the anti-trust suit brought against them by the

government. Mr. Hartford was discussing the super market

competition which his company faced during the early 1930's,

when King Kullen, Big Bear and many independents opened supers

at a fast rate. Mr. Hartford stated:

78

The first super market that came to my attention was
in the Eastern Division. We did not take it very seriously
at first, but the competition was pretty aggressive. In-
dependents got into it pretty fast and I went out to
Detroit and saw an old freight house converted into a
super market. I talked to the personnel and made up my
mind it was necessary for us to adopt that kind of opera-
tion. Later, we had a demonstration in Brooklyn of this--
what this competition really meant to us. We had a com-
petitor there by the name of King Kullen, and many indepen-
dents who opened these stores very fast. We had a very
profitable operation in Brooklyn, but in a very short
space of time, they forced the Brooklyn unit into deep
red figures. I was very much concerned because we had a
conflict at headquarters whether we should adopt that
kind of operation. Some said it would not last--you can't
operate without selling under cost, some said, and that
won‘t do. The independents were opening very fast and
seriously injuring our business. I realized if it could
happen there, it could h ppen in any units we had. We
finally tried out a store to see whether we could run this
type of operation without selling under cost. It was con-
firmed that we could and we went in very aggressively to
super market operation.7

The effect of the super market on the operations of the
A & P is evident from the following charts. In 1936 the A & P
had opened up 20 super markets that were just getting into
operation and in 1937 had 282 supers in operation, doing a
volume of 864 million. The year 1937 was the year in which
the A & P had the peak number of unprofitable units in its
history when one-third, or 4,382 stores, of their 13,264 units
were in the red. It is apparent that the decision of A & P
to get into the super market business was a crucial, necessary

{'1
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m

and timely one, for this decision reversed the trend that w

running against them.

 

76Zimmerman, op. cit., pp. 44-49.

79

TABLE 16. Total Number of Stores and Number of
Unprofitable Units of the A & P Co.
for years 1933 to 1941.a

 

 

 

Number Number of % of

Year of Unprofitable ‘ Unprofitable
tores Stores to Total

1933 15,095 3,060 20.0
1934 14,995 3,871 25~8
1935 14,885 3,651 24.7
1936 14,697 3,467 23.6
1937 13,264 4,359 33.3
1938 10,827 2,354 21.7
1939 9,088 1,619 17.5
1940 7,143 889 12.4
1941 6,165 639 10.3

 

 

aFrank J. Charvat, Supermarketing (New York: The Mac-

 

millian Company, 1961), p. 161.

TABLE 17. Statistics on Total Number of A & P
Stores, Number of Super Markets, Total
Sales and Super Market Sales for the
Years 1936 to 1943 (sales in millions
of dollars).a

 

 

 

Number of Number of 6353;? Super

Year Stores Supers S . p‘ Sales
ales

1936 14,446 20 889 00
1937 13,058 282 864 53
1938 10,671 771 866 220
1939 9,021 1,119 976 401
1940 7,073 1,396 1,099 594
1941 6,042 1,594 1,348 846
1949 5,821 1,633 1,435 934
1943 5,751 1,646 1,25 761

 

 

aSame as above, p. 164.

80
The A & P can well be used as an example of the impor—
tance of having recognized the super market revolution in
retail distribution in time and taking vigorous action in
joining in the new era of distribution. .How effectively and
timely this was accomplished by independent merchants will be
treated in the next subject of ”AdOption of Super Market

Methods."

Adoption of Super Market Methods and Philosophy

 

The low prices, self-service, diversified stock and
departments, large displays and inventories of the early
super markets had caught the publicis interest and good will.
The first self-service meat department was opened in 1941 and
the pre-packaging of fresh fruit and vegetables in consumer
size packages followed in the 1940‘s.

Combination food stores with meats had increased from
31.1 per cent in 1929 to 50.9 per cent in 1939 and to 65.85
per cent in 1948. At the same time, grocery stores without
meats had declined from 27.6 per cent in 1929 to 20.5 per
cent in 1939 and to 12.78 per cent in 1948. These figures
indicated an almost complete acceptance of the philosophy
of one-stop shopping by the consumer and the need for the
food merchants to follow this trend promptly.

The following table is a breakdown on the changes in
sales among the ten different types of retail food stores

from 1929 to 1948.

 

 

 

TABLE 18. Changes in the Division of Sales Among
Food St res from 1929 to 1948.a

Division 1929 1939 1948
Delicatessen 1.6% 1.2% .98%
Bakeries 1.6 1.5 .30
Fruit and Vegetable Market 2.5 2.0 1.27
Other Food Stores 2.9 2.2 .62
Candy and Confectionery 4.5 2.7 2.06
Dairy-Milk Dealers 6.4 7.3 6.81
Meat Markets 10.6 6.8 5.64
Country General Stores 11.2 4.5 1.69
Grocery Stores (without meats) 27.6 20.5 12.78
Combination Stores (with meats) 1.1 50.9 65 85
Total 100.00 100.0% 100 0p

 

 

a . . . .
Carl Dipman, Editor, The Progressive Grocer, October,

1952, p. 65.

 

These early super markets were operating on gross
margins varying from 10 to 14 per cent of sales,77 which was
a considerable reduction from the 19 or 20 per cent gross
margin for the chain economy store and the independent grocer
of the early 1930's.78
The chains were slow in adapting themselves to the
super market trend and it was not until 1937 that they
generally entered the super market field and in the early

1940's began to develop sales volume.

 

77Charles F. Phillips,'The Supermarlet,” Harvard Busi—
ness Review, XV, No. 2 (1938), p. 192.

 

 

Zimmerman, o . cit., p. 49.

82
The revolutionary changes and developments in the food
industry from the turn of the century to 1940 caused deep con-
cern for the survival of the independen merchant. During

these four decades, large- -ale operations at the retail level

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and efficient suppliers at the wholesale level. This need
became more pronounced and urgent as the super market Operators
entered a period of great enpansion. Out of necessity, inde-
pendent wholesalers and retailers, through voluntary groups,
developed an d pu into practice new and varied forms of whole-
saler-retailer collaboration.

Drastic charges were taking place at the retail level
due to this pressure of super market competition. Voluntary
group members had char ged from behind— the--xiunter clerk ser-
vice offering credit and delivery, to the modern, self-service,
cash and carry type of store.

Wholesalers had broadened their scope of operations in
keeping with the retailers‘ demands for a one-stop warehouse,
complete with peri sha b1 es and non foods.

Despite these improvements, the small independent re-
tailer had a struggle for surfrl val Having succeeded in
competing agair st the economy chain stores by duplicating to
some extent their methods, he now found hi- self in a los n.g
battle with the super markets. Many of the small operators

revamped their stores into supere t tes, changing into self—service

83
at least in the grocery department an were able to stay in
business. He Joined a voluntary group, was able to purchase
at a small percentage above cost, and his small combination
market had lower operating expenses, through the adoption of
self-service, reduced credit and delivery, and larger volume.

The superette is a significant d velopment in food re-
tailing for the independent retailex. A superette is a retail
food store with sales of from $75,000 to $375,000 annually,
with a self-service or semi—selr-service plan of operation.

It is generally described as a small super market. The super-
ette preceeded the super market and developed as a result of
thesame forces and conditions that brought about the super
market. It came with the application of self-service and
one-stop shopping, and thousands of these new markets were
built with self-service features by both independents and
chains. In addition, thousands of old-line service stores
were converted by remodeling to self—service stores. It takes
only a fraction of the honey to finance a superette as it

it ‘ re uirements are within the

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New Concept in Wholesaler—Retail r Teamwork. This report

presented an objective and inturtial picture of newly devel-

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The extent to which the higher degree of cooperation
between voluntary groups has contributed to their improvement
and success is shown in Table 21.

The unaffiliated retailers, supplied by wholesalers who
offered a minimum of serVices and cooperation essential to
being competitive with modern super markets, delihed 1: per
cent in total United States sales from 1947 to 1956. In con—
trast, the affiliated merchants had achieved a degree of
integration that resulted in a 15 per cent sales increase for

the same period.

87

TABLE 20. Services Extended to Retailers During
1949 by Voluntary and Unaffiliated

 

 

 

' Wholesalers by Percentages.
Per Cent Per Cent
Extended by Extended by
Voluntary Unaffiliated
Description Wholesalers Wholesalers
Keeping the retailer posted on
market conditions 8b 51
Keeping the retailer posted :n
prices being ch rgzl by
his competitors 7? 48
Suggesting resale prices to him
on the merchandis: : pplied
by the wholesaler 8’ 48
Regular newspaper advertising in
behalf of their regular
retailer customers :9 12
Distributing point of sale
material on a regular bas:s 28 15
Preparation of direct mail pieces
for their retailer customers 50 17
Use of supervisors 5O 4
Use of order forms #3 8
Assisting in store planning 80 26
Employing store engineers 68 35
Assisting retailers in procuring
store equipment 70 35
Engaging in retailer training
programs 2{ 3
Offering perishable supervision 22 8
Assisting with non—foods
departments 32 20
ACCOunting aids for retailers 20 9
‘1 . O . O
IQIMihClal assistance for retailers 17 A

‘3‘

\

88

TABLE 21. Per Cent of Total United States Grocery
Store Sales.a

 

 

 

Grocery Stores 1947 1950 1953 1956
Chains 37 ’ 36 36 37
Unaffiliated Independents 3A 31 25 19

Affiliated Independents
(both voluntary and
cooperatives)

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33 39 44

 

 

‘. Y'

a"Facts in Grocery Distribution,
1960, p. F20.

The Progressive Grocer,

 

An excerptfrom a speech made on January 25, 1937, by
M. M. Zimmerman, describes quite accurately the role played
by the voluntary wholesaler and a description of his status
during this period. In his address to the annual National-
American Wholesale Grocers“ Association in Chicago on the
topic, "The New Trend in Food Distribution-—The Super Market,"
Mr. Zimmerman stated:

The wholesaler stands again in the strategic position
of assuming the leadership of the independent Super
Market movement. The wholesaler has graduated from the
ranks of being a mere warehouseman.

His experience in organizing and developing the volun-
tary system of retailing and the lessons he learned
during his struggle with the chains has made him retail
minded. It has also developed in him a spirit of confi—
dence in merchandising and management, which, twenty
years ago, might have changed the entire distribution
picture.

Now, twenty years later, this time a seasoned campaigner
enjoying a strong financial and credit position and in the
strategic position of obtaining his merchandise at the
lowest competitive prices, he stands again at the cross-
roads of another era. Here again is a new opportunity to
make merchandising Eistory and improve the economical dis-
tribution of foods. 1

 

81Zimmerman, op. cit., p. 66.

89
The fourth, and present evolutional stage, contained in
Part Two of this thesis, will discuss and portray how the
wholesalers and retailers under the voluntary system, made
use of their new opportunity to make merchandising history

as stated by Mr. Zimmerman.

PART TWO

THE FOURTH EVOLUTIONAL STAGE

THE MODERN VOLUNTARY GROUP

CHAPTER III
THE VOLUNTARY WHOLESALER AT THE WAREHOUSE LEVEL

Establishing the Modern, Low—Cost Warehouse

 

At the start of the fourth evolutional stage after
World War II, and in the following several years, changing
methods in distribution and wide fluctuations in sales
activities had created many problems for the wholesaler.
During this post World War II period, the increased severity
of competition had forced the wholesaler to operate on the
basis of lower and lower margins per unit of goods, and to
strive for increased sales volume to earn a profit. To ac-
complish this, the wholesaler had to reduce his physical
handling costs, as his prices were at a level that made it
difficult, and even impossible, for the retailer to offer
competitive prices to the consumer.

When the voluntary first began to develop, the emphasis
was on improving the retail stores, and very little was done
to improve the efficiency of the warehouse operation. The
wholesalers were, in the main, saddled with obsolete, multi-
storied warehouses, and were handling goods in the same inef-
ficient manner as they had twenty and thirty years previously.
The results were the same high handling costs; wholesale
margins had not been reduced and were out of line with the

chains.

92

The wholesaler operated on the principle of high
margins per unit of goods and carried large stocks for long
periods. He considered his building as a storage warehouse,
and order assembly proceeded in a haphazard fashion. The
high cost of these crude methods was not particularly dis-
turbing to the wholesaler for many years, since his high
costs of operating was more than covered by the high margins
he had been securing from his retailers. However, as the
tempo of super market competition increased and modern dis-
tribution practices of the chains reduced operating costs,
the independent retailers found themselves in a non—competi-
tive position, causing substantial losses of volume to both
the retailer and wholesaler.

Outmoded physical plants, obsolete methods, and little
or no mechanization, contributed to the high Operating costs
of the wholesaler at the warehouse level. Some of the reasons
for the low warehouse productivity that resulted in high costs
for the wholesaler and high prices for the retailer were as
follows:

1. Lack of proper physical facilities.

2. Poor systems layout.

Inadequate or inefficient equipment.
Insufficient or inferior supervision.
Poor work methods.

Overstocked or understocked inventory.

NOW-ELL)

Poor crew balance.

93

8. Lack of prOper coordination.

9. An untidy or disarranged warehouse.

The need for efficient suppliers at the wholesale level
became evident in the five year period since the end of World
War II, as the chain stores entered a second period of expan—
sion through the super market medium. It became apparent that
the ability of the wholesaler to remain a potent force in this
highly competitive field depended upon his effectiveness in
making it possible for his retailer customers to perform their
function of supplying volume goods at low prices to the great
bulk of customers.

During this period the chains were building complete,
modern, one-story warehouses, mechanized, with a modern system
of receiving and order picking. Their operating costs, as a
result, were lowered substantially, and they were able to
handle tremendous tonnage at low costs. Although chain stores
are not wholesalers, each performs about the same functions at
the warehouse level, which include buying, storage, order
assembly, and delivery. The wholesaler's competition is not
only other wholesalers, but chains in their warehouse and
supply functions, as well as in other areas. To a very la:ge
degree, the effectiveness of a voluntary group can be measured
by the voluntary wholesaler‘s knowledge of chain store and
super market operations in all of its phases, and how far he

has progressed in duplicating or even surpassing chain methods.

9A
The increased severity of competition forced the whole-
saler to operate on the basis of lower margins per unit of
goods. Survival depended on the ability of the wholesaler
to adapt, among other things, his physical operations to these
changes. Rising wage rates increased the cost of his ware-
house operations, and in order to handle profitably an in-
creased tonnage at lower unit margins, the wholesaler neces-
sarily had to reduce his physical handling costs per unit in

order to survive.

During this period, several hundred wholesalers who were
unable or unwilling to adjust and improve their operations
went out of business. Some 200 wholesale grocery houses
moved into modern warehouses during the 1945-1955 period, and
more than 300 have built modern warehouses since then. Many
of the early pioneers are in their second and third round and
more of new warehouse building.

Many voluntary wholesalers succeeded in obtaining added
volume through increased sales by their members and by secur-
ing additional customers. However, they discovered that in
order for increased volume to result in satisfactory profits,
it had to be accompanied by an economical operating foundation
of low cost warehousing. An impressive increase in sales,
without the facilities to handle the added tonnage at a low
and competitive overhead, often resulted in an accelerated

breaking point of "no profit."1

 

 

l"Achieving Low Costs in a Multi—Story Warehouse,"
Address by Moses Strock at New England Wholesale Food Distri-

butors Seminar, April 2, 1959-

95
Lack of efficient facilities, equipment and methods

caused increased operating costs due to overtime pay and addi-
tional labor required. It also delayed deliveries, caused
customer dissatisfaction and contributed to a general break-
down in Operations or an unsatisfactory or no profit operation.
As an example, there is a case of a firm doing an annual
volume of 5 million dollars with a labor cost of l per cent or
$50,000. Their volume increased to $10 million with the same
limited facilities, and as a result their labor costs increased
to $150,000 or 1—1/2 per cent all around. If they had an ef-
ficient operation, their labor cost should have remained at
l per cent all around, or $100,000 annually. Their rent was
$12,000 per year, so now this firm can pay up to $62,000
annually for rent if they desire to develop facilities to
operate at a labor cost of l per cent. This is a direct case

1

of added volume creating an accelerated 'no profit" breaking
point due to inefficient warehousing.
The first and most important step of the modern whole—
saler was the willingness, desire and ability of its manage-
ment to recognize and meet the problems of obsolete, high—cost
warehousing. Many wholesalers took steps to establish and
develop a low—cost warehousing operation and thereby placed
their retailer customers in price competition with the chain
stores. Wholesalers began to move into efficient and scientif-

ically designed one-story warehouses, for fast, labor saving

handling, to rack and palletize their merchandise, and use

96
other mechanical aids to reduce costs in line with those of
the chains in their warehouse and supply functions.

The important factor in modern warehouse design in
functionalization. Instead of providing Just space, new
warehouses provide specially designed receiving and shipping
docks, checking-in space, storage, and order-assembly or
selection line space. This functional concept of the building
is basic to the assembly-line principle, which requires a
physical separation of the functions of storage and order

assembly.3

Figure l. A One—Story Warehouse with Complete
Assembly Line Built in 1940.a

 

aEffective Grocery Wholesaling(Washington, D. C.:
Department of Commerce, October, 1941), p. 106.

 

2"Achieving Low Costs in a Multi-Store Warehouse,"
Address by Moses Strock at New England Wholesale Distributors
Seminar, April 2, 1959.

31bid., p. 116.

97

This one-story warehouse (Fig. l) is located on the out-
skirts of a city, where the cost of land is relatively cheap,
and away from the traffic congestion of the city proper. Along
one entire 400 foot length of the building is a railroad—
receiving dock over 20 feet wide, and along another length is
the truck delivery and receiving dock, with ample facilities
for more than 20 trucks to back in at one time.

A specified place in the warehouse is reserved for each
commodity, and this space is identified by a code or stock
number of the particular item. The stock is arranged in the
warehouse by commodity—number sequence, and the commodities
are listed on each order in the same sequence, facilitating
rapid assembly and avoiding all backtracking. The order
pickers follow a predetermined route in making one circuit
of the warehouse, in the course of which they select commodi-
ties-in the order in which the items appear on the invoice or
order.

The goods are placed by the order picker on pallets,
flats, or similar equipment and are mechanically brough to
the loading platform and checking area in the order in which
they appear on the invoice. The goods are then loaded for
delivery and where feasible jack-lifts and electric equipment
are used to place the pallets in the trucks}L

As goods are taken from the assembly line, they are re—
placed usually from the storage area by means of pallets and

fork lift trucks, and in this manner there is a steady pattern

 

“Effective Grocery Wholesaling(Washington, D. C.: De-
partment of Commerce, October, l9Al), p. 107.

 

98
of order-picking, shipping and replacing of goods in the racks
by fast, mechanized equipment.5

The functionalizing of a warehouse to receive, store,
assemble and deliver merchandise with speed, accuracy, and ef-
ficiency is the key to low-cost warehousing. The adoption of
mechanical equipment to rack and palletize, and the establish-
ment of the assembly line for order picking, has enabled
wholesalers to achieve substantial economies in physical
handling costs per unit.

Due to declining unit margins, the unit cost of moving
merchandise has become a significant factor in the progressive
wholesaler's Operations. Warehouse buildings and order
assembly methods are inseparably related, and the wholesaler
of today now views his building as a machine for the effici—
ent movement of merchandise, rather than a storage warehouse.
One important step which the modern wholesaler took, was to
separate the function of storage from that of order assembly.
Certain parts of the warehouse and certain portions of the
stock are devoted to the function of storage, and are fre-
quently referred to as "reserve stocks.” A portion of the
warehouse space and of the stock of each item are set aside
for order picking or assembling, instead of assembling mer-
chandise from all over the building, which is time consuming

and costly. Within this area a predetermined route is

 

5Ibid., p. 107.

 

99
established which the warehousemen follow in assembling the
goods, or in "order picking" as it is commonly described. The
order assembly stocks are referred to as "active stocks" and
their arrangement in a certain sequence is described as an
"assembly line" or "selection line” or simply as a "line."

Depending upon the design of the building and the number
of floors, order assembling is divided into three classes of
procedure:

1. Assembly from all floors.

2. Semi-assembly line, usually in a multi-story
building.6
3. Complete assembly line, almost invariably in a

one-story building.

Some wholesalers with multi-storied warehouses adopted
the selection line principle by setting up semi-assembly lines.
Under this system, they brought together on one floor the
stocks of merchandise immediately necessary for order assembly,
and kept the reserve stocks on other floors.

The most efficient and cost saving method is the com-
plete assembly line in a one-story warehouse. The most ef—
ficient way to arrange the merchandise in the warehouse is on
the principle of the ton-mileage concept and not by particular
items. It is just as simple and easy for order pickers to

learn to fill orders by slot or rack number and description,

 

Ibid., p. 96.

———_

100

than by description alone, and the benefits in lower costs and
efficiency in order filling are overwhelming.7

The ton-mileage concept, which is the modern basis for
efficiently locating merchandise in a warehouse, consists of
a combination of four factors which affect the relative cost-
liness of handling merchandise and are as follows:

1. Velocity-—the rapidity of movement of goods.

2. Spread-~the quantity of items in each category.

3. Weight--the weight of each item.

A. Bulk--the size of each case.8

Using sugar as an example for selecting a warehouse
location, it should be located near the shipping end of the
warehouse, since it has all four factors mentioned above. On
the other hand, items such as tabasco sauce, celery salt,
shoe laces, and shoe polish, having very little sales velocity,
little weight or bulk, and a large spread of items, are placed

9

in a remote area.

It is estimated that from 15 to 20 per cent of the items
in an average wholesale grocery warehouse constitute about 80
per cent of its total volume. Therefore, the problem is one
of organizing the spread of inventory in such a way as to be
able to minimize distance. The concept of ton—mileage is the

goal of having a man order pick as much tonage as possible in

 

7Ibid., pp. 97-106.

_—

8William H. Meserole, ”Materials Handling vs. Handling
Materials,” Wholesale Grocer News, October, 1955, p. 22.

9Ibid., p. 22.

101
the fewest number of steps, and consequently in the fastest
time possible. This results in increased tons per man hour
in order picking, which is used as a measurement of efficient
warehouse operation.10

The effective use of a new or modernized warehouse with
mechanical equipment and assembly line order filling, can be
maximized, and handling costs further reduced, by the effici—
ent coordination of office methods and techniques with the
warehouse operation. Since warehousing methods and buildings
are inseparably related, reorganization of the warehouse has
affected and improved both the warehouse and office work
methods.

Previous to modernizing their operations, many whole-
salers handled orders in an extremely haphazard and wasteful
manner. Useless forms and unnecessary steps were used, and
yet much essential information was not available. Progressive
wholesalers develOped and integrated systems of order routine
that were coordinated with the warehouse Operation, and which
resulted in substantial savings.

The order routine is closely related to the nature and
sequence of the physical operation in moving merchandise.ll

Modern order forms for the use of the warehouseman in

order filling are set up in sequential numerical order and

lOIbid., p. 22.

11Effective Grocery Wholesaling (Washington, D. C.:
Department of Commerce, October, 1941), p. 85.

 

102

follow the physical location of the goods in the warehouse.

Order routines may be of any of the following:

1.

Non-transcription method, with copies of salesman's
order used for order assembly. Not the modern
method.

Non-transcription method, with separate floor slips
for use in order assembly, produced mechanically in
the office.

Pre-printed order form, with billing done from the
actual order form. A common practice with many
wholesalers.

The modern punch-card system. This system is widely
used by the most successful wholesalers. It makes
available to the wholesaler fast and efficient
mechanical order writing, perpetual inventory,
information on turnover of stocks in all categories,
payroll, and many other items that the modern whole—
saler requires for an intelligent and successful
operation. It makes available a system of inventory
control by which the wholesaler can take steps in
the following areas:

a. Eliminate slow moving and dead items.

H

b. Keep out of stock” to a minimum percentage of
sales.

0. Establish optimum purchase quantities.

103
d. Achieve a high rate of turnover, thereby re-
quiring a smaller inventory investment.12
There still remained many otherwise alert wholesalers
who were operating from grossly inefficient and obsolete
buildings. The decision to move into a new warehouse was a
matter of extreme importance and in many cases the decision
as to the most profitable course of action was not an easy
one to make. The sound basis for determining whether the
move should be made was to compare the total operating ex-
penses in the old warehouse with the estimated total of
operating expenses in the new scientifically designed one.
However, even after analyzing comparative costs, other factors
had to be taken into consideration. Probably the most im—
portant of these factors was the availability of necessary
funds and the effect of the new warehouse on the capital
structure of the business. I
For some wholesalers, the existing warehouse was a
fixed plant from which they were in no financial position to
move. Because of this, and possibly other important consid—
erations, some wholesalers found it impractical to move to a
new warehouse, even though it was clearly evident that such
a move would be a profitable one. Such wholesalers made
decisions on the basis of the alternatives open to them, which

was to organize their operations in the existing buildings in

 

l21bid., p. 86.

104
a manner that would maximize returns from the warehouse oper-
ation at the lowest possible costs.l3

Those wholesalers who were not in a position to build
a new, single story warehouse, modernized their operations and
effected substantial and sufficient savings by adopting instal-
lations tailored to their own particular needs. They made
alterations to approximate semi-assembly lines for efficient
order picking, installed conveyors and mechanized equipment
practical to their physical layout, and other modern improve—
ments to reduce handling costs.

The guide to be used in determining whether a warehouse
is too old and inefficient is to find out whether it is possi-
ble to use techniques that are efficient. A warehouse is in—
efficient when it is apparent that the costs of handling goods
are materially out of line with industry averages. The tons
per man hour handled (both inbound and outbound freight) is a
basic measurement and guide in deciding this problem.

The following case is a study by John C. Bouma of the
United States Department of Agriculture and presents facts
and problems which a wholesaler faced and the decision he
made on whether to build a new warehouse or improve his exist—

14

ing multi-storied warehouse:

 

13Ibid., p. 119.

—-———_

lL””Achieving Low Costs in a Multi-Story Warehouse,”
Address by Moses Strock at New England Wholesale Distributors
Seminar, April 2, 1959.

105

The wholesaler operated with 40,000 square feet equally
divided between two floors and used a freight elevator between
both floors.

1. Inbound and outbound freight handled on A-wheel

trucks.

2. Volume $2.5 million annually on dry groceries.

3. Rental costs $6,000 per year.

A. Employed l8 warehousemen at $4,500 each per year,
or total of $81,000 annually.

The business volume had shown a steady growth for
several years, but the possibility of continued volume increase
was limited because of the high cost of operation and competi—
tive conditions. The wholesaler had to make a decision on one
of three alternatives:

1. To remain in the present warehouse and continue to
fight a losing battle against high warehousing costs
and competitive selling. (Obviously not a solution.)

2. To build a new warehouse.

3. To remodel or modernize the existing warehouse with
maximum improved facilities.

The wholesaler should appraise his present and potential
voluem, and the current and estimated future costs in the
present warehouse, and then compare them with estimates of the
costs in contemplated changes. He must then judge to what

degree his warehousing costs will be lowered in a new warehouse

106
or in improving his present one, and then make a choice.15

One of the important factors is to determine whether or
not an increased cost of rental of a new building will be
offset by reduced labor costs. Wholesalers often found them-
selves in a position there they had a very low rental charge
for a leased building, or low interest, depreciation and main-
tenance charges for an owned building, but with a high labor
cost. However, with a new warehouse, the rental costs would
be higher and the labor costs lower.

Estimated costs were obtained for construction of a
30,000 square foot one story building capable of handling the
existing business volume. Cost of land, building, including
office space and pallet racks, totaled $220,000. Amortizing
a loan of $220,000 for a 20 year period at 4.5 per cent inter-
est would cost $16,698 per year.

Additional equipment in the new warehouSe would include!
two fork-lift trucks and 5,000 pallets at a total cost of
$21,000 and would be depreciated over a five year period at
the rate of $4,200 annually.

It was estimated that the new warehouse could be Operated
with half as much labor, or a crew of 9 men instead of 18 men
for a total labor cost of $40,500.

The figures shown in Table 22 are a comparison of annual
warehousing costs in a 40,000 square foot multi-story warehouse

with estimated costs in a new one floor 30,000 square foot

 

15Ibid.

107
warehouse, with a current volume of $2.5 million and shows a

savings of $25,642 with a new warehouse.

TABLE 22. Charting Present Figures Against Costs
of New Warehouse.

 

 

 

Existing New
Annual Expense In-- Warehouse Warehouse
Rental cost (outside) 6,000 16,698
Equipment depreciation none 4,200
Insurance and taxes 4,550 4,550
Supervision 6,500 6,500

Labor 81 000 40,300
98.050 72, O

 

 

The savings would be larger if allowance is made for
the value of the land and building after the 20 year amortiz-
ation period and also for the market value of the old ware-
house.16

The study included the alternative of achieving low
cost warehousing through the installation of conveyor equip-
ment in the existing warehouse. Estimated cost was $21,000
and depreciation over a five year period would be $4,200
annually. A warehouse crew of 12 men would be required com-
pared with the present need for 18 men.

The figures in Table 23 are a comparison of annual ware-
housing costs in a 40,000 square foot multi—store building

using present methods compared with a conveyor system in the

same warehouse, volume of $2.5 million annually.

 

lélbid.

_—_—

108

TABLE 23. Charting Present Figures Against Costs
with Conveyor System.

 

 

 

 

 

Existing Existing Warehouse
Annual Expense In-- Warehouse with Conveyor System
Rental cost (outside) 6,000 none
Equipment depreciation none 4,200
Insurance and taxes 4,550 4,550
Supervision 6,500 6,500
Labor 81,000 _54,000

98}O50 59,250

 

An estimated savings of $28,800 in warehousing costs
would be effected with a conveyor system in the existing ware-
house compared with an estimated annual savings of $25,600 in
a new one-story warehouse.l7 '

The wholesaler chose to install the conveyor system in
the existing warehouse at $636.00 less than the estimated cost
and the number of warehousemen was reduced from 18 to 11
instead of 12 as originally estimated. As a result of good
work methods and the conveyor system, the annual savings
totaled more than $33,000. Another important consideration,
is the fact that a new 30,000 square foot warehouse could
handle only the present voluem, and would require expansion
as volume increased. A larger warehouse could be built later
to more accurately meet the future needs of the company.

The timing of the decision as to when to move to a

larger warehouse would be governed in the main by the ability

 

17Ibid.

109
of the conveyor set-up to efficiently handle the total tonnage.
As more volume is added and it becomes necessary to ship more
truckloads of goods each day, at some time in the business
expansion the conveyor line will not be able to handle the
tonnage. When this point is reached, notwithstanding all the
improvements, the conveyor line will not be able to handle the
volume and a new warehouse will be needed.

This is an example of the situation many wholesalers
found themselves in during the decade following World War II.
They effected labor savings by modernizing their existing
facilities and equipment as against building a new warehouse.
These improvements placed them in a competitive position
which contributed to increased volume and improved profits,
and later most of these same wholesalers built new one-story
warehouses.18

Figure 2 shows a floor plan of a modern, one-floor ware-
house containing 200,000 square feet and is situated on a 27
acre tract. It has 52,000 square feet of refrigerated space
for perishables, including produce, frozen foods, fresh and
frozen poultry, dairy items, and baked goods. It serves as a
virtually complet one source of supply. It has 9,000 square
feet for a cash and carry operation on a self-service basis
where retailers can select from about 4,000 to 6,000 items

and buy in half-case quantities if desired.

 

18Ibid.

_g—I—_

110

 

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111

The receiving dock accommodates 8 rail cars and 11
trailers. The shipping dock, with three different platform
heights, permits 20 trailers to be loaded simultaneously.
Incoming shipments are palletized in the cars and trailers, and
are moved into storage areas by electric ”walkies." Merchan-
dise is placed in the warehouse according to weight and
velocity and by the slot system. Orders are filled by means
of a continuous chain in-floor towline 850 feet long that en-
circles the selection area, and carries the trucks loaded with
orders to the shopping dock area. A total of 55 carts may be
attached to the towline simultaneously.19

This illustration and description of a modern, low-cost,
efficient warehouse operation is representative of a great
many of our voluntary group wholesalers. In our modern evolu-
tional stage of voluntary group growth and integration, the
voluntary wholesaler has successfully established low—cost
warehouses and coordinated them with efficient office and
warehousing methods.

As a result, during the past decade, voluntary whole-
salers have reduced their operating costs by approximately 25
per cent, and their operations today measure favorably with
industry averages. (See Table 24)

Today, voluntary wholesalers have established new stan-

dards of warehouse efficienty, and the progressive wholesalers

19Wholesale Grocer News, November, 1959, p. 18.

112
are Operating on two to four per cent of sales. They have be-
come so efficient that today some 2,000 chain stores report
that they no longer buy direct, but from a voluntary or cooper-

ative wholesaler.2O

TABLE 24. Reduction of Voluntary Wholesalers'
Margins as Compared to Unaffiliated
Wholesalers, 1950 to 1955.a

 

 

 

Group 1950 1955
Voluntary Group Wholesaler 7.5% 5.8%
Unaffiliated Wholesaler 8.6% 7.5%

 

 

aRobert W. Mueller, Editor, "The New Look in
Wholesaling--What it Means to the Retailer," _gge
Progressive Grocer, May, 1956, p. l.

The modern voluntary wholesaler is searching for new
vistas and developing new efficiencies in modern low—cost
warehousing. Some of these areas are as follows:

1. Establishment of cash and carry, self—service

warehouses.

2. Developing modern financing concepts for whole-

salers, such as "return on investment” concept.

3. Closer and periodic inventory controls for faster

turnover, fewer mark-outs, and spotting slow movers.

4. Periodic operational reviews.

 

20!!

H

Progress, The Progressive Grocer, July, 1961, p. 2.

113
5. Evaluation of movement of each item on basis of
regular velocity turnover reports.
6. Tons per man-hour reports on inbound and outbound
freight, to control handling costs.
7. Analysis and discontinuing of some slow moving

items.21

The establishment and development of low-cost ware-
housing and distribution by voluntary wholesalers has made it
possible for affiliated retailers to own their merchandise at
as low a price or lower than chain competition. To a great
extent, this has been responsible for the spectacular growth

of voluntary groups in the past decade.

The Modern Warehouse as a Complete Supply Depot

Not so long ago the wholesale grocer was almost exclu-
sively a distributor of dry groceries. Today he handles many
more of the product lines sold in the modern food stdre, and
has moved steadily toward the goal of a complete supply depot
for retailers. Affiliated wholesalers have moved much farther
and faster into perishables and general merchandise than un-
affiliated wholesalers, and most modern voluntary groups are

now operating as complete supply centers.

nganiel J. Bartz, Editor, Management Controller's
Bulletin, National American Wholesale Grocers Association,

'Vol. I, Issue 8 (December, 1958).

114
The progress during the past five years from 1955 to
1960 toward a complete one-stop wholesale supply depot is
illustrated by the following tables.

TABLE 25. Lines Handled by Grocery Wholesalers
During 1960.a (In per cent)

 

 

 

All

Lines Voluntary Cooperative Unaffiliated Wholesalers
Fresh Meats 41 31 -- 24
Produce 41 45 28 40
Frozen Foods 72 77 13 52
Health &

Beauty Aids 89 89 93 90
Toys 41 23 22 29
Housewares 45 4O 51 46
Soft Goods 77 25 55 52
Stationery 65 63 57 62
Bread 17 2O -- l2

 

 

a"Facts in Grocery Distribution," The Progressive
Grocer, 1961, p. 21.

 

TABLE 26. The Number of Buying Offices to be
Called on at the Distributor Level
to make Products and Promotions
Available at the Retail Level.a

 

 

 

Type 1950 1959

Voluntary Wholesaler 519 635
Cooperative 191 216
Chain Stores 323 340
‘Uhaffiliated 3,328 1,850
4,361 3,041

a"Facts in Grocery Distribution in the 1960's," The
23:9gressive Grocer, 1960.

 

115

TABLE 27. Retail Sales Per Buying Office for 1959.a

 

 

 

 

Number Total Retail Average Retail
of Sales Sales per Office
Type Offices (in billions) (in millions)
Chain Stores 340 $20.0 $58.8
Voluntary and
Cooperatives 851 22.5 26.4
Unaffiliated 1,850 7.5 4.1
3,041 $50.0 $16.4

 

aSame as Table 26.

TABLE 28. Average Number of Items Handled by
Voluntary Wholesalers from 1950 to

 

 

 

1960.a
Year Items
1950 2,470
1956 3,280
1958 4,180
1960 5,100

 

 

aSame as Table 25.

The increase in the number of voluntary wholesalers
handling lines other than dry groceries is indicated by the

following comparative figures.

116

TABLE 29. Comparison of Lines Other Than Dry
Groceries Handled by Voluntary
Wholesalers in 1955 and 1960.a

 

 

Items 1955 1960 Increase

Health and Beauty Aids 77% 89% 12%
Fresh Meats 18% 41% 23%
Fresh Produce 29% 41% 12%
Frozen Foods 49% 72% 23%
Housewares 16% 45% 29%
Toys 19% 41% 22%
Soft Goods —- 77% —-

Stationery -- 65% --

Bread —— 17% --

 

 

a1955 figures taken from: HMass Marketing Through
Wholesalers," Address by Robert W. Mueller, Editor, The
Progressive Grocer, Annual Convention, National-American
Wholesale Grocers Association, March 18, 1957, p. 24.

 

1960 figures taken from: "Facts in Grocery Distri-
bution," The Progressive Grocer, 1961, p. 21.

 

The wholesaler has not only strengthened his retailer
customer by broadening his lines, but in addition has ex-
panded the basic products he handles by increasing the
number of items and spread in his traditional lines. Such
progress has permitted the wholesaler to serve his retailer
more completely as a low-cost one-stop operator, and to be
competitive with the most advanced retailers in the food

industry.

Voluntary Wholesalers' Sales Growth and Expansion

 

Two decades ago, the grocery wholesaler seemed to be

on the way out. Many considered this form of distribution

117
old-fashioned, inefficient, and unable to compete in the new
era of super marketing. But the gloomy expectations did not
materialize. First a few wholesalers, then hundred, modern-
ized their methods, policies, and plants, to meet the new
needs of their retailer customers.

Many important changes have occurred in the food indus-
try in the past ten years, but none has been more significant
or has had more impact than the astounding change in grocery
wholesaling. Over the past five years, voluntary wholesale
grocery sales have increased 83 per cent, even faster than
the 34 per cent increase in retail food sales, and the average
wholesaler gains of 49 per cent over the same period.22

Sales of all wholesalers in 1960 increased 7.2 per cent
over 1959, with voluntary group wholesalers increasing 12.7
per cent over 1959. These figures exceeded the 4.5 per cent
sales gain in food retailing for 1959.23 The great growth in
wholesaler sales rests to the fullest degree on the concept
of retailer-wholesaler teamwork, which has been developed by
the voluntary groups over the past four decades. (See Table
29)

Voluntary and cooperative wholesalers accounted for a
sales increase of about three times more than the increase

made in total retail store sales for 1959.

 

22"Facts in Grocery Distribution,"

Grocer, 1961, p. 20.

The Progressive

 

23Ibid., p. 20.

118

TABLE 30. Sales Gains by Type of Wholesaler
1960 vs. 1959.a

 

 

 

Type Peg Cent
ain
Voluntary wholesaler ' + 12.7
Cooperative wholesaler + 13.9
Unaffiliated wholesaler - 4.5
Average all wholesalers + 7.2

 

 

a"Facts in Grocery Distribution," The

Progressive Grocer, 1961, p. 20.

 

While the modern wholesale food distributor is found
everywhere in wholesaling, it is in the ranks of voluntary
and cooperative wholesaling that he is most successful, and
where his skills and services are most effective. While each
year, for five years from 1956 through 1960, wholesaler sales
have exceeded the rate of gain of the total food retailing
sales, such gains are attributable to the affiliated whole-

24

salers, as the unaffiliated operators have been losing ground.

TABLE 31. Wholesale Grocer Sales Percentage Gains
over Previous Year.a

 

 

 

Year Percentage Gain
1956 11.6
1957 10.5
1958 6.6
1959 6.3
1960 7.2

 

 

aAddress by Robert W. Mueller, Editor, The Pro-
gressive Grocer, to Annual Convention, National-
American Wholesale Grocers, March 14, 1961.

 

24Ibid.

119

For the fifth consecutive year wholesale grocers showed
a greater gain in sales than did the nation's food stores,
7.2 per cent compared with 4.5 per cent. Voluntary and co-
Operative wholesalers continued to progress, while unaffili-
ated wholesalers declined in numbers and sales. Voluntary
wholesaler sales exceeded those of cooperative wholesalers by
$1,7lo,ooo,ooo, and those of unaffiliated wholesalers by

$1,5lo,ooo,ooo.25

TABLE 32. Wholesale Grocery Sales for 1960.a

 

Average Annual

 

No. of Sales % Gain 1960 Sales
Type Firms (in billions) vs. 1959 (in millions)

Voluntary

Group '

Wholesaler 525 $4.95 + 12.7 $9.24
Cooperative

Wholesaler 200 3.24 + 13.9 16.20
Unaffiliated

Wholesaler 1,760 3.44 - 4.5 2.02
Totals 2,485 $11.63 + 7.2 $4.68

 

 

a"FactS in Grocery Wholesaling," The Progressive Grocer,
1961, p. 20.

 

Voluntary wholesalers with slightly over 20 per cent
of the number of wholesalers, did more than 42 per cent of the

total wholesale volume in 1960. Cooperative wholesalers did

 

1

25"Facts in Grocery Wh01esaling"
Grocer, 1961: p. 20°

The Progressive

 

120
28 per cent of the total wholesale volume in 1960 and unaffili-
ated wholesalers did 30 per cent.

The sales volume of voluntary group wholesalers for 1960
of $4.95 billion represents sales increases generated from
voluntary wholesalers of various sizes. It is interesting to
point out at this time, however, that there are today giant
voluntary wholesalers who have attained sales equal to and
greater than many of the giant corporate chains, as the

following table illustrates.

TABLE 33. Nine Top Volume Voluntary Wholesalers and
Their Estimated Retail Sales for 1960.3

 

 

Estimated Sales

of Retail

Name City and State Customers
(in millions)

Alfred M. Lewis, Inc. Riverside, Calif. $ 815.1
Consolidated Food Corp. Chicago, Illinois 562.8
Thomas & Howard Charlotte, N. C. ' 440.7
Abner & Wolf, Inc. Detroit, Michigan 435.6
Super Valu Stores Minneapolis, Minn. 342.6
Nash—Finch Co. Minneapolis, Minn. 333.0
The Fleming Co. Topeka, Kansas 310.0
Seeman Bros. Bronx, New York 281.4
Smart & Final Iris Co. Vernon, California 277.2

 

 

aThe Progressive Grocer, June, 1961, p. 4.

The modern wholesaler of today might have difficulty in
recognizing his counterpart of 1930, or even of 1940. The
Wholesaler has been called upon to keep step with the most

modern of retailers who have been on the firing line with the

121
chains. Research, study, and the application of modern oper-
ations and streamlined methods have brought substantial savings
in the physical operation of a wholesale grocery plant.

Wherever wholesalers have survived, their places of
business, their business psychology, their internal methods
and procedures of today generally bear but a fleeting resemb-
lance to the establishment of former years. They have per-
fected their methods and have become experts in performance.
Warehouses today are marvels of modern distribution, and mer-
chandise flows in rapid motion, aided by mechanized equipment,
and are handled at a cost that represents but a fraction of
what formerly was considered an efficient Operation.

The modern wholesaler's new food distribution centers
and operating methods form the foundation for the present
highly integrated voluntary groups. This new distributor has
given the voluntary groups guidance, service, and efficiencies
long regarded as unique with the corporate chains, and are a
prime factor in moving products faster and at the lowest com-
petitive costs in the industry.

The voluntary wholesaler of today is doing more than
offering merchandise at low prices. All of the services
essential for the effective operation of a retail super market
and superette, and at one time considered to be the sole
function of the retailer, are now offered by voluntary whole-

saler experts. This subject will be discussed in Chapter IV.

CHAPTER IV

EFFECTIVE SERVICES AND FUNCTIONS

THAT VOLUNTARIES PERFORM

The Need for Effective Services

 

Up to recent years there had been little cooperation
between the wholesaler and retailer in the vital area of re-
tailer services. Planning of promotional events, merchan-
dising and advertising were functions with which wholesalers
were often unwilling or unable to assist retailers. There
was little or unsatisfactory heop forthcoming from wholesalers
in areas of finding new sites, helping to finance new store
construction, planning efficient store layouts, and in many
of the other retailing problems where the wholesaler could
properly be of service.

The retailer was often reluctant to concentrate pur-
chases with a single wholesaler and thus reduce wholesaling
costs. Few retailers felt it advisable to take the whole-
salers into their confidence and ask for assistance in the
many decisions where the wholesaler could have been of direct

aid.l

 

1Robert W. Mueller, Editor, ”The New Look in Grocery
Wholesaling, What it Means to the Retailer," The Progressive
Grocer, May, 1956, p. 6.

123

Today the retailer and wholesaler realize that each can
be more successful working together. As a result of this
attitude, the independent form of distribution, as represented
by the voluntary group, is stronger than at any time since the
1920's, and promises to become even stronger in the future.

Independent retailers need the same services from their
wholesale suppliers as a chain store manager requires from
his warehouse and headquarters. The wholesaler—retailer team-
work in a voluntary group permits a division of labor in which
the wholesaler supplies the essential services on a large scale
basis better and more economically than the independent
retailer can supply them for himself. This relationship leaves
the retailer free to devote his time, energy, and thoughts to
the important money making phases of his business; building
sales and controlling expenses.

Retailer services are essential not only to independents
who have been operating successful super markets and superettes,
but extremely important to the individual who desires to enter
the super market business. This individual faces increasingly
complex problems that are difficult to overcome alone. Large
amounts of money are required for investment in land, buildings
fixtures, and inventory. Varied and highly specialized services
are required which call for particular knowledge in several
fields. The voluntary group system is the efficient way for
an independent to enter the super market or superette field

and be successful.

124
The development of the voluntary groups since World War
II has occurred through the effective establishment of essen-
tial retailer services. The success of the wholesaler is
predicated upon how efficiently his retail customers perform
their functions.
One of the determining factors in the success of a vol-

untary group is the degree of 'retail-mindedness" present in

the thinking of each voluntary group. To describe a whole—

1

saler as being 'retail-minded" is to pay him a high compliment,
since he recognizes the importance of knowing the retail part
of the food distribution business.

"Thinking retail” is more than a statement of policy
of successful wholesale grocers. It is reflected in the
performance of all phases of their operating functions. In
the current fourth evolutional change in voluntary groups,
the fundamental objective and responsibility of the voluntary
wholesaler is the establishment of a low-cost supply depot
that satisfies all the retailers‘ needs; and the development
and refinement of services essential to modern and efficient
retail Operations.

In comparing the functions of the voluntary wholesaler
to that of the chain organization, the latter does not sell
to its unit chain stores and there is actually only one sale
to the consumer. The wholesaler and retailer of the voluntary

group seeks to accomplish the same result--one sale to the

consumer. By altering the traditional distribution of

125
wholesaler-retailer operations, they have succeeded in dupli-

"single-sale" method of the chains, while at the

cating the
same time preserving their separate status.

To accomplish this modern single-sale operation, the
independent merchants have resorted to new and improved re-
tailer functions and services. The voluntary group in theory
and practice removes from the retail stores the non-selling
functions such as buying, advertising, and many other varied
services. These are performed more efficiently and econom-
ically on a large centralized scale.

The voluntary wholesaler of today is a low-cost distri-
butor who is aware of the mutual adventage of concentrating
volume with a definite group of c00perating independent
retailers. He is continuing to develop a teamwork program
for his affiliated retail members and make available to them
low cost distribution and services essential to the competi-
five operation of super markets and superettes.

The wholesaler who sponsors a voluntary group changes
his function. His aim is to assist his retailers to serve
their customers in the most efficient and profitable way. In
order to attain a maximum of effectiveness, the voluntary
wholesaler must be an expert in retail management, which, in
conjunction with buying and warehousing, are the important
functions of a voluntary wholesaler. The more a wholesaler
learns about retailing and selling to the ultimate consumer,

the more successful will be his voluntary group. The

126
wholesaler must be able to discern and often anticipate the
problems of his retailers and offer services that will be
effective. The ability of the independent wholesaler to
remain a potent force in the highly competitive food distri-
bution field depends upon how efficiently he and his retail
customers perform their functions of supplying merchandise
at competitive prices and under competitive conditions.

Recent years have seen the independent segment of the
food industry solidifying its position through the vitality
of leadership by wholesaler-sponsored voluntary groups and
retailer—owned cooperatives. They have established head—
quarter operations that provide the same central services and
functions that corporate chain headquarters provide for their
markets. There is little question that were it not for these
programs of joint effort, theindependent operator would have
faced extinction, or at best, survived on the most marginal
of terms.2

The extent to which voluntary wholesalers are currently
rendering varied services to their groups may be observed by

the figures shown in Table 34.

2Julian H. Handler, "The Editor's Corner," Super Market
lfiaaa, January 26, 1959, p. 2.

 

127

TABLE 34. Services Rendered by Voluntaries in 1959.a

 

 

 

Per Cent of

Services Offered Units Offering
Merchandising bulletin . 100
Advertising 99
Store planning 100
Equipment procurement 85
Store level merchandising aid 95
Assistance in obtaining finance 86
Cooperative buying of perishables 67
Store level management aid 81
Training program 61
Specialist supervision for perishables 69
Accounting 66

 

 

a"Cooperatives and Voluntaries--Sa1es Power Personi-
fied," Food Business Staff Report, June, 1961, p. 29.

 

The Order Form

 

Throughout the development of the voluntary group system,
efforts have been constantly expended to adopt the techniques
of the chains, wherever and whenever possible. In past years,
the corporate chain has had the advantage of not having to
sell merchandise to its own stores. The method of the chains
involved one single sale to the consumer.

The wholesale food distributor up to recent years oper~
ated through salesmen travelling the trade, and calling on
each customer at least once a week. The salesman was just
about the wholesaler's only line with his retail customers,
and up to a few years ago, no wholesaler could conceive of

tPying to operate without salesmen. However, this method

128
required the expensive use of one additional selling function
than the chains needed.

The voluntary groups were able to duplicate the chains‘
"single sale to the consumer" methods by introducing the pre-
printed order form, which proved to be one of the most spectac-
ular and profitable developments of the voluntary groups. It
has been estimated that the cost of order forms range from 20
to 65 cents each, and the cost of a salesman‘s call was approx-
imately $4.00.3

With the use of the order form, no salesman contacts
were necessary. This system has replaced salesmen with super-
visors or field men, who concentrate their efforts on retailer
services and assist in retailer selling. Whereever possible,
wholesale grocery salesmen have been retrained as supervisors
and thereby their positions have been upgraded, or when im—
practical they have been replaced by trained supervisors.

The situation of supervisors for the salesmen has removed the
salesmen from the expensive routine of order-taking, for the
mose lucrative position of supervisor to the retailer.

The introduction and use of the pre-printed order form
has led to substantial cost savings and developments in sales,
warehouse, and invoiving techniques for wholesale food distri-
butors. Its use has enabled the wholesaler to provide a low
cost merchandising program enabling retailers to remain com-
petitive with chain operations. The pre-printed order form

for grocery products, health and beauty aids, frozen foods,

 

3Dan Bartz, Wholesale Grocer News, October, 1956.

 

129
and perishables is an absolute requisite for a modern opera-
tion with its widespread use of electronic equipment, slot
selection methods, and substitution of sales supervisors for
salesmen.

The order.form or order book usually follows the chain
type. It is usually printed with columns for four week 0
periods, although some wholesalers mimeograph or ditto their
order forms in their offices, and issue them weekly. Mer-
chandise is grouped by categories on the order form to help
retailers locate the various commodities and designate quan~
tities with a minimum of effort. The code or stock number,
description, pack, shipping weight, cost, per cent of gross
profit on selling prices, and suggested selling prices are
clearly and conveniently indicated. An additional important
feature embodied in some order forms is the item's warehouse
turnover velocity to guide retailers in their ordering. The
set up of the order form increases the efficiency of order
filling, since order picking is done from the order form
itself, or from an I. B. M. or other copy. Table 35 is a
sample of a portion of an order book taken from a modern
order book of an outstanding national voluntary group.

Some order forms are designed for four deliveries by
means of strips which are torn off the order form. For each
item, space is provided in the order form for the retailer to

keep a permanent record of merchandise ordered.

TABLE 35.

130

Sample of Portion of an Order Book.a

 

 

Coffee Cream

 

 

 

 

 

1 2 3 4 Code Pack Mfg. No. Cost CRP
6030 Pream 24/4 oz. 6.34 .31
6033 Pream, Lrg. 24/7 oz. 10.24 .51

Instant Milk
6040 Carnation, 3 qt. 10-1/2 oz. 1005 5.80 .29
6043 Carnation 12/8 qt. 1015 7.50 .73
6046 Carnation 12/14 qt. 1020 11.70 1.15
6049 Carnation Choc. 12/10 oz. 1205 3.80 .39
6060 I.G.A. 24/5 qt. 6.75 .35
6065 I.G.A. Choc. 24/1 lb. 7.45 .39
6070 Pet 24/4 qt. 7.55 .39
6073 Pet 12/8 qt. 7.30 .73
6076 Pet 12/12 qt. 9.32 1.05
6080 Starlac 24/3 qt. 3030 5.80 .29
6083 Starlac 12/6 qt. 3065 6.40 .67
6087 Starlac 12/12 qt. 3070 10.20 1.05
aOrder Form of Cressey, Dockham Company, I.G.A. Voluntary

Wholesalers, Salem, Massachusetts.

Order forms are either forwarded to the retailer by mail,
or left by the truck driver when delivering an order, or by a
supervisor on his regular call. The retailer fills out the
order and mails it on a specified day to his wholesaler, who
then assembles it and delivers the order on a predetermined
day.

In addition to lowering costs and improving the whole—
Saler's efficiency, there are many added benefits that the
retailer obtains as a result of the introduction of the order

fOrm. Some are as follows:

131
1. Makes buying easier, more accurate, saves time
and permits the retailer to devote his attention to
the important areas of merchandising and store super-
vision. The retailer can prepare the order form at a
time convenient to him, rather than when pressed by a
salesman.

2. A good order form suggests ideal stock arrange-
ments and enables the retailer to coordinate supply
requirements on a turnover basis.

3. Permits the sales supervisor (no longer a sales-
man) to devote his time in assisting the retailer in
improving the store layout and appearance, and to work
with the retailer in developing sales promotions and
in general cooperate in all phases of retail store
operations.

4. Gives the retailers valuable information on
competitive retail prices. Competition of food re—
tailing must be met by voluntary groups, and the
retailer is assisted in this function by the whole-
saler printing suggested competitive resale prices
in his order form. The wholesaler can gather and
communicate this price information more economically
than the retailer.

Progressive wholesalers give much of the credit for the
reduction in margins they have effected to the use of the pre-
printed order form. A survey in 1955 showed the average
margins among wholesalers using order forms was 26 per cent
lower than among wholesalers using salesmen, and pre—printed

order forms were used for 86 per cent of total purchases by

all wholesalers for 1955.

132

TABLE 36. Types of Wholesale Grocers Using Pre-
Printed Order Forms and Percentage
Using Them.a

 

 

 

 

% Using Pre-Printed % Using

Types of Wholesalers Order Forms Salesmen
All Wholesalers 51 49
Voluntary Group Wholesalers 82 18
Retail-Owned Wholesalers 85 15
Average Margins in Sales 5.5 7.5

 

 

a"The New Look in Grocery Wholesaling,’
Grocer, May, 1956, p. 3.

The Progressive

 

Financing

 

The most difficult single problem facing voluntary
groups today is securing capital for expansion in order to
finance new stores, upgrade existing stores, buy out
existing locations, or assist an underfinanced operator.

The faster growth of the chain stores can be attributed
in a large measure to the greater financial resources that
are available to the corporate chains, and which could not
be matched by independents. The competent independent oper-
ator if given equal facilities and operating under a progres—
sive voluntary plan can successfully compete with corporate
chains and make as much, and often more, net profit than the

corporate chain.

However, one of the most important factors-~money--has
been largely unavailable to independent operators, particularly

the small retailers. There are few independent merchants who

133
have the private resources to finance the high costs of
building, equipping, and stocking a modern super market.
Financing the operation through the sale of stocks or bonds
to the public is not usually possible for the independent
operator. Bank loans are very difficult to obtain, and are
often expensive. How should an independent finance the kind
of store he needs to match those of his bigger, better fin-
anced competitors?!Jr

To sustain the growth of affiliated retailers, the
voluntary wholesaler has found it necessary and imperative
to supplement his operational ability with financial resources.
Voluntary wholesalers are making available their credit facili-
ties to carefully selected retailers who have a future in the
food business but who do not have the resources or the long-
standing reputations in their own communities necessary to
obtain the financial help they need.

In many areas it is impossible for an independent Oper-
ator, even thought he may have a very satisfactory new worth,
to get into a shopping center or a choice location. Many
prime locations are financed through large insurance companies,
and the independent retailer finds himself in competition with
large corporate and local chains for these locations. This
situation also prevails with many banking institutions, and
they all have certain financial requirements for leasees.

They do not want individual signatures on leases, but want

 

uRuss Byerly, President, Super Valu Stores, The Progres-
sive Grocer, July, 1961, p. 44.

 

 

134
corporations with substantial net worth. It has, therefore,
been necessary for wholesalers to assist their retailers in
obtaining prime locations by signing primary leases and sub-
leasing to the retailers.

A substantial share of increased sales volume and expan-
sion is contributed by new store building. As a result, a
first important step is to assist members in obtaining satis-
factory sites. In some instances it is possible for the
retailer to obtain private financing on the individual re-
tailer's signature on the lease. However, when the wholesaler
is presented with this type opportunity, there is not always
time to find a retailer who has the know-how, some money, and
is interested in the location. In these instances, it has
been necessary for the wholesaler to step in and purchase the
land before they had another retailer lined up to take the
location. These tracts of land are later sold to retailers,
and the wholesaler would then assist in negotiating leases
with prospective builders for their retailer members on these
new locations, and assist in arranging financing for new con-
struction, fixtures, and inventory.

Some Voluntary wholesalers have made connections with
banks and insurance companies that supply the retailer with
the necessary funds. In such cases, the wholesaler often
guarantees the repayment of part of the loan or the entire
amount, and a reserve fund is set up by the wholesaler to
cover any losses which might occur. Table 37 gives a list

of how voluntary wholesalers aided their retailer in 1956.

135

TABLE 37. How Voluntary Wholesalers Aided in
Financing New Stores in 1956.a

#

 

 

Types of Aid Per Cent
Gave extended credit on opening inventory 60
Took primary lease and sublet to group retailers 60 .
Held mortgage 19
Guaranteed loan 26
Found site for new store 68

 

aAddress by Robert W. Mueller, Editor, The Progressive
Grocer, Annual Convention, National-American Wholesale
Grocers Association, Chicago, Illinois, March 18, 1957.4

 

A more recent survey showed that during 1959, 86 per
cent of the voluntary wholesalers assisted their retailers in

obtaining finance. This assistance currently is given in the

5

following important areas:

1. Helping members to secure no down-payment loans on
fixtures. Some voluntaries finance fixtures
through their own finance company.

2. Helping speed up the loan process when members deal
with small business loan institutions or banks.
Voluntary wholesalers assist in making a more
thorough presentation of the potential of the member
to the lending company, including surveys of competi-
tion, projections of profit and loss, financial data,
and other pertinent information.

3. Supplying a portion of the investment needs of members
through its affiliated finance and real estate corpor-
ations.

4. Continuing the practices of giving extended credit
on the opening inventory, taking the primary lease
and subleasing, guaranteeing loan in part or in full,
and purchasing site and reselling to member retailer.

 

5Food Business, June, 1961, p. 29.

 

136
In order to be competitive within his trading area, the
retailer must be able to offer consumers all the facilities
that other retailers offer. If additional space is needed to
be competitive, he must either build a new or remodel an
existing store. Once again, the voluntary groups are respond-
ing to the needs of the times, as more and more voluntary

wholesalers are solving the financial problem.

Accounting Service

The whole concept of voluntary group operation is based
upon the benefits which can be obtained by the wholesalers
and retailers working closely together in all phases of their
activities. Today, the retailing of food has become more of
a science, and it is increasingly evident that the challenge
of major competition has greatly accelerated the tempo of
independent food retailing.

The voluntary wholesaler has come to realize that he
is only as strong as his affiliated retailers, and that his
success is dependent upon that of his retailer accounts.
Voluntary wholesalers almost without exception have found it
necessary to initiate programs to give them accurate inform-
ation to be used as a guide in assisting and developing present
and future members, and the possibility of some affiliated
members going into a second, third, or fourth store.6

These programs were initiated and developed by the

H

wholesaler through the formation of accounting services."

 

6Carl Vernon, ”How Can Retail Accounting Help the Whole—
saler?”, Wholesale Grocer News, September, 1957, p. 31.

 

137
Its prime objective is to strengthen the retailers' operations
from both a volume and profit point of view, and to encourage
the retailer to conserve his profit in a manner which would
make it available for further expansion.

The introduction of an accounting service by the whole-
saler calls upon the retailer to reveal the most intimate
financial and operational details of his business. Through
the establishment of retail accounting services, the retailer
has relinquished a major part of his traditional freedom, and
the wholesaler in turn has assumed a greater responsibility
for the welfare of his customer.

Currently, accounting aids and services for retailers
are an established part of the success of voluntary groups.

A survey by Food Business Magazine shows that for the year
1959, 66 per cent of all voluntary wholesalers made available
an accounting service to their members. Under present com—
petitive conditions, the business pulse of a retail establish-
ment has to be checked from month to month, or at a minimum,
from quarter to quarter. This is necessary to discover which
operating practices and policies and which departments require
improvement and correction for better profits.7

An effective accounting service provides the wholesaler
with the equipment necessary to adjust any given store to a

profitable operation. This service, in the hands of a well

7U. S. Department of Agriculture, "How Some Wholesale
Grocers Build Better Retailers,” Marketing Research Report,
NO. 12 (May, 1952), p. 23.

138

qualified wholesaler representative in the capacity of a

sales service man, a division manager, or a retail accounting

manager,

1.

enables the wholesaler to be instrumental in:

Creating a closer working relationship between-the
wholesaler and retailer.

Developing stronger retail members.

Developing retail members capable of operating
additional stores.

Reducing credit losses.

Showing retail members how to competently inter-
pret figures and advise and assist in retailer
problems.

Showing retail members how to conserve profits

8

for future expansion.

Voluntary wholesalers and their representatives should

have the knowledge and experience to intelligently discuss

operating figures with their retail merchants and take what-

ever corrective measures are necessary. He should have knowl-

edge in the following areas:

1.

He should know the proper Operating expense for

the retailer's store and in the various departments.
He should know the gross profit which should be
realized in a well Operated store, and by depart-

ments.

Ibid.

139
3. He should know the proportion of sales which should
be done in each department.
4. He should know the proper turnover the retail store
should have on their inventory.9
An accounting service should be flexible to be available
to all affiliated retailers, regardless of size and volume of
sales, and should consist basically of the following:
1. Sales by the day and week by departments, the
gross profit, and expenses in each of the depart-
ments.
2. Profit and loss statement.
Complete balance sheet.
Payroll tax service.

Sales tax service.

Income tax service.

Nmmtw

Train retailers in the use of the accounting
forms.

8. Consolidate the statistical information received
from the different stores.

9. Set up figures for standards of performance.

10. Check individual store performances against
standards of performance and discuss with
retailers.

11. Advise retailers as to their operations, credit
and ca ital needs, surplus and possible expan-
sion.

9Carl Vernon, Treasurer, The Fleming Co., ”How Can
Retail Help the Wholesaler?," Wholesale Grocer News, Sept-

ember, 1957, p. 31.

 

lOIbid., p. 32.

140

Super Valu Stores, Inc., one of the largest voluntary
wholesalers in the United States, adopted the following retail
accounting procedure when a retailer joints their voluntary
group or starts a new business:

The Super Valu auditor sets up the original balance
sheet, carefully listing all the assets including each piece
of equipment, inventory of merchandise, etc., and the liabili-
ties and thereby establishes the starting point on which to
base figures for current operation. A simple reporting system
is established and fully explained to a member of the store‘s
personnel. The reports are prepared daily and recapped for
the week. This information is forwarded to the central de-
partment where all the book work is done.

At inventory time, the material prepared by the store
personnel is sent to the central department for figuring and
at this time a complete balance sheet and operating statement
is prepared based on actual assets. It is recommended that
inventories be taken at least once every three months.

These operating statements enable the field represen-
tatives to make a complete analysis of the store's operation.
He checks gross profits and expense ratios by departments.

He will devote special attention to any department in the
store that does not show proper profits or shows too high a
cost of operation.

Between inventories, estimated operating figures are

supplied each four weeks. From the daily reports the actual

141
sales are computed, gross profit is estimated on the histor-
ical profit shown by the store, and the detailed expense
accounts are computed, producing a theoretical profit and
loss statement. These interim statements are corrected
quoarterly or at any time a physical inventory is taken.

Periodically, comparative operating figures are given
to each subscriber showing how his figures compare with the
figures of stores of similar size operating under comparable
conditions. All of the confidential material in connection
with the retail accounting service is identified by store
number only.12

H. O. Wooten Grocer Company of Abilene, Texas, is a
voluntary wholesaler and sponsors a Red and White voluntary

group. This voluntary wholesaler offers a complete accounting

service to their retailer members. The Voluntary and Cooper-

 

ative Groups Magazine of March, 1959 published an article on

 

their accounting service, describing it fully and with ac-
companying forms. Seven forms are reproduced in the figures
that follow.

The wholesaler's role in conducting an accounting
service is particularly fruitful. It opens up the opportunity

for an evaluation of the retailer's operating practices by

 

11"How to Step Forward Through Your Affiliation with
Super Valu Stores, Inc.," (company publication, Super Valu
Stores, Minneapolis, Minnesota), p. 21.

12lbid.

F183. 3.

Accounting Service Agreement Between

H. O. Wooten Grocer Co., Abilene,
Texas, and Affiliated Retailer.

 

 

Accounting Service Agreement

THIS AGREEMENT entered into between RETAIL AC-
COUNTING DIVISION, H. O. WOOTEN GROCER
COMPANY, and undersigned Independent Retailer, in con-
sideration of 81.00 and other good and valuable consider-
ation, WITNESSETH:

WHEREAS the Retailer desires to avail himself of Retail

Accounting Service, it is mutually agreed as follows:

RETAIL ACCOUNTING SERVICE WILL:

1. Provide the Retailer with a Balance Sheet and Statement
of Income and Expenses upon delivery to Retail Account-
ing Division of proper inventory and cut-off. Quarterly
statement and inventories in the regular fee. Any addi-
tional statement prepared shall be done so upon request
by the Retailer and at additional cost.

2. Prepare federal and state quarterly payroll tax returns.

3. Reconcile bank account each month.

4. Figure all quarterly inventories when properly submitted.

5. Maintain a fixture and equipment inventory and neces-
sary depreciation schedules.

6. Prepare all tax reports. with the exception of Federal
Income Tax reports.

7. Provide special and/or extra accounting service when
requested or required by the Retailer, on a cost basis.

THE RETAILER WILL: .

1. Maintain his accounting records in accordance with the
method and forms as supplied by or approved by the
Retail Accounting Division.

2. Pre are his forms and reports properly and send them
to ketail Accounting Division promptly each and every
wee . .

3. At time of each inventory taken, send to Retail Account-
ing Division proper'l‘y prepared cut-ofl' report, bank state-
ment through cut-o , and any reports that may be due at
that time.

4. Where special and/or extra accounting service is re-
quired. such service shall be paid for on a cost basis in
excess of the normal period accounting fee.

5. Not withhold any information, figures or details which
should be included in current statement being prepared.

6. Pay a fee for Retail Accounting Service as outlined in
fee schedule attached. The fee is based on total store
sales volume and is billed every four weeks.

7. Understand that we assume no responsibility for the
accuracy of the figures furnished to us by the Retailer.

This agreement shall continue in full force and efl'ect until

cancelled by either party upon thirty days' notice in writing.

without further liability to either party.

Dated at .............................. this ........ day of ............. . ..... 19 .. .

RETAIL ACCOUNTING DIVISION

 

 

142

143

Fig. 4. Fees Charged by H. O. Wooten Grocer
Co., Abilene, Texas, August 1, 1957.

The accounting service is considered by practically
all wholesalers as a special service, requiring a special
accounting service agreement which specifies the services
to be performed by the wholesaler and retailer, and the

fees to be charged to the retailer.

 

We have found that the work involved on the in-
dividual account varies according to the volume of busi-
ness. Consequently. our charges are based on the volume
of sales. In the case of multiple store operations. each
location is considered an individual account.

The fees per period of 1 week are as follows:

Weekly Weekly

Rates Rates
Sales up to 8 5,000—310.00 $15,001 to 825.000—815.00
35,001 to 815,000—81250 325.001 up 417.50

The member will be billed at cost for the Journal.
Ledger. Daily Store Report Binders and Pads. Payroll
Book and other supplies used in keeping his records.

Special accounting service. when requested. requiring
accountants’ service at the store will be supplied” on a
cost basis to be agreed upon at that time.

The regular fee will cover preparation of all payroll
tax reports presently required, and the balancing of store
bank account each month. We will have the Federal Tax
Reports prepared if desired. The extra fee for preparing
the Income Tax Reports will vary according to the
amount of work involved.

Interim meat or produce inventories — 82.50 each.

Full store inventories and reports other than regular
quarterly reports will be charged on a cost basis. Our
fees are established at what is considered a minimum
figure in order to serve our customers. The fees may be
raised or lowered depending on cost involved.

 

 

 

144

Sample of Information Required for
Original Entry, by H. O. Wooten
Grocer Co., Abilene, Texas.

 

1. INVENTORY
A complete and accurate grocery, produce and meat
inventory must be taken in accordance with the in-
structions furnished you. This is of utmost import-
ance. A Wooten fieldman will assist you in taking
your initial inventory.
2. LIST OF UNPAID BILLS
It is important that a complete and accurate list
of unpaid merchandise and expense bills be made in
accordance with the instructions furnished you.
. 3. LIST OF ASSETS AND LIABILITIES
We need from the resent books a trial balance of
assets and liabilities. he assets must equal the lie-
bilities. EXAIPLE:

Assets
Cash in Bank .......... -. ..... . ....................... 01,156.26
Change Fund .. .... 200.00
Customer Accounts ................................ .. 3,642.25
Store Fixtures (Cost)
(Bought 4-12-46) 1.700.”

 

: Allowance for Depreciation ...... -- 1,000.00
1050 Ford Panel Truck (Cost)
(Bought 6-15-50) ................................. 1,066.00
Less: Allowance for Depreciation .. --1,100.00
Prepaid Insurance (Expires 12-1-57) .. . 50.00

56,716.53

Liabilities
Accounts Payable ................................. 51,347.50
Brown Insurance Agency ..................... 21.75
Due on Panel Truck 750.00

Note Payable (Due withiifiiib" 2,000.00
Notes Payable (Due after 1 year) 1,500.00
Profits Retained in the Business .......... 1,091.20

“.7 16.53

Information in regard to how depreciation is taken
and method of paying any notes should be furnished

us.
4. BANK ACCOUNT
Your bank account should be balanced and the
correct balance furnished us as of the starting date.
If we are to reconcile your bank account, please mail
it in promptly at the end of each month.
5. PAYROLL
Please furnish us with a list, starting at January
1st, to the beginning of the new accounting service,
showing:
Gross
Home Salary 8. 8. Taxes W. H. Taxes
Name Address Paid Deducted Deducted

We also need to receive a listing she the
amount of S. S. and W. H. taxes deducted paid
to the Government from January 1st to date, by
payment date, showing amount paid.

6. PAYROLL REPORTS

We cannot prepare yroll reports for the time
prior to your starting te. Please file these for the

prior to the starting date as in the past.

In the tutors, please send us any blank tax forms
reodved hmediately, except income tax reports, un-
i. we are to have then prepared.

 

 

 

145

Fig. 6. Weekly Store Report for Retailers by H. O. Wooten
Abilene, Texas.

Grocer Co.,

 

 

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Fig. 7.

Check Register Forms for Retailers
Grocer Co.,

Abilene, Texas.

146

by H. O, Wooten

 

 

 

CHICK IDOUEO

DAY! PAVAILI ro AMOUNT

TOTALS

Rents. Account». Dwtsoon—H O WOO‘I'IN GROCERY (:0

CHECK REGISTER

WEEK END! ‘-

 

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ACCOUNT NUHIEP

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nausea area Yuma rule on"? can“ auo "IXLV 7° aeeuas
accuaacv m escoanmo sue-an nus lancer eaonmv,

WAG“ MISCELLANEOUS

I“? PRODUCE A-OUNT [DURATION

 

 

Fig. 8.

Fig. 9.

Form for Bills Unpaid--Quarterly, Used by
H. O. Wooten Grocer Co., Abilene, Texas.

 

 

BILLS UNPAID — QUARTERLY

ACCOUNT NO. ............ DATE- ..19.-....
List all unpaid bills or liabilities as of above mdate for
which merchandise has been received and was included
in the inventory. Aan ills or liabilities for expense m
to inventory which ve not been paid should be
in the lower section. Any miscellaneous accounts "uId
able, such as fixtures, delivery equipment, etc., sho
belistedatthebottomoftheexpensesection.

MERCHANDISE

 

EXPENSE

 

 

 

Form for Returning Inventory to Retailer by
H. O. Wooten Grocer Co., Abilene, Texas.

 

 

H. O. WOOTEN GROCER COIPANY
RETAIL ACCOUNTING DIVISION
ABILENE, TEXAS
Dear Sir:
We are returning your invento taken on .
19 . The inventory has been gured and checked with
the following results:
Groceries: (Retail)
Less: -....°0
Total Groceries
Meats: (Cost)
Meats: (Retail)
Less: %
Produce. (Cost)-
Produce: (Retail)
Less: ...-%
Total Inventory

If we do not hear from you within three days we will
assume the inventory is correct and use these figuresin
the closing of your books.

Yours very truly,
H. O WOOTEN GROCER COMPANY

Retail Accountant

 

 

147

148

Fig. 10. Actual Profit and Loss Statement Prepared by the

Groce-Wearden Retail Accounting Department for
One of Its Rainbow Super Markets.

 

nom- esd noes sum no. 9!}..- ..... .h...19.‘° _ °¢§e....!»..1960.w
sun-unpm .......... Danna” u. ......... . ,4}?- ......
UUJI Churn. “3

GROSS

EXPENSES

 

Taxes, Others

OTHER

 

1A9
comparing them with his past operations and with those of
other successful operators. The information obtained will
permit the wholesaler to pinpoint the areas where the most
progress has been made. It will also point out the less
progressive stores with the object of building them into
prosperous operations.

The information obtained through an accounting service
is of inestimable value to the supervisors and field men.
They are able to get much closer to their retailers and guide
them. The supervisor knows the potential of his customers
and how the retailer manages his business.

By analyzing weekly reports received from his retailers,
the wholesaler can ascertain the amount of outside purchasing
being made by the retailer. He can further determine whether
these outside purchases were a necessity or they were made
because of the weakness inherent in most of us to give in
when persuaded to make a purchase.

Many wholesalers are involved in financing their re—
tailers, either through real estate mortgages, fixture mort—
gages, or inventory financing, and realize the importance of
knowing the financial standing and operational ability of
the merchant to whom they are extending financial assistance.

The successful establishment and functioning of
accounting services requires the mutual understanding and
cooperation that has developed between wholesalers and re—

tailers through the voluntary group movement. Four decades

 

 

150
have passed since the independent wholesalers and retailers
Joined together to combat the competition of the chain
stores of the 1920's. This movement has culminated in the

present strong and successful voluntary group operation.

Merchandising, Advertising, and Promotions

During the first 30 or #0 years of the Twentieth Century
wholesalers purchased a year's quantity or a season‘s supply
of a great majority of their inventory. They stored these
large quantities in their warhouses for long peaiods. The
stock usually appreciated in value prior to the next season's
merchandise becoming available and would be sold at the high~
est replacement margins.

Changes and developments in mass distribution have
altered the nature of the wholesaler's functions. It has
become increasingly difficult for the grocery wholesaler to
earn a profit merely by purchasing and storing large quanti-
ties of goods for long periods and selling in small lots and
high margins. Wholesalers have adapted themselves to changes
in distribution and have concerned themselves more and more
with the merchandising of food through the retail channel of
distribution to the consumer. Mass merchandising created
the necessity on the part of the wholesaler of moving larger
volumes of goods off the retailer's shelves and has led him
into the retail field. His efforts to improve the retailer's
competitive position and help him secure a satisfactory dollar
gross margin has brought him to the necessary functions of

mass merchandising.

151

The functioning of the merchandising department of a
voluntary group includes the selection and purchasing of all
categories of products distributed by the company and the
advertising and promotion to move this merchandise from the
retail outlets.

The merchandise department performs the additional
service of keeping the retailer informed and abreast of con-
ditions. The retailer wants to know about product markets
in general, he wants to know what prices his principal com—
petitors are charging, he wants suggested retail prices, and
information about scheduled promotions. Practically all
voluntary wholesalers provide this information regularly
to their retailer customers. They operate under a "sales
and service plan agreement," under which plan the cost of
merchandising and supervision is included in a single weekly
minimum fee to the retailer.

TABLE 38. Merchandising Services Rendered by
Voluntaries in 1959.a

 

 

 

Services Per Cent
Merchandising bulletin 100
Advertising programs 99
Store level merchandising aids 95

 

aFood Business, June, 1961, p. 29.

 

The necessity for the independent retailer to meet

chain competition brought him into buying groups to obtain

 

152
lower costs and price concessions. Later, the independent
merchant found that buying of itself was not enough, since
the merchandise must be sold. Sales promotion plus adver-
tising, gradually forced the use of a single group name for
all retailers in a voluntary group.

A complete advertising program is essential today to
sell the voluntary association, the retail stores and it
products to the consuming public. The high cost of adver-
tising makes it prohibitive for most retailers to individually
spend the amOunt necessary to do a productive job. Voluntar-
ies today can buy as much space and advertising time as
competition demands, and prorate the cost among several
hundred stores on a percentage basis that will be in line
with industry averages. Full pages, double pages, and even
sections of eight to ten pages have been bought to promote
sales. Handbills, direct mail, radio, television, and store
posters are used to augment newspaper advertising.

All progressive voluntary wholesalers provide a complete
advertising program. Experienced people plan, create and
execute merchandising, advertising and promotional programs
that are equal, and often superior, to those maintained by
Inany corporate chain organizations. A complete advertising
{Drogram will include the following services: I

1. Weekly advertising programs for newspapers,

fliers, etc., including composing and
designing.

2. Weekly window poster service.

9
L;__

i'

 

 

Q.

153

3. Special store advertising and display material
for seasonal and major sales events.

4. Contracts for advertising with newspapers,
printers, radio and television stations for
affiliated members, and securing the lowest
rates and best spots for them.

5. Composing and designing of special sale fliers,
newspaper advertisements, window posters, and
inside store banners for opening sales, anni-
versary sales, or any special event.

6. Preparing and distributing news releases to the
local newspapers and radio stations for special
occasions, thereby giving the retailer an im-
portant ”plus” in the promotion of his store.

 

7. Distributing manufacturers' point of sale
material.

Accurate records of retailers' purchases are kept by
the voluntary wholesaler on a substantial number of manu-
facturer's allowances, rebates, and advertising contracts
which accrue during the year. Checks covering these allow-
ances are presented periodically to each affiliated retailer
with an itemized list based upon each retailer‘s purchases.
Included in these refunds are rebates which some manufacturers
will not permit in the order form and also the "swell allow-
ance" offered by all canned goods suppliers. Swell allow—
ances range from one-quarter to one-half of one per cent
and are allowances given by manufacturers and packers on cus—
tomers purchases in lieu of returning, within a specified
period, unsalable goods caused by imperfect packing.

Where proof of advertising performance is required in
the contract, retailers are asked to submit the necessary

tear—sheets or other required proof of performance to receive

154
the advertising rebates. A very substantial amount of money
is distributed by voluntary wholesalers each year through
rebate checks which in most cases would not have been obtained
by an unaffiliated independent retailer.

Effective merchandising and promotional programs, sup-
ported by productive advertising, have made a major mantri-
bution to the progress and expansion of the voluntary groups.
They have established the independent retailer as an aggres—

sive and competitive merchant in the mind of the consumer.

Store Engineering

The evolution of voluntary groups is closely tied in
with store engineering. The rise of the chain stores in the
1920's created the need for independent merchants to duplicate
chain store methods. Emphasis was placed on the two most im-
portant problems; volume buying to obtain low prices, and the
physical appearance and layout of the stores. As early as
the 1920's, voluntary wholesalers were urging group retailers
to concentrate purchases through their voluntary wholesaler
and to remodel their stores under the direction of the whole-
saler's engineers.

The widespread acceptance of the chain store by the
consumer motivated aggressive independent merchants to
imitate the physical uniformity of the chains. Obsolete
fixtures of that era were replaced, layouts of the chains
were duplicated, fronts were painted a group color, and signs

with the group name were displayed by each retailer. In this

 

155
manner, voluntary groups copied the physical appearance of
chain stores.

The advent of the super market and its constant modern-
ization, created a need for expert assistant in the field of
store engineering. While store engineering had existed to
some degree since 1920 in the wholesale grocery field, the
duties were performed to a limited degree.

Store engineering within group operations has been
developed to an extremely high point. Voluntary wholesalers
are fully equipped to render complete architectural service
in modernization or new construction. Also, to furnish all
store fixtures, to supervise installation up to and including
the day of ”Gala Grand Opening."

Store modernization programs within a group are usually
launched with a store engineering clinic. This has a strong
influence in making retailers conscious of outmoded store
fronts and interior layouts. It is a method of conveying to
the retailer the importance of converting their stores into
gleaming, modern super markets. Voluntary wholesalers are
continually concentrating on encouraging their retailers to
be competitive in their physical appearance. As a result of
these efforts, many group retailers have attained super market
status through a gradual advancement by remodeling from a
small store to a superette, and then to a super market.

Based upon Table 39, all voluntary wholesalers, offer

engineering services to their group retailers, and are manned

156

TABLE 39. Engineering Services Rendered by
Voluntary Wholesalers in 1959.a

 

 

 

Services Per Cent
Store planning and development 100
Equipment procurement 85

 

 

aFood Business, June, 1961, p. 29.

 

by thoroughly trained personnel experienced in all phases of
his department. They provide assistance in all areas of
store engineering, including the following:

1. Assist with finding locations.

2. Consult with architects and contractors as to
the construction and specifications.

3. Complete store layouts with necessary blue-
prints which include fixture and merchandise
plans, electrical plans, plumbing plans, air
conditioning and refrigeration plans.

4. Fixture estimates for new as well as remodeled
stores.

5. Assist in obtaining building and remodeling
costs.

The expense of maintaining an engineering service for
group members is covered by some Wholesalers' "supervision
and merchandising fee.” Some wholesalers have attempted to
offset the expenses accrued to them by the increased volume
from the customer; but more often the wholesaler charges for
engineering services on a flat or graduated basis on the sum
involved.

Voluntary wholesalers recognize that equipment procure-

Inent is an essential service to their retailers, and have been

157
responsible for substantial savings for their merchants.
Among the types of equipment are refrigerated cases, checkouts,
shelving, and shopping carts.

Store engineering, through new_construction and remodel-
ing, helps to increase retail sales, which, in turn, increases
the wholesaler's volume. The service can be performed more
effectively and economically by the wholesaler than by a
private firm, as the wholesaler has a better knowledge of the
specific food retailer‘s needs and potentialities. It also
gives the wholesaler an opportunity to gain the loyalty and
accelerate the group integration of the retailer who is
receiving the assistance and benefits in modernizing or re-
locating his store.

For the year 1960, the chains built about 15 per cent
more new stores than the independents. There has been a
steady increase in the number of independent stores that have

remodeled and in the per store remodeling expenditures.

TABLE Mo. New Stores Built and Remodeled in 1960.8

 

 

New Stores Built in 1960 Independent Chains
Super markets BOO lflOO
Superettes, Bantams 600 200

Total lEOO 1 OO

Ratio of New Super Markets to

Existing Super Markets in I950
Chains . . . . . . 1 new to 11 existing super markets
Independents . . . . 1 new to 19 existing super markets

 

 

Independent Store Remodeling 1960

54% of stores remodeled—-$l7l,OO0,000 estimated
investment for remodeling

 

aL"The New Distributor and the New Independent, Their
Progress and Opportunityf'Progressive Grocer, March lfl, 1961.

 

158

Most modern voluntary wholesalers offer their retailers
a store engineering service which includes every step from
the discussion of the basic situation, to the arrangement of
the stock on the shelves after the construction work has
been completed, and beyond the ”grand opening" into mainten—
ance guidance. This type and quality of service has been a
vital contribution to the ability of the group retailer to

successfully Operate as a modern super market retailer.

Supervisory Personnel--The Field Man

 

The integration of wholesaler-retailer functions in
voluntary groups and the proper and effective implementation
thereof has been effected by the use of supervisors or field
men. The job of the field man is to foster cooperative
relations between the affiliated retailers in his territory
and his company, and to assist the member stores to operate
efficiently and to merchandise effectively and profitably.
To accomplish these objectives the field man performs the
following duties:

1. Relations with Retailers. -

a. Develop good working relations with retailers
and foster their loyalty and confidence in
the company.

b. Assist retailers in the development of improved
merchandise methods so as to improve volume,
profits and store appearance.

0. Offer constructive criticism to retailers in
order to initiate more efficient store opera-

tion and to assist them in developing sound
store operating practices.

 

159

d. Assist retailers in locating competent help
and in training store personnel.

e. Assist members in analyzing operating state-
ments so that corrective action may be taken.

f. Assist retailers in methods of setting up dis-
plays and allocating space in the store.

Implementing Merchandising Program.

a. Insure that retailers receive display
materials to support merchandising program.

b. Assist retailers in special and regular sales,
such as anniversaries, dollar days, bonus days,
etc.

 

c. Check retail prices to see if retailers are
maintaining advertised prices.

d. Develop group advertising and merchandising
promotions on a consistent basis.

Assist Company by:
a. Reporting prospective new members.
b. Locating potential new store locations.

c. Reporting the need for store engineering
services.

Keeping Company Informed of Local Conditions and
Problems.

a. Report competitors' activities on locations,
promotions, and pricing.

b. Report stores needing specialized assistance.

c. Visit competitive stores to learn new techni-
ques that can be applied in affiliated stores.

d. Prepare reports required by company or requested
by sales manager.

Working Relationships with Other Departments of
the Company.

a. Work with both produce and meat supervisors to
improve store operations in these departments
as directed by the company.

160

b. Assist the store engineer in providing ade-
quate services to the affiliated stores. 3

The field man has a responsibility today that justifies
describing him as a consultant for the retailer and a coordi-

nator of the wholesale-retail functions.

Store Location and Development

The selection and evaluation of store locations is a
fundamental requirement for dynamic growth and success. The
independent wholesaler and retailer has graduated from the
"Ma and Pa Store Age" to the Superette and Super Market, and
store location and development is an essential service needed
by the independent retailer.

To assist their present retailer members, and to enlarge
retailer membership, voluntary wholesalers have become in;
volved in retail store development. This has called for a
search and site location analysis for specific sites for its
members and prospective members. Although a limited number of
voluntary wholesalers offer complete store location and devel—
opment services to its retailers, 61 per cent found sites for

new stores for its retailers, according to a recent survey.14

13U. S. Department of Agriculture, "The Use of Fieldmen
tWWholesale Food Distributors and Affiliated Retailers,"
Maaiketing Research Report No. 266, September, 1958.

14
"Facts in Grocery Distribution," The Progressive
Mar, 1959.

 

161
Personnel Training and Development

Training programs assisted in making the retail merchant
a more intelligent operator, and hence a more profitable cus—
tomer. Wholesalers found that when they embarked on training
programs they tied their retailers more closely to them.

This cooperation resulted in mutual benefits and was another
contribution to the strengthening and well-being of voluntary
groups.

In the early days of the voluntary groups, however,
wholesalensencountered many difficulties in establishing a
department to assit their retailers in personnel and training
problems. The voluntary wholesaler, by the nature and organ~
ization of his group, cannot select the personnel of the
retailer's employees, and must assit by educating the
retailer. During the early period, many of the retailers
were older men who may have been in business for many years
and were generally convinced that they knew everything about
their business. Constant education on the part of the whole—
salers emphasized the importance of training retailers and
their employees on new and better ways to operate their
business through personnel training and development. This
was accomplished through group meetings, bulletins, and visits
by supervisors.

The first successful training method used by the wholev
saler was that of having group meetings at some central

location where retailers could attend in a body. It was

 

162
found that a small gathering was more effective since it af-
forded each retailer a better opportunity to participate in
the discussions.

The programs provide techniques for personnel selection
and cover some of the following:
Recruiting
Interview techniques
Checkout training
Price marking

Cash register operation
Carryouts

G\UTJ‘-‘UOI\Jl-—’

Employee courtesy is constantly stressed, as it is a
major key to successful retail operations. Carefully selected
employees create customer goodwill and profitable operations,

Techniques for recruiting, indoctrination, interviewing,
hiring, and general personnel administration are now supplied
by a majority of the voluntary wholesalers through their per—
sonnel department, and are able to provide counsel to retailers
on problems which have been historically handled loosely by
many retail operators. Many retailers now realize the impor-
tance of selecting qualified personnel. Supervisors employed
by voluntary wholesalers have received special training and
are qualified to counsel and assist group retailers in per—
sonnel matters. They have been able to show the retailer
that poor selection of personnel will increase his costs in
several ways; a large turn-over of employees increases costs
due to inefficiency while learning and loss of customer good

will because of constant turn-over.

163
The personnel department of the wholesaler has been

able to assit and encourage retailers, and as a result have
increased their labor productivity, store good will, better
store performance, and improved personnel relationships. This
guidance has encouraged retailers with ability and capital
to expand to large stores, or additional stores, or improved
locations. 61 per cent of the voluntary wholesalers for the
year 1959 offered a formal training program to the groups,

sand 81 per cent made available to them store level management

15

 

aaids.

{Derishables

Many voluntary wholesalers have established complete
c>ne-stop warehouses that supply their retailer customers with
.just about total needs, including the complete line of major
13erishables. Some voluntaries have been obliged to gradually
eadd perishables to their lines, due to the high cost of
eequipment and added warehouse space required for the new lines.
'The goal of all aggressive voluntary wholesalers is to supply
‘their affiliated retailers with as close to 100 per cent of
‘the products that they use.

The following table shows the percentage increase in
tdje number of voluntary wholesalers handling perishable lines
IDIroken down into the various lines from 1939 to 1959.

Wholesaler sponsored perishable programs now represent

51 :substantial portion of the voluntary wholesaler's volume.

\

F‘ 15"Cooperatives and Voluntaries--Sales Power Personified,"
-EB£EE§ Business Staff Report, June, 1961, p. 29.

164

TABLE 41. Lines Handled by Voluntary Wholesalers
1939 to 1959-3

 

 

 

Lines 1939 1949 1954 1959
Fresh Meats 3% 9% 18% 39%
Fresh Produce 26 4O 43 43
Dairy Products 15 21 34 50
Fresh Baked Goods O O l 10
Frozen Foods 10 21 5O 67
Smoked Meats 10 17 26 4O

 

a"Cooperatives and Voluntaries--Sa1es Power Personified,"
ITOOd Business Staff Report, June, 1961, p. 29.

 

IX thorough knowledge of the products and their operation are
easeential for efficient results and profits. A combination
c>f the following five elements usually will insure success:16
1. Trained and competent specialists in all phases
of merchandising and display. 69 per cent of
all voluntary wholesalers in 1959 provided
specialist supervision for perishables.
2. Experienced buying service.
3. Effective merchandising programs.

4. On the job training classes, covering quality
control, pricing, display, packaging, etc.

5. Constant contact between supervisors and de-
partment heads.

Successful perishable operations are profitable for both
‘ttie wholesaler and retailer. They create greater sales volume
Eirid profits for both. Headquarters operation permits the
I°€3tailer to do business with fewer suppliers, thus saving

tziime, and further results in larger retailer‘s orders. This

\

lerid.

 

165
is an important consideration, since order size is directly
related to both the cost of the retailer's merchandise and
the profitableness of the account to his wholesaler supplier.
Effective perishable programs is one more example of mutual
benefits accruing to voluntary groups by practicing the con-
cept of voluntary cooperation between wholesalers and

retailers.

The History of Private and National Brands

Food retailing in this country began as a private label
business. As recently as the early years of this century
food merchants bought most of their goods in bulk. They
measured, weighed, and packaged them under their own private
label, or did not bother with any label at all. Very little
merchandise bore the manufacturer's label.

During the early years of the century a demand developed
for reliable merchandise. This reliability began to assume
the form of packaged, brand-named products that were welcomed
by the consumer and retailer alike. This early period marked
the decline of the earliest forms of private brands and the
birth of national brands in the food business.

Food retailing during this period was local, friendly,
and not too competitive, for each store served its own
neighborhood. Under these circumstances, and with a growing
number of branded items arriving in the stores, there was

little demand or need for private brands.l7

 

17Robert W. Mueller, Editor, "Where We Stand Today in
Private Brand Merchandising," The Progressive Grocer, p. l.

 

166

The arrival of the chain stores in the 1920's brought
the development of selling food products for cash at low
prices, and the elimination of credit and delivery. They
emphasize and accentuate low prices; it was the policy of the
chains to sell many national brands at cost or below cost as
"loss leaders” and make up their losses through added volume
and on their own highly profitable private brands.

To combat this kind of competition, wholesalers and
retailers in this era developed buying pools, which resulted
in substantial reductions in the delivered cost of merchan~
dise. The beginning of voluntary groups was based upon this
idea of buying groups of retailers concentrating their pur—
chases through one wholesaler to obtain quantity discount
concessions. The voluntaries where then obliged to establish
and develop their own private brands to meet competition.
These private brands had to be promoted in order to obtain
sufficient volume so they could be sold profitably. Group
purchasing and the sponsoring of private brands lead to
centralized merchandising and was the basis for the establish-
ment of voluntary groups.

A decade of rapid expansion by the chain stores was
followed by a decade of depression in our economy. The
nation‘s chain stores and the newly established super markets
were quick to evaluate the needs and mood of the public and

moved to cut costs and prices. This period, from 1929 to

1939, was a time of abundance of goods, when food produts

 

167
were in oversupply and distress quantities were available
for private brands at low prices.18 Price appeal was the
key during the depression years and where savings could not
be offered in national brands, private brands were developed
and promoted to meet the price requirements of the consumer.19

The depression decade ended in 1941. Money became
plentiful, while merchandise especially foods, became scarce.
The situation was now completely reversed and the growth in
private brands was halted. The lower priced private brands
were no longer good enough for many families. During the
1929 to 1939 decade, which saw a decided growth in private
brands due to the depression, these private brands had not
developed a brand image of a particular quality or attraction
through advertising and promotion, but in the main was merchan-
dised on the basis of economy. The consumer now wanted and
could afford the best and the national brand then was generally
considered the highest standard of quality, and privatelabel
had not as yet attained this prestige. National brands
prospered and private brands lost ground during this period
because food surpluses that went into private label at low
prices during the 1930's were no longer available, and cus-
tomers indicated they preferred the national brands.20 -

The post-war period, from the years 1946 to 1955, was a

period of readjustment from war shortages, and expansion into

 

lBIbid., p. 1. 19Ibid.

_—

 

901b1d., p, 2,

 

168
new stores, bigger stores, new lines, and refinements in
methods of operation. There was so much to be done in meeting
the big, pent-up demands of the consumer, that most retailers
found little time or had any inclination to concern them-
selves with private brands.

But food retailing caught up with its expansion goals
and by 1955 and 1956 there ceased to be a shortage of super
markets. New super markets that opened after 1956 could no
longer expect to draw appreciable trade from smaller stores.
They now had to pull business either from increased pdpulation
or from existing super markets, thus creating the first truly
competitive conditions in food retailing since 1939.

Competition brought forth such devices as give-a-ways
and trading stamps and to maintain profits many retailers
and their wholesaler suppliers began to put a greater effort
into merchandising private brands. .

This greater effort is seen in an increase in the
number of private label items, in greater displays, more
facings, and generally preferential treatment of private
labels in shelf position, advertising, merchandising, and
pricing, with a view to maintaining profits and a competitive

position.21

The Philosophy of Private and National Brands
Voluntary wholesalers and retailers handle both private

and national brands and the degree to which they promote each

 

2libid.

 

169
is based upon many factors. The type of consumers that make
up the trading area, the length of time the wholesaler has
been in business within that area, the brand policy that
competition follows, and the strength of national brands in
an area, all influence the brand policy followed by a partic-
ular voluntary group.

The use of private brands by voluntary groups bring
important advantages in competitive strategy. Because of
"loss leader” merchandising of national brands by chains, all
segments of food retailing sell some national brands with
deep price cuts. Because of this practice, independent
retailers could not depend upon national brand goods only to
maintain their profit margins, and compensated for lost
margins in the same manner that their competition did, with
their own private brands. To be successful, price competition
must be met, and, therefore, affiliated retailers have resorted
to the merchandising of some nationally branded items as
"loss leaders."

By meeting this type of competition, they can combat
any impression that the chains sell for less, bring customers
inot the store, and recoup lost margins by emphasizing private
brands. With competition forcing the trend toward lower gross
Inargins per unit of goods on advertised brands, affiliated
groups have increasingly turned toward the private brand goods
as a means of obtaining sufficient dollar gross margins. In

Inodern grocery merchandising, both the private and national

 

170
brands must be stocked by the independent retailer. Just as
low profit items must be balanced with products carrying a
more generous profit, so must the private and advertised
brands be in balance. This proper balance is achieved by
maximizing sales and profits in both areas through merchan-

dising, promoting, displaying, and pricing.

Private and National Brands--Advantages of Each

While voluntary groups have generally grown bigger and

1.

stronger by promoting national brands, they realize that the
competition of chain stores in the latter's private brand
creates a type of competition that can best be met by the
establishment of the voluntary's own private brand. The com-
petition can involve any of the four following areas:

1. Competitive pricing. Private brands can generally

 

be purchased at considerably lower prices than national brands
of the same kind and quality. This allows the retailer to
sell his merchandise as low or lower than national brands and
still make a satisfactonyprofit. Private brands also permit
the retailer to compete against other private brand competi-
tors, rather than be out of line with national brands, or

be forced to meet private lable competition with national

brands, and shrink profits or loss volume.

2. High quality standards. A great many packers of

 

advertised brands pack private label brands for buying organ—

izations and voluntary groups. These private brands are

171
processed and merchandised under the same careful supervision
as the manufacturers use on their own advertised brands. The
sponsors of private brands maintain that by establishing
specifications and maintaining quality control, they are able
to guarantee the same high consistent quality as the nationally
advertised brands are known to possess. National brands have
consistently built up a reputation with the consumer for
quality merchandise at reasonable prices, and have reaped the
benefits of much impulse buying through advertising and

promoting.

3. Traffic builders. Some voluntaries and corporate

 

chains emphasize and promote private labels more than others,
while others have built a successful volume of sales by
emphasizing nationally advertised goods. There are particular
products such as coffee,which have developed larger volume of
sales on private label as against advertised brands. The ag-
gressive merchandising of carefully selected private brand

key items are traffic builders for the entire store. The
steady promotion of these items are a strong foundation on
which to build store traffic and repeat customers for all the
goods in the store.

The merchandising and promoting of national brands, in
cooperation with manufacturer‘s advertising, retail assistance
with point of sale material, retail manpower, and many other
aids, have been responsible for the continued growth of many

voluntary groups. Sponsoring national brand sales and

 

172
promotions is a well established method of developing store

traffic and sales.

4. Developing store and group image. Voluntary chain
headquarters of both the syndicated and regional groups,
assist their retailers in promoting their private label on a
national and regional scale. They follow the technique of
the corporate chains by featuring their private label with
newspapers, handbills, point-of—sale advertising, store mer~
chandising and promoting, and competitive pricing for profit.
The successful emphasis of private label is a major assist in
developing a stable and profitable image toward the particular
super market and voluntary group. In many instances, the brand
name of the top quality private label is taken from the name
of the voluntary group, and thus ties in more solidly the
image of the private brand with the image of the voluntary
group. This method of developing national and regional pres-
tige through the promoting of private label goods, contributes
greatly toward neutralizing the lack of familiarity on the
part of consumers toward a particular voluntary group or
super market, and results in a general strengthening of volun-
tary groups as a competitive factor in food retailing.

Many voluntary groups and super markets have developed
fine store images in the minds of the consumers, by catering
to a high degree to their preferences. By tying in nationally
advertised products with personal service, the independent

merchant is able to build sales and good will.

 

173

Private and National Brands-~Their Problems

The promotion of a line of controlled brand goods brings
with it a series of merchandising and operating problems. One
of the important problems is the determination of the relative
profitability of private and national brands.

In solving this problem, percentage gross margins alone
are not reliable guides. Since it is dollars gross margin
out of which expenses must be paid and profits earned, it is
the combination of both gross margin rate and sales volume
that yields dollars gross profit and determines the earning
power of a brand or department.22

Furthermore, it is the relationship between the amount
of dollar gross margin a brand earns and the amount of dollar
expense for which it is responsible, that determines that
brand‘s dollar contribution to net profit. The cost of
handling private brands is higher than that of national brands,
since private brands require more advertising, sales promotion,
and merchandising by the distributor and national brands have
these sales aids built into their products. There is a slower
turnover in some categories of private brands which will
affect its profitability.23

The key to decisions relating to private grands and

categories is to determine whether the additional dollar ex-

penses incurred in handling these goods would be larger or

 

22U. S. Department of Commerce, Effective Grocery
Wholesaling (Washington, D. C.: Government Printing Office,
October, 1941), p. 48.

 

 

23Ibid.

_——_

174
smaller than the additional dollar gross margin that can

reasonably be expected.

Private and National Brands--Maximizing Sales and Profits
There is universal acceptance of the power of facings
and positions in generating sales for particular products in
a super market. There is considerable difference of opinion
on how to use these forces to achieve maximum sales and
profits for an entire product category. It has been sug-

gested by The Progressive Grocer, as a result of experiments

 

in many stores, that the two keys for obtaining the highest
sales and profits are these:
Key No. l.--Face each item according to unit sales.

Key No. 2.--Give preferred position to biggest dollar
profit producers.

The best sellers should be given the preferred position,
on the theory that more sales are made when you make it easy
for consumers to find what they want. The emphasis on items
with the highest percentage margin is unproductive unless
accompanied with volume sales to produce favorable dollar
profits. Therefore, the most acceptable theory is—-give the
best location to the items with high unit sales and to the
items that earn the greatest number of gross dollars profit.22+

The many operators who have adopted this practice have

secured higher volume and profit when each item, whether it

 

2“Robert W. Mueller, "Where We Stand Today in Private
Brand Merchandising,” The Progressive Grocer, p. 6.

175
is private or national brand, is faced and positioned accord-

ing to merit.25

Addition and Progress of New Lines

 

The unceasing quest for greater volume and more profit
on the part of the super market industry has resulted in the
widespread establishment and development of non—food depart-
ments. This new competition has placed upon the voluntary
wholesaler the need to include in his operation non-food lines
handled by major competitors, and to provide capable and ef-
ficient merchandising and supervisory talent to successfully
compete in these new areas.

Non-foods are big business--for 1960 they accounted for
5.2 per cent of the total sales of an average super market.
The seven basic classifications of non-ffods that have gen-
erally been introduced into super markets since World War II
and the share of each of these classifications are as follows:

TABLE 42. Share of Non—Foods Sales in Super
Markets for 1960.a

 

% of Total Weekly Non— % Margin Gross Profit

 

Store Sales Food Sales on Sales on Sales
All Non-

Foods 5.2 $ 943.00 31 $292.00
H. & B. Aids 2.3 408.00 32.5 133.00
Housewares .92 158.00 33.0 52.00
Magazines .58 110.00 26.0 .28.60
Soft goods .53 99.00 31.9 32.00
Records .30 64.00 28.4 18.00
Toys .35 63.00 33.2 21.00
Stationery .23 41.00 41.0 16.80

 

 

aDonald B. Reynolds, "Special Report on Non-Foods," The
Progressive Grocer.

 

 

251bid.

176

Many voluntary wholesalers have established complete
one-stop supply depots, with the possible exception of some
categories in non-foods and bakery. They have turned their
attention to these areas, to secure added volume and profits.
By expanding their lines they are able to attain the highest
degree of group integration. The expansion of new lines by
voluntary wholesalers must be accompanied by effective mer-
chandising, services programs, and proper supervisory personnel.

There has been a steady increase in the number of volun-
tary wholesalers handling health and beauty aids and non-foods
as indicated by Table 43 for the period from 1939 to 1959.

TABLE 43. Percentage of Voluntary Wholesalers

Handling Non-Foods for Years 1939,
1949, 1954, and 1959.a

 

 

Items 1939 1949 1954 1959
Health and Beauty Aids 29 41 60 67
Non-Foods 24 34 46 64

 

 

a"Cooperatives and Voluntaries--Sales Power
Personified,” Food Business Staff Report, June,
1961, p. 29.

Conclusion of Part II

 

The ingredients necessary for the successful integration
of wholesaler and retailer relationships have been set forth
in the fourth evolutional stage of voluntary groups. The low~
cost, efficient wholesaler, the services and functions that
voluntaries perform and the high degree of cooperation required
of the wholesaler and retailer have contributed in securing for

them a substantial and profitable share of the food business.

PART THREE

THE RETAILER AND WHOLESALER

CHAPTER V
OBLIGATIONS OF THE RETAILER AND WHOLESALER

Selection of Profitable Customers

 

Early in the development of the voluntary groups,
almost any merchant was solicited for membership. The
emphasis during the 1920 to 1930 decade was on building sales
volume by increasing membership. They followed the chain
store concept by adding thousands of stores per year, and thus
tried to assemble sufficient buying power to enable them to
purchase their merchandise at prices competitive with the
chains. During this period, the voluntaries approached the
manufacturers for volume discounts, advertising allowances,
and brokerage and promotional rebates. They impressed the
manufacturers and packers with the large number of store out-
lets in their voluntary group. By this means, independent
merchants were able in many instances to purchase good
reasonably competitive with the chains.

The revolution in food retailing was brought about by
the successful introduction of one-stop, self-service super
markets. The leaders of corporate food chains decided that
much greater efficienty and resulting savings could be obtained
by concentrating on developing big, one-stop food stores, and,

therefore, began to close their smaller stores.

179

Voluntary groups followed the action of the chains and
started to become selective in adding new members. The
smaller stores were being handled at a loss in the warehouse,
office, and deliveryoperations due to their small volume per
store, and the cost was being borne by the larger operators.
This situation was unsound, unfair, and an obstacle to larger
retailers of the voluntary groups to compete successfully
with the chain stores.

Progressive voluntaries set about correcting the inequi-
ties by setting minimum amounts for each order, and cutting
down or eliminating "papa and mama" stores. These are now
being served by cash and carry wholesalers or by smaller,
unaffiliated wholesalers. In the 1940's, voluntary whole-
salers separated their members into several groups based upon
store size, complete lines and self-service, location, and
store leadership. They concentrated their efforts and services
on the largest volume groups to help them grow and expand.

A recent development and refinement of customer selece
tivity for maximum efficiency and profits for the voluntary
groups operation is the establishment of several new store
groups. The qualifications are usually:

1. Large stores with substantial volume.

2. Full and complete lines of perishables.

Some of these new groups are Super Duper Stores sponsored
byRed and White Corporation, Foodliner Stores sponsored by
Independent Grocers Alliance, and Foodland Stores sponsored by

Clover Farm.

180

TABLE 44. Number of Stores Served by Affiliated
Wholesalers from 1939 to 1959.a

 

 

 

 

Type of Wholesaler 1939 1949 1954 1959
Cooperative - 855 601 576 635
Voluntary 1200 976 762 566

 

 

a"Cooperatives and Voluntaries--Sales Power Per-
sonified," Food Business Staff Report, June, 1961,

p. 29.

 

The number of stores served by voluntary and cooperative
groups has decreased from 2,055 stores in 1939 to 1,201 stores
in 1959, a decrease of approximately 40 per cent. The over-
all twenty year decrease of the cooperatives from 1939 through
1959 was 25.7 per cent. The voluntaries have gone even
further in eliminating the non-profitable, small operators
who have little inclination or prospect to grow. The decrease
for the voluntaries for the same twenty year period was 52.8

per cent.

Concentration of Purchases

 

When the retailer concentrates his purchases, becomes
a steady full-line customer, and conforms to a regular schedule
of deliveries and supervising calls, he enables the wholesaler
to perform his functions at low costs. The costs of handling
and and filling retailers' orders are sharply reduced as the
order size increases. The figures in Table 45 are based upon
time studies showing that with the size increase in orders the

efficiency and economy of handling of orders is sharply increased.

181

TABLE 45. Number of Cases Handled by an Order
Puller Per Hour.a

 

 

 

Size of Order Cases per Man Hour

1-9 57

10-24 98

25-49 148

50-74 170

75-99 188
100-149 217
150-199 226
200 or more 259

 

 

aNational American Wholesale Grocers Associa-
tion, Management and Controller‘s Bulletin, Vol.

1, Issue 4 (April, 1958).

 

One of the major contributions to the effectiveness of
the chain store operation has been the advantage they enjoyed
of concentration of purchases. It is a principle by which
they have made huge savings through volume buying and the
elimination of needless administrative costs which result
from doing business with a multitude of supply sources.

Purchasing merchandise from several wholesale supply
houses weakens the buying power of both the wholesaler and
retailer. It has taken time to make the retail grocer under-
stand that when he concentrates his purchases with his group
supplier, he puts the wholesaler on even terms with the chains
and makes it possible to service and supply his customers econ—
omically. It has taken a great amount of personal self-
discipline for the retailers to meet this challenge of modern
competition in the form of concentration of purchases with

one supplier.

182

Specific advantages of concentration of purchases to

the retailer are as follows:

1.

The retailer has substantially more time to
devote to the operation of his market, con-
trolling expenses, and creating promotions
which will build sales.

The retailer's bookkeeping job is substantially
reduced.

Lowers the retailer's buying fee expense and
therefore the cost of his merchandise.

The retailer can exercise greater control
over department heads and their buying functions.

Delivery receipt time of merchandise is sub-
stantially reduced, since the bulk of incoming
goods arrives on one truck. This in turn reduces
the expense and time of checking in loads.

The retailer has greater control over his inven-
tory. He can buy merchandise as his needs dictate
and thereby increase his inventory turnover.

Specific advantages of concentration of purchases to

supply depot or wholesaler distributor are as follows:

1.

It lessens the problem of determining quantities
of merchandise to purchase, since the movement
of goods through the warehouse is at a much more
even flow.

It enables all departments of the wholesaler
supplier to do a much more effective job, from
the buying of the product to its delivery at the
retail store.

He is able to purchase in larger quantities which
in many cases reduce the laid—in cost, which
savings are passed on to the retailer.

The adventages to both the retailer and wholesaler sup-

port the soundness of the high concentration of purchases

doctrine.

The developing of existing accounts is one of the

best sources of wholesaler and retailer expansion. Through

183
the store accounting data, the purchasing factor of the re-
tailer is used to pinpoint store problems and problem stores
in time to assist the particular store.

The importance of concentration of purchases has become
increasingly more significant as the tempo of retail food
competition increases, and is one of the most important areas

for strengthening wholesaler-retailer groups.

Pricing Plans of Voluntaries

 

The evolution and progress of voluntary groups in the
past four decades can be traced and related to the changes
and improvements adopted in their selling and pricing plans.
As the voluntaries progressed, the pricing philosophy and
price structure have improved.

In the early days, all items were priced as high as the
traffic would bear. Practically all independent business was
transacted through wholesale grocery salesmen who were paid
on a commission basis. It was common practice for their
gross margin on sales to average 15 per cent, and more. During
the early 1900's, when the independent retailer did not have
chain stores as competitors, they competed with each other to
a limited extent. With the advent of the chain stores in the
1920's, price cutting and loss leaders were introduced as new
weapons of merchandising and operating in the retailing of
food.1

Independent retailers pressured their wholesalers for

lower prices to be competitive. The wholesalers at first were

 

llnterview with Moses Strock, July 10, 1961.

184
slow to meet this new type of selling and continued their out-
moded methods. The wholesale grocery salesman would offer his
retail customers several staple items at cost to be used as
loss leaders, but at the same time would increase his regular
price on other items purchased by the customer. This situa-
tion resulted in the independent retailer being squeezed by
chain store competition and losing considerable volume.2

During the 1930's and 1940's progressive wholesalers
strengthened their organizations and began to develop strong,
cohesive voluntary groups. They adopted progressive pricing
plans and changed their objectives in pricing from that of
making as much gross profit as possible, to the much sounder
plan of building up a large volume business with a smaller
margin of profit. As a result, they placed their retailer
customers in a competitive position with an opportunity to
grow from small retailers to super market and multi-store
super market operators.

By recognizing this mutuality of interests through
intelligent pricing plans, the wholesaler encouraged the
retailer to concentrate his purchases with a single voluntary
wholesaler, which is one of the major contributions to a suc-
cessful low-cost warehouse operation. In turn, this made it

possible for both wholesaler and retailer to generate a higher

volume of sales at the lowest possible cost.

 

185

There are several different pricing plans used by volun-
tary wholesalers today. A properly designed pricing plan must
be based upon a low-cost warehousing operation and should ac-
complish the following:

1. Offer an incentive to the retailer by maintaining

a price structure which permits operators to enjoy
economies in pricing and buying fees commensurate
with their order size.

2. Give a satisfactory yield to low cost wholesalers.

3. Be competitive in the marketing area.

4. Be open and honese in the pricing plan.

Voluntary group wholesalers have used any of five methods in
varying degrees as billing plans: conventional, cost plus,
service fee and percentage markup, share the profit, service
fee, and share the profit.

Conventional billing is the oldest pricing plan and is
used very little today. It is based upon the wholesaler's
individual judgment as to what percentage of markup is to be
taken on each item. This billing plan gives no incentive to
the retailer to concentrate his purchases with any one sup-
plier, and also leaves a doubt as to how ably and efficiently
each item is being priced. This plan is highly unsatisfactory
in today's high volume stores and is practially obsolete in
voluntary group operations.

Cost plus billing actually means selling at a percentage
markup. The wholesaler bills his merchandise from cost, or
adjusted cost, and adds a given percentage to the invoice total.

This type plan also lacks the important element of incentive

186
to the retailer, unless a series of varying percentages are
used in billing by volume brackets.

Service fee and percentage markup is used by most of
the successful voluntary group wholesalers. Franchise retailers
purchase at a cost-fee basis based upon size of order. The
service fee charge is usually a constant figure and it is now
common practice for the retailer to carry this service fee
as an expense, rather than as part of the cost of goods. The
service fee is designed to contribute to the wholesaler's
expense of buying and merchandising for his retailer group.
The percentage markup is usually based upon a sliding scale
of percentages, depending upon the size of the order. As
the size of the order increases, the cost of handling larger
orders is reduced, and, therefore, the percentage scale is
reduced for the benefit of the retailer.

Under the "share the profit" plan, the wholesaler shares
the margin or spread between the wholesaler's cost and the
retailer's suggested selling price, using a series of percen-
tages. The purpose of this plan is to permit the wholesaler
to participate in the increased profits accruing to the re-
tailer as a result of good management and direction by the
wholesaler.

"Service fee and share the profit” is new and has been
used to a limited extent. It has the advantage of "share the
profit” participation by the wholesaler, and since it is
directly related to quantities purchased, it automatically

adjusts for the various volume levels.

187
The service fee, sliding scale percentage markup, is
the pricing plan best designed in building large volume sales
with a small margin of profit, and allowing both the voluntary
wholesaler and retailer to make a reasonable profit and yet

be competitive.

Proper Store Identification

 

Voluntary group retailers are required to identify them-
selves with proper signs. These include pylon and parking
lot signs and window decals. Nespaper and other advertising
media carry the group identification, and this constant
exposure contributes to the establishment of the chain group

image in the minds of the consumer.

Follow Through on Promotions

Retailers are required to support the merchandising and
promotional programs of headquarters. F0r manufacturers and
voluntary groupsto work successfully together, the sponsoring
wholesaler must have tight enough control over his group
members so that packers and manufacturers can satisfactorily
use the voluntaries as agents to move their goods into con~
sumption channels. Manufacturers want their lines stocked,
displayed, and promoted in retail stores. Manufacturers get
this service effectively from corporate chains by means of
contact with headquarters. However, it was more difficult for
them to deal with some voluntaries, because loose control did
not permit group headquarters to make specific guarantees of

fulfillment of agreements. Today voluntaries have succeeded

188
in securing closer cooperation and are enjoying sales rela-

tions with manufacturers and packers.

Cooperation on Order and DeliverygSchedules

 

Retailers are required to follow a prepared schedule
for placing their order, and to prepare for and assist in
receiving deliveries of merchandise. Cooperation results in
lower warehousing and delivery costs, which in turn lowers

the cost of goods to the retailer.

CHAPTER VI
VOLUNTARY RETAILERS' SALES GROWTH AND EXPANSION

‘In 1947, as America emerged from World War II, the
grocery industry was on the threshold of the super market
age.1 The chains were ready with mass buying power, central-
ized administration, advertising and merchandising services,
and available expansion capital. The super markets‘ low
price appeal and mass marketing posed a threat to the exis-
tence of the independent merchants, who were doing 63 per
cent of the grocery business in 1947. They realized that to
survive in this critical period they must band together more
closely and firmly and in effect, form "chains" or "groups"
of their own. The growth of affiliated retailers since 1947
has been spectacular.

TABLE 46. Share of the Grocery Business Since
1947 for Chains, Unaffiliated Inde-

pendents, and Voluntary and Cooper-
ative Groups.a

 

 

 

. Type 1947 1953 1956 1960
Chains “' 37% 36% 37% 39%
Unaffiliated 34 25 l9 l3
Voluntaries and cooperatives 29 39 44 48

 

 

a"Facts in Grocery Distribution," Progressive Grocer,
Twenty—eighth Annual Survey, p. F-20.

 

 

lEstimated retail food store sales for 1946 $23,665
billion, for 1947 $28,560 billion, and for 1948 $31,430

 

190

In 1960, voluntary and cooperative combined store sales
totaled $25.2 billion, or 48 per cent of the nation‘s $52.6
billion grocery sales. Today they form the largest single
bloc in food retailing, and their phenomenal growth documents
that success of the independent group movement.

Within the area of independent grocery sales, affili—
ated retailers comprise 35 per cent of the total number of
stores and they accounted for 79 per cent of all independent
sales for 1960. Voluntary groups lead all affiliated retailers
with 42.5 per cent of the independent retail food business.
Their sales were $1,840,000,000, or 6 per cent higher than
cooperative groups, and double that of the unaffiliated re-
tailers, thus making voluntary groups the biggest bloc in
independent retailing.

TABLE 47. How Independent Retail Sales Divide by

Voluntary, C00perative, and Unaffiliated
Stores for 1960.a

 

 

 

Per Cent of Per Cent of
Independent Total Sales Independent
Type Stores Stores (billions) Sales
Voluntary 48,000 20 $ 13,620 42.5
Cooperative 36,000 15 11,780 36.5
Unaffiliated 156,000 65 6,750 21.0
Total 240,000 100 $ 32,150 100.0

¥
_

a"Facts in Grocery Distribution," Progressive Grocer,

Twenty—eighth Annual Survey, p. F—2l.

 

¥

billion. "Facts in Grocery Distribution,” Progressive Grocer,
Twenty-seventh Annual Edition, p. F-l9.

 

191
Sales gains for 1960 were realized in all segments of
food retailing, with the chain store volume up 5.0 per cent
and all independent store sales up 4.2 per cent over 1959.
However, the greatest sales gains were made by two types of
retailers-~affiliated independent super markets and small
chains with sales from ten to fifty million dollars per year.
Independent super markets showed an average increase
of 9.2 per cent over 1959 and local chains under fifty
million an 18.3 per cent increase over 1959, as compared
with an all chain average of 5.1 per cent increase and an all

food sales increase of 4.5 per cent over 1959.

TABLE 48. Sales Gains by Size of Chain for 1960.a

 

 

 

Size of Chain Per Cent Sales Gain
500,000,000 and over + 3.8
250,000,000 to 500,000,000 ‘ + 3.0
100,000,000 to 250,000,000 +12.l

50,000,000 to 100,000,000 +12.0
Under $50,000,000 +18.3

 

a”FactS in Grocery Distribution.”

1961, p. F—18.

Progressive Grocer,

 

The independent super markets and small local chains
with the "local touch” are making the greatest progress in
food retailing.

Modern affiliated groups offer facilities comparable to
those of corporate chains in terms of all these things:

1. Centralized buying.

2. Modern, efficient warehousing.

192
Low cost distribution.
Advertising and merchandising services.

Effective operational services.

3
11
5
6. Broad, complete merchandise lines.

7 Full manufacturers‘ corporation.

8 Professional store planning and locations.

9 Financial assistance.

Each of these point to an equality of service and
facilities between voluntary groups, cooperatives, and chains.
These facts, plus the incentive of ownership, make today's
independent affiliated super market Operator retailing‘s
toughest competitor, and has been responsible for the tremen-

dous growth, sales power, and competitive strength of today's

voluntary groups.

CHAPTER VII
PUBLIC RELATIONS

Wholesale grocers sponsoring voluntary groups realize
they have a definite obligation to themselves and their re-
tailers to be recognized as modern, low priced, high volume
merchants and be ”favorably thought of” by the poeple in the
community and region they serve.

Full-time publicity programs are being maintained by
a substantial number of voluntary group organizations to
keep the public and the trade aware of their group identity
and conscious of their progress. National and local publicity
through newspapers, trade and business magazines, radio, and
television, is constantly stressing the growth of voluntary
groups and the advantages this type of retailer offers his
customers. Trade associations such as National American Whole-
sale Grocers‘ Association, United States Wholesale Grocers'
Association, and The New England Wholesale Food Distributors
Association, which is the oldest food association in this
country, have assisted in bringing the voluntary group move-
ment to its present high status.

One of the independent merchant‘s key advantages in
competition with chains is his standing in the community. His

participation in civic and charitable affairs has helped

194
develop in the people's mind an image of the voluntary group
retailer as a modern, competitive, and successful super

market merchant.

CHAPTER VIII

OPERATIONAL AND FINANCIAL REPORTS OF
VOLUNTARIES AND CORPORATE CHAINS--

COMPARISONS AND RATIOS

Voluntary groups in food distribution have attained
standards of efficiency that compare favorably with the
highest in the industry. Operational figures for 1960 of
Independent Grocers' Alliance wholesale and retail opera-
tions are presented separately and then combined to compare
with operating results of food chains in 1960. Also a
statistical summary of Super Valu Stores, Inc., operations

for 1960.

196

I.G.A. SUPPLY DEPOT (WHOLESALER) SPECIMEN BALANCE SHEET

 

1960
ASSETS:
Current Assets

Cash on hand and in banks $ 231,000.00
Notes and accounts receivable . 444,000.00
Cash advance on merchandise 8,000.00
Merchandise inventory (at

lower of cost or market) 1,383,000.00

 

Total Current Assets
Investments (at cost)*

 

Fixed Assets

 

 

Warehouse equipment $ 65,000.00
Office equipment 41,000.00
Delivery equipment 182,000.00
Land and buildings 199,000.00

Total $ 487,000.00

Less reserve for depreciation 229,000.00

 

Net fixed assets
Deferred Charges
Total Assets

 

 

LIABILITIES AND STOCKHOLDERS EQUITY:
Current Liabilities

 

Accounts payable $ 611,000.00
Mortgage payable—cur.port. 5,000.00
Federal and state income taxes 186,000.00

Provision for redemption of

trading stamps 71,000.00
Federal withholding & FOAB tax 10,000.00
Retailers' savings accounts 5,000.00
Accruals

Salaries,wages and bonuses 60,000.00
Other state and local taxes 25,000.00
Other 3,000.00

 

Total Current Liabilities
Long Term Liability-Mtg. on Building
Deferred Income
Stockholders' Equity

 

 

 

Capital stock-common-no par-
stated value $2.00 per share—
authorized issued and outstanding

165,000 shares $ 330,000.00
Retained Earnings 941,000.00

 

Total Stockholders' Equity
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

*Current market value $16,500.00

$2,066,000.00
13,000.00

258,000.00
29,000,00
$2,366,000.00

 

$ 976,000.00
118,000.00
1,000.00

$1,211,000.00

 

$2,366,000.00

Source: Letter from Carl E. Wolf, Jr., Manager, Market and
Operations Research, I.G.A., dated March 27, 1962.

197

I.G.A. SUPPLY DEPOT (WHOLESALER) SPECIMEN INCOME AND
EXPENSE STATEMENT FOR 1960

Sales

Less Cost Of Sales

 

Gross income from sales

Cash discount and other Operating
income

Total Operating Income

 

Operatinngxpenses:

 

Selling expense $225,000.00
Warehouse expense 222,000.00
Delivery expense 179,000.00
General and admin-

istrative expense 234,000.00
Executive expense 72,000.00
Turnover expense 17,000.00
Building expense 73,000.00

Total Operating Expense

 

Net Income Before Provisions
for Federal and State
Income Taxes

 

 

 

Federal and State

 

Income Taxes

 

Net Income

 

Source: Letter from Carl E. Wolf, Jr., Manager, Market and

$29,187,000.00
28,146,000.00

$ 1,041,000.00

351,000.00

$ 1,392,000.00

$ 1,022,000.00

$ 370,000.00

182,000.00

$ 188,000.00

Operations Research, I.G.A., dated March 27,

100.00%

96.43
3.57

1.20
4.77%

.77%

76
61

.80

.25
.06

.25

3.50%

1.27%

1962.

.62

.65%

198

I.G.A. FOODLINER (RETAIL STORE) SPECIMEN INCOME AND
EXPENSE STATEMENT FOR 1960

 

 

 

 

 

 

Income from Sales $1,001,500.00 100.00%
Less Cost of Sales 846,500.00 84.53
Gross Profit on Sales $ 155,000.00 15,47%
Expenses:
Salaries and wages $76,700.00 7.67%
Payroll taxes 1,800.00 .18
Sundry taxes (not
including income
taxes) 3,850.00 .38
Depreciation
(building and
equipment) 13,900.00 1.39
Repairs 1,050.00 .10
Supplies 1,550.00 .15
Freight charges 3,000.00 .30
Advertising 6,000.00 .60
Utilities 4,100.00 .41
Insurance 5,200.00 .52
Professional fees 225.00 .02
Dues, subscriptions,
and donations 500.00 .05
Employee benefits 1,100.00 .11
Sundry 3,200.00 .32
Total Expenses $ 122,175.00 12.20%
Net Income Before
Income Taxes $ 32,825.00 3.27%

 

Source:

Operations Research,

I.G.A.,

dated March 27,

Letter from Carl E. Wolf, Jr., Manager, Market and
1962.

199

COMBINED I.G.A. WHOLESALE AND RETAIL INCOME AND EXPENSE

STATEMENT FOR 1960 BY PERCENTAGES

 

 

Gross Income from Wholesale Retail Combined
Sales . . . . 3.57%

Cash discounts and

other Operating Income 1.20

Total Operating Income . . . 4.77% 15.47% 20.24%
Less: Operating Expenses. . . 3.50 12.20 15.70
NET INCOME BEFORE TAXES . . . 1.27% 3.27% 4.54%

FINANCIAL SUMMARY OF SUPER VALU STORES,

1960

Net Sales

Earnings before income taxes

Per cent to net sales

Income taxes

Net earnings

Per cent to net sales

Earnings applicable to common stock
Earnings per share Of common stock

Common shares outstanding-end of year
Number of common shareholders
Common stockholders' equity

$211,
3.

,724,000
.598,300

1
1

1

9,

Per cent of return on common stockholderS‘

equity (yearly average)
Book value per share Of common stock
Dividends paid per common share

New working capital

Current ratio

Fixed asset expenditures
Depreciation and amortization
Merchandise inventories
Inventory turnover

Source: Super Valu Stores, Inc., Annual

9,

,49ll785
.025,538
9:

1
1

Report,

468,000
322,300
1-57

.76

,552,977

3.20
486,052
1,570
536,465
17.43
19.62
1.10
956,536
2.31:1

854,587
21

1960.

INC. OPERATIONS

200

THE SUPER MARKET INSTITUTE'S OPERATING RATIOS FOR
1960 BASED UPON S.M.I. FIGURE EXCHANGE

 

 

fifi

 

Operating Gross Net Operating
Expense Profit Profit Ratio
Ratio Ratio (Before Taxes)
Typical Performance 17.12% 18.64% 1.71%
Middle Range: (Low) 15.31 17.42 0.66
(High) 18.70 20.42 2.78

 

 

Super Valu Stores, Inc., voluntary wholesalers for 1960
earned income before taxes Of 1.57 per cent of net sales, as
compared to the above typical performance of 1.71 per cent for
corporate chain. Corporate chains' figures also include the
profit made in their retail outlets, which required capital
investment. Super Valu Stores'figures are limited to profit
made on their wholesale Operations almost exclusively, and
the profits made by affiliated retailers are retained by the
latter. It is thus apparent that using Super Valu Stores
operation as an example, voluntary groups Operations are ef—
ficient and profitable and compare favorably with those of

the corporate chains.

 

 

 

.0800 000030000 0.020.000 00.000

 

 

 

 

 

 

 

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000.00 000.00 000 00 000.00 000.00 000 00 00o 00 000 00 00 on 0 0 0 0 0 s 0
00.0 00.0 00.0 00.0 00.0 00.0 00.0 03.0 cnzeax: 0300200000002
00.0 00.0 00.0 00.0 00.0 00.0 00.0 00.0 0npoe
*00.0 *00.0 *00.0 *00.0 ** *00.0 *0 t: 00000
*ON.O *HN.O *mH.O *OH.O_ ** *ON.O. ** ** mpthOQm
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. mpmumm 0000 CO pawoxmv 00x09
00.0 00.0 00.0 00.0 00.0 00.0 00.0 00.0 0000000 0000 0o 0000000000000000
00.0 00.0 00.0 00.0 00.0 00.0 00.0 00.0 00000>0ne
00.0 00.0 00.0 00.0 00.0 00.0 00.0 00.0 00000000>00
00.0 00.0 00.0 00.0 00.0 00.0 00.0 00.0 000000000 000>000
00.0 00.0 00.0 00.0 00.0 00.0 00.0 00.0 00000000
00.0 00.0 00.0 00.0 00.0 00.0 00.0 00.0 00300 000 .0o000
-00000000 .0000; .00000 .0000
00.0 00.0 00.0 00.0 00.0 00.0 00.0 00.0 .000o0 000000000 000 0000000
00.0 00.0 00.0 00.0 00.0 00.0 00.0 00.0 0000000 0000
000.00 000.0 000.0 000.0 000.00 000.00 000.0 000.00 000000000 0000
n205000050 000050000V 0000000
000.00 000.00 000.00 000.00 000.00 000.00 000.00 000.00 200002 00000
*00.00 *00.000 *00.000 *00.000 *00.000 *00.00 *00.000 *00.000 000000 000000000 00 00000 002
00.000 00.000 00.000 00.000 00.000 00.000 00.000 00.000 0nop0 000 00000 00000>0
00.000 00.000 00.000 00.000 00.000 00.000 00.000 00.000 00000 000 00000 002
00.000 00 000 00.000 00.000 00.000 00.000 00.000 00.000 00000 000 000000 0o 000002
A0000\0000V 000000 0o 00000
000.00 000.00 000.00 000.00 000.00 000.00 000.00 000.00 0000000o00 00V
whopm 00a mmawm 00000><
00 00 00 00 00 00 00 00 000000 0o 000002
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00 Iowa 5000 000 00 nomw 00:0 w00
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A000000HE CHV 000 A00000005 cflv 00¢ nempH
0E500> 000mm 002 05500> 0000m 002
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000m 000 00050800 000500m mo 00» mo 000500m 000009 00C0QEOU
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.00 .5 .00050m 0005005m 000>00m

 

 

 

 

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2
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.0090000>0 005 0005
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.00000 050 00500 20000000005 005
0000 05000 00500>0050 050 00 550 050 000000050 00005005050050 000 0003 0500005 050 0040
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 0000000>00 000000 0 000000000
50 0000mv 050502000m 00 009552
00.00 00.00 *00.0 00.00 00.00 00.0 *00.00 00.00 0000000 0 00000 0000000
0000500< 00 0000500000
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”000000 002 00000
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. 0000500< 00 0000500000
000.0 000.0 000.0 000.0 000.0 000.0 000.0 000.0 00000 002 00 0000000000
”00000 050050 000009 5000 002
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mm.o 00.0 mm.o mm.o 00.0 00.0 mm.o 00.0 0050mm 005500005 5000
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000000 0000 0000 000000 002
000.0 000.0 000.0 000.0 000.0 000.0 000.0 000.0 2000 020000000 002
000.00 000.00 000.00 .000.00 000.00 000.00 000.00 000.00 .00000 000000000 0020000 00000
00.0 00.0 00.0 00.0 00.0 00.0 00.0 00.0 .00000000 00000
000.00 000.00 000.00 000.00 000.00 000.00 000.00 000.00 00000000 000000 0000000 00000
00.0 00.0 00.0 00.0 00.0 00.0 00.0 00.0 0000000 0000000000002

203

COMPARISON OF COMBINED I.G.A. WHOLESALE AND RETAIL OPERATIONS
WITH OPERATING RESULTS OF 53 FOOD CHAINS IN 1960, BEFORE TAXES

 

~2—

I.G.A. Combined Whole- Percentages Computed
Sale and Retail Figure from Combined Dollar

 

 

for 1960 Figures of 53 Chains
Gross Margins 20.24% 22.98%
Operating
Expenses 15.70 20.24
4.54% 2.74%

 

 

The Fourth Annual I. G. A. Comparison of 28 I. G. A.
Wholesale Companies With 50 Corporate Food Chains as
Reported in 1959 Operating Results of Food Chains by
Harvard Business School.*

I.G.A. 28 Wholesale 50 Corporate

 

 

Companies Food Chains
Inventory turnover . . 18.47 turns ' 12.07 turns
Return on investment . 11.26 % 12.87 %

Stock turns for corporate chains for 1960 vary from
averages of 11.95 turns per year for $100,000,000 group to
17.85 turns for group in less than $20,000,000 sales group.
Super Valu Stores for 1960 attained a stock turnover of 21,
which is well above the average.

The figures presented in this chapter confirm that
voluntary wholesalers are operating efficient, low-cost and
profitable supply depots, and their affiliated retailers are
competitive merchants generating profits commensurate with

industry standards.

*Second Annual Financial Seminar of I G.A., February 2 and 3,
1961, p. 13.

PART FOUR

THE FUTURE

CHAPTER IX

PROJECTIONS FOR THE FUTURE

Perpetuation of the Voluntary Group

 

This thesis has attempted to portray the history and
progress of voluntary groups in food distribution during the
past four decades. What may be described as the fifth and
current evolutional stage constitutes the challenge of the
future, with its accompanying problems and constant changes.
How voluntary groups accept and overcome these problems in
several particularly important areas will determine much of
the future effectiveness of these groups.

Voluntary groups have proven that independent affili-
ated retailers are efficient outlets of mass distribution.
They have flourished by adopting all the advantages of inde—
pendent retailing. However, the voluntary group system is
not a magic formula that alone provides the answer to the
competitive food problems of the independent merchant. To
perpetuate the voluntary group system, it must continue to
progress and advance in all areas of the food industry. The
author recommends to management in affiliated groups partic-

ular attention and study in the following five areas:

206
Clearly Defined Policies

There must be more clearly defined policies for member
stores. This can be accomplished to a great extent by central-
ization of policies and functions. Clearly defining the
responsibilities of the wholesaler and retailer are of para-
mount importance in the success of voluntary groups. Capable
management by voluntary wholesalers in many cases has been
nullified by lack of cooperation on the part of the retailer.
NO voluntary group can operate successfully unless the group
members cooperate with the policies of management.

Voluntary wholesalers are responsible for seeing that
their policies and functions are understood and effectively
carried out by the group, and its programs must be directed
with vigor and enthusiasm. Voluntary groups can only be as
strong as its voluntary wholesaler. Maximum group cooper-
ation permits the wholesaler to streamline and standardize
his operations, thus making possible reductions in distribution
costs. This does not prohibit adjustments occasioned by
industry changes, local conditions, and the necessity of
establishing different classes of retailers according to size.

Flexibility of voluntary group operations is the chief
advantage held by the independents over the chains. This
ability to act quickly under reasonably standardized Operations
is an area to which voluntary groups should give the greatest

study and emphasis.

207

Research and Scientific Management

 

One of the weaknesses of present day food distribution
is the lack of scientific management to determine industry
needs and the consumer's wants. .0ne of the important areas
in industry needs is the effect of the constant upgrading of
super markets on the low price image in the mind of the con~
sumer, and areas in which costs can be reduced. A vital area
in consumer's wants is to determine to what extent the public
wants combination food and general merchandise in a discount
house operation.

There must be increased research and application of
scientific management. Tradition and opinion is not a suf-
ficient basis for Judgments, and policy is too frequently
determined by following rather than by dynamic leadership.
Voluntary groups must be alert and organized to recognize the
need for change and adapt themselves quickly. The recognition
by voluntary groups of the need to make use of scientific
information at the proper time can accelerate the development
of its groups, Just as the failure to do so can seriously
deter its progress. The history of food distribution clearly
indicates the high mortality of merchants who fell by the way-

side while resisting progressive changes.

Availability of Specialists

 

Many voluntary groups are not of sufficient size and
volume to provide expert services such as management counselling,

scientific site location and evaluation, financing of land,

208
buildings, fixtures, and opening inventories, scientific store
engineering and the benefits of constant research and recom-
mendations.

To make these specialists available to all voluntary
groups, the author recommends the establishment of a central
body to conduct essential research and supply expert assistance
on a contributing basis.

While there are specialists in all fields available to
voluntary groups, either through trade associations, manage«
ment consultants and independent experts, it is usually handled
by voluntary groups on an inconsistent, emergency basis due
to the high cost of the manpower.

The central organization of specialists available to
voluntary groups would be financed on a contributing basis,
according to the size by sales volume and number of customers
serviced by the voluntary wholesaler. The function of this
organization of specialists would be to constantly supply its
members with the most modern scientific and industry-wide
information available. In addition, their services would be
available to the member voluntary groups on a schedule of
prices that all could afford.

This pooling of expert manpower will operate to develop
better informed wholesalers and retailers. Better informed
independent merchants is one more powerful weapon to perpetuate

and increase its present successes.

209

 

Upgrading Existing Stores and New Construction

The voluntary groups have made a major contributions to
the vanishing of the small operator, by accepting responsibi~
lity and helping the small stores grow into superettes and
the superettes attain super market status. Independent ex-
penditures in store modernization and remodeling totaled
approximately $171,000,000 for 1960, and far exceeded that of
the chains.1 The independent operator is almost always the
sole owner of his store. Therefore, he has the keen desire,
drive, and incentive to build up sales of existing outlets
by remodeling, modernizing, and expanding.

In the area of new store construction, out of an estimated
3,000 new stores of all sizes built in 1906, 1,600 were chains,
and 1,400 were independents. But in terms of size of stores
the chains held a big advantage over independents in super
market size outlets, 1,400 to 800. Chains built one new super
market for every eleven existing super markets in 1960, com-
pared with one new super market for every nineteen existing
among independents—-an advantage of nearly two to one.

The voluntary groups are aware of this condition, and
have begun to find ways to obtain increased funds needed for

expanded super market construction. Many more wholesalers

 

1Address by Robert W. Mueller, Editor, The Progressive
Grocer, at the Annual National American Wholesale Grocers‘
Convention, Chicago, Illinois, March 14, 1961.

 

Ibid.

210
must make available to retailers a program whereby a group
retailer can own and operate his super market with a minimum
of equity required. This is one of the greatest challenges

facing voluntry group expansion.~

Emphasis on New Items and New Departments

 

Voluntary group expansion is manifested in many ways.
Among the two important contributions to their growth is the
increase in the number of items handled, and the addition of
new merchandise lines. New concepts in merchandising based
upon more intensive and more scientific research can be
expected.

Voluntary groups must not only continue to be receptive
to new ideas, new lines, and new products, but must recognize
that these additions contribute substantially to their con-

tinuing growth and, therefore, endeavor_to be in the forefront.

Summary of Perpetuation of Voluntary Groups

 

The constant upgrading of personnel and practices of
voluntary groups has been responsible for the emergence of
the new independent group retailer, who is actually increasing
his share of the food retailing dollar. His success is tied
to the modern voluntary wholesaler who is providing modern
management and services at competitive prices.

The voluntary group system will continue to flourish
and obtain a greater share of the food business. They have
almost matched the chain store advantages and are capitalizing

on their most advantageous difference--that of independent

211
ownership. The corporate chains are meeting this "incentive
of ownership" advantage of the independents in several ways.
Many chains are offering store managers stock options, stock
bonuses, and some are gearing store managers' salaries to
sales and expense figures. Chains have also decentralized
their operations in varying degrees and have permitted greater
local control by delegating more authority to the store manager,
and thus are attempting to combat the greater flexibility of
the independent operator at the store level.

The competitive forces of these two different systems

operate to bring out the best in each.

Predictions

 

Affiliated group expansion. The affiliated groups, con-

 

sisting of voluntary and cooperative groups, will continue to
do an increasingly large share of the total food business.
The unaffiliated independents will continue to lose some

ground and then remain comparatively static.

Affiliated groups versus corporate chains. The com-

 

petitive struggle between corporate chains and voluntary and
cooperative groups will occur at the local and store level.
There will be increased emphasis on flexibility of management
at the store level and on perishables, quality, service, and
on non—foods. Competition will be super market against super
market based upon the efficient or inefficient operation of

each.

212

Vertical integration. Voluntary groups will investi-

 

gate the profitability of vertical integration to develop and
extend their lines of products and services to obtain addi—
tional sales volume and profits.. This may be attempted by
large volume voluntaries or by groups of voluntaries working
through buying groups. This will result in keener competi-
tion between national and private group brands for shelf

position and sales volume.

Federation of voluntaries. Voluntary groups may possibly
merge into one or several federations of voluntary groups.
Federations will help to strengthen and expand the voluntary
group image, will permit more original thinking and planning
and less imitating of the corporate chains, will permit the
establishment and promoting of the federation's private brand
with national distribution supported by national and local
advertising, and can establish training programs nationally

for field men and trained specialists.

The effect of discount houses. Super markets will move
increasingly into discounting in retailing to protect its low~
price image and not to lose food sales to this new competitor.
Voluntary groups will experiment with developing food depart-
ments in discount houses and will expand their non—food de-
partments in the super markets into discount sections. Volun-
tary wholesalers will help to establish a limited number of

discount houses that will include a food super market and many

213
existing st3res will be enlarged or remodeled to handle a

wider variety of discount items.

Voluntary groups of smaller discounters. To meet the
competition of giant discounters, some smaller discounters
will Join together and form voluntary group organizations.
This will enable them to share costs and economies of buying,
administration, and merchandising. The discounters will tie
in with suppliers or a discount wholesaler, which will give
rise to a new type of wholesaler, a voluntary wholesaler

supplying all the needs of a discounter.

Package deals to establish new super markets. Many

 

voluntary groups will assist retailers by making it possible
for individuals to launch their own fully-equipped super
market for a cash investment of less than one—fourth of the
capital investment usually required. This kind of assistance
will contribute in a substantial way to an increased share of

the food business by affiliated groups.

Conclusions

 

The modern voluntary group is the product of a process
of evolution that began with small organizations that were
formed for the purpose of obtaining lower prices through group
buying. The independent merchants of the 1920's were of the
opinion that buying groups was the complete answer to competing

with the newly introduced chain store system.

214

As long as members of such groups continued to obtain
a satisfactory volume of sales, they were satisfied with the
benefits derived from the limited scope of their groups.

When competition from chain stores increased within a few
years, these groups of retailers were forced to realize that
the lower prices obtained through group buying alone were
insufficient to match the newly conceived chain store system
and their methods of merchandising and operation.

As sales volume for these groups dropped, it became
apparent that the most advantageous remained inventory, until
the sale of the product produced the required profit. To
meet the ever-increasing pressure of chain store competition,
many buying groups sponsored promotional activities for its
members. Some extended their activities further, and even—
tually their guidance influenced functions in every department.
This was the basis for the development Of the modern voluntary
group.

The introduction of the chain store system caused the
independent retailer of that day to meet this new competition
at first with ridicule, protest, and resentment. As the
chains proved successful and flourished, the weaker indepen-
dent retailers either liquidated their businesses or failed.
The strong independents studied the chain system and began
to emulate them and introduced the voluntary group system.

The 1930‘s saw the development of combination stores,

and the expansion of the chain store system and of the

215
voluntary groups. The 1940's saw the develOpment of self-
service, culminating in the acceptance of the super market
concept of food retailing. The 1950's were marked as a
period of super market expansion that has brought food
retailing to its present state of intense competition.

Voluntaries have adopted many of the chain store
policies that have contributed to effective mass retailing.
Today, voluntary groups through effective wholesaler-retailer
integration, have developed management, facilities, and
service that equal corporate chains. However, there still
remains the two basic differences in the systems, that of
capital structure and ownership. The importance in differ-
entiating between these two systems is to observe and deter-
mine how and to what extent each system makes the most effec-
tive and profitable use of its organization.

Retailers affiliated with voluntary wholesalers are
making the greatest strides in our dynamic food industry.
Affiliated retailers have increased their share of the total
United States food store sales from 29 per cent in 1947 to
48 per cent in 1960, as compared to an increase for chains
during the same period from 37 per cent to 39 per cent.
Unaffiliated independents for this same period dropped from
34 per cent to 13 per cent, a decline of 21 per cent. While
these figures indicate that the advances made by voluntary
and cooperative groups were at the expense of the unaffiliated

retailers, it is reasonable to assume that if affiliated

216
retailing had not matured in modern retailing, the chains
would have increased a much greaeter percentage in sales over
their 2 per cent increase.

The affiliated independents have practically halted the
inroads made by the chains on the independents, and competi-
tion today is on a fairly equal basis between affiliated
groups and chains.

Today there still exists the differences between the
chain store system and voluntary groups in capital structure
and ownership. This difference in ownership is the affiliated
merchant's most potent weapon. Because of independent owner~
ship and capital investment, it has the built in initiative
and incentive of the man who is in business for himself. He
has the greatest flexibility to take quick action on the local
scene and can more readily adapt his store to the community.
He has greater freedom of merchandising and operating, and
more flexibility in retail pricing at his store and local
level.

Most chains have recognized the growing competitive
force exerted by local competition and the retail sales gains
they have registered. They are coping with this flexibility
by moving with varying degrees from central to local control
over their super markets. Through this decentralization, the
super market manager of the corporate chains has been delegated

power and authority once reserved for central headquarters.

217

Chains are combating the incentive of ownership of
affiliated retailers by increasing the compensation of their
store managers through various plans.

It is important to point out that the "flexibility" and
"incentive of ownership" on the part of affiliated retailers
are competitive factors of one syatem that required a com-
petitive system such as the corporate chains to meet the
competition with their own weapons. Each system will succeed
to the extent that it maximizes the effectiveness of each
organization.

The story of how independent food retailers and their
wholesale suppliers met the challenges of forty years of
food distribution has been told.

Voluntary groups have demonstrated the strength of
free enterprise in affiliated food distribution, and future
chapters in its history and evolution will witness the

vigorous growth and successful expansion of voluntary groups.

BIBLIOGRAPHY

BIBLIOGRAPHY

_ Books

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Charvat, Frank J. Supermarketing. New York: The Mac-
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Corbaley, Gordon C. 100,000 Retailers. New York: American
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Davidson, Craig. Voluntary Chain Stores. New York: Harper
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Rost, 0. Fred. Distribution Today. New York: McGraw-Hill
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Sayres, Paul. Food Marketing. New York: McGraw-Hill Book
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l

"Facts in Grocery Distribution,‘ The Progressive Grocer, 1961,

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Federal Trade Commission. "Chain Stores Final Report." Dec-
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220

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Handler, Julian H. "The Editor's Corner," Super Market News,
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Mueller, Robert W. "Where We Stand Today in Private Brand
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The Progressive Grocer, Vol. 31, No. 10 (October, 1952), pp.
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.12. Washington, D. 0.: Government Printing Office,
May, 1952. P. 23.

 

. "The Use of Fieldmen by Wholesale Food Distributors
and Affiliated Retailers,” Market Research Report N9.
.266. Washington, D. C.: Government Printing Office,
September, 1958.

 

 

U. S. Bureau of the Census 1940.
U. S. Bureau of the Census 1930.

U. S. Department of Commerce. Business Service Bulletin
BSB, May, 1957, p. 206.

 

Distribution Cost Studies No. l, 1932, pp. 15-23.

 

. Effective Grocery Wholesaling, October, 1941, pp.
23, 48, 85, 107-119.

 

221

Vernon, Carl. "How Can Accounting Help the Wholesaler?,"
Wholesale Grocer News, September, 1957, pp. 3-132.

Wholesale Grocer News, Vol. 28, No. 3 (June, 1953), p. 23.

 

Vol. 32, No. 11 (February, 1958), p. 4.

Vol. 33, No. 3 (June, 1958), pp. 23-24.

 

Miscellaneous Material

Mueller, Robert W. "Food Marketing Through Wholesalers."
Address given at the National American Wholesale
Grocers' Convention, March 18, 1957.

Address given at the National American Wholesale
Grocers' Convention, March 14, 1961.

Strock, Moses S. Personal interviews, May 27, 1961, and
July 10, 1961.

. "Achieving Low Costs in a MJlti-Story Warehouse."
New England Wholesale Food Distributors' Seminar,
Boston, Massachusetts, April 2, 1959.

 

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