A COMPARISON OF THREE TYPES
OF FOOD CHAINS

TheeisfmfhobogmofM.A.
MECHtGAN STATE COLLEGE

Konda” Alfied Adams
1953 _

 

 

 

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A COEPnRISON OF 'HRBE TYPES

OF FOOD CHAINS

BY

Kendall Alfred Adams

A.TKJQIS
submitted to tne School of Graduate studies of Michigan
btate College of agriculture and Applied Science
in partial fulfillment of the requirements
for the degree of

EASTER OF ARTS

Department of General Business
Curriculum in Food Distribution 1\~

Year 1953

nCIZlLO . .LDGIJL‘ITS

hithout the cooperation of the food industry, this
report could never have been written. Special gratitude
is apprOpriate for those gentlemen connected with each of
the three businesses contacted. The consideration and
assistance of these individuals was greatly appreciated by
the writer.

The assembling of faculty and facilities into one in-
stitution provided an indirect yet indiSpensable factor
contributing to the completion of this thesis. Lirect as-

istance was also provided through a graduate assistant-

(0

Ship. It is, therefore, the desire of the writer to ex-
press inestinable gratitude to Lichigan State College.
Appreciation is also due Dr. Kenneth Wilson for his

patient guidance in the preparation of this thesis.

7‘, ) (“y/vs
{it at)

UI
L1

CHAPTER

I.

II.

I

TABLE OF CONTENTS

NTRODUCTION . . . . . .

Definition of Terms. .

Importance of the Study. . . . . . . . . . .

Limitations of the Study . . . . . . . . . .

MethodolOgy. . . . . .

Organizations Which Her

e Contacted . . . . .

Y'u't"aI‘e_l’lOL181..I:I.€; COnSideI‘atiOIlS o o o o o o o o 0

Chain, Independent and
Trends in Distribution
CORPO ’TB FOOD CHAIN .
History. . . . . . . .
Purchasing Procedure .
Store Procurement. . .
Store Supervision. . .
Merchandising Program.
Advertising. . . . . .
Personnel Policies . .
Group insurance plan
Credit union . . . .
Vacations. . . . . .
Retirement program .
Profit sharing plan.

fianagement Training. .

Voluntary Food Groups

Channels. . . . . . .

PAGE

03 (n -q U1 $* to F’

13
27
37
37
u.
59
64
65
7o
80
80
82
82
82
83
81+

CHAPTER
Quality Control . .

Public Relations. .

Merchandising Program .

III. RETAILER-OWNED COOPERATIVE.

Founding. . . . . .

Divisional Organization

National Organization

Warehouse Ownership .

Credit Policy . . .

Board of Directors.

“arenouse Organization.

Advertising . . . .
Buying. . . . . . .
Retailer Relations.
Delivery. . . . . .
Monthly Meetings. .
Dividends . . . . .

ffice hanagement .

Special Benefits. .

Iv. II‘P‘EPJEDEIIT Llnunli srorsc

CHAIN . . . . . . . .
History . . . . . .
Trend in Growth . .
Purchasing. . . . .

Order handling. . .

RING

VOLUNTARY

PAGE
89
91
95
98
98

102
10h
108
109
109
110
112
115
118
121
12h
12h
125
127

131
131
132
132
133

CHAPTE'

V. S

OrganiZational Chart
Pricing. . . . . . .
Advertising Rebates.

Voluntary Group. . .

UKHERY AND CONCLUSION

Surmnary. . . . . . .

Corporate chain. .

netailer-owned COOperative

Wholesaler-sponsored voluntary

Conclusion . . . . .

EIBLIOGR‘zPI’l o o o o o o o 0

PAGE
135
138
144
145
156
156
158
161
163
165
172

TABLE
I.

II.

III.

IV.

VI.
VII.
VIII.
IX.

X.

1r-
0

XII.
XIII.
XIV.
XV.

LIST OF TABLES

PAGE

Cost Comparison Between Multi-story and

Single-story Structures With the Same

Gross Floor Areas . . . . . . . . . . . . . . 10
Comparison of Stores to Sales and Distribution

of Total Sales by Groups Based on methods of

Control . . . . . . . . . . . . . . . . . . 1h
Operating Expenses of Voluntary Group and

Retailer-Owned Wholesalers 1941 . . . . . . l8
Retailer COOperative Grocery Warehouses Per-

centage of Sales to Retailer Owners: l9u8 . 20
VOluntary Group Wholesalers Percentage of

Sales to Group members: 19h8. . . . . . . . 21
Grocery Margins and Sales Per Employee. . . . 2h
Number of Wholesale Establishments by Type. . 31
Wholesale Establishments by Percent of Sales. 32
Growth Trends of Three Types of Wholesale

Establishments. . . . . . . . . . . . . . . - 35
ACquisition of Stores . . . . . . . . . . . . LS
Kroger Company Sales 1902-1951. . . . . . . . L9
Kemba Health and Accident Insurance . . . . . 81
Schedule of Company Contributions to Fund B . 85
General Outline of Progress . . . . . . . . . 90

Growth of Pacific mercantile Company. . . . . 107

TABL PA GE

XVI. Lark-Up Schedule . . . . . . . . . . . . . . 117
XVII. schedule of Delivery Cmirges . . . . . . . . 123
hVIII. Pinancial Statement Information. . . . . . . 126

LIX. Schedule of Group Life Insurance Payments
Based on Purchases . . . . . . . . . . . . 129
XX. Pricing Method for a Limited Number of
Merchandise Groups . . . . . . . . . . . . lhO

LII. Schedule of Delivery Charges . . . . . . . . lh2

hLII. Pricing schedule . . . . . . . . . . . . . . 143

LIST OF CHARTS

CHART PAGE
1. Organization of the KrOger Company . . . . . . . #1
20 :C-LOC‘SI' BI‘dTlCll Urbanization o o o o o o o o o o 0 1+3

3. District merchandising Organization of a Chain
Food Distributive Organization . . . . . . . . 67
A. Organization of the KrOger Company Advertising

Department at the Gene‘al Office Level . . . . 71

5. a Branch OrganiZation of this Company. . . . . . 77
6. Special Training Program for Store ganagement. . 87

7. Organization of Pacific Lercantile Company . . . 103
8. Organization Chart of a Retailer-Owned

COOperative. . . . . . . . . . .1. . . . . . . 111
9. Organizational Chart of an Independent Whole-

StileI‘o O o O o o o 0 o o o o o o o 0 o o o o o 136

LIST OF P GUESS
FIGURB PAGE
1. Reproduction of the Order Fonn and Control

Sheet Form Used by the Kroger Company . . . . 63

CHAPTER I
INTRODUCTION

The objective of this work is to compare three food
wholesaling businesses, each of a different organizational
and financial structure. There is no intention of ultimate-
ly proving that one type is better than the other. A compar-
ison of the sort contained herein should produce information
which will be of value to the future Operations of any one of
the three groups.

h.person studying food distribution for any length of
time will soon encounter the COOperative, corporate and whole-
saler-sponsored food retailing chains. Connected with each
of these chains is an organization which performs the main
part of the wholesaling function for them. The Operational
philOSOphy of each type is adequately covered in marketing
texts. However, the student, though readily learning the text
definition of cooperative, corporate, and wholesaler-sponsored
food chains, is likely to find it confusing as to how they are
actually repreSented in practice.

One functioning enterprise of each of these types has
been selected. By personal interview and questionnaire di-
rected at the wholesaling units of these various food chains,
an attempt was made to learn the Operating procedures of the

1Norking organization.

2
It would be highly desirable in a work of this sort to
determine definitely the strong and weak points of each or-
ganization. Perhaps a cost analysis would reveal which of
these three businesses being compared is Operating the most
efficiently. This, however, is not the information that is
being sought. Data of this sort would lose value because of
the fact that each of these wholesale units is Operating

under varying conditions which effect its cost of Operation.

Definition of Terms

In the discussion to follow, the reader will encounter
the terms voluntary and corporate chain, corporate wholesaler,
independent wholesaler, retailer-owned cooperative, and Oper-
ational methods. Since there seems to be varying definitions
applied to these terms, their meanings as used in this report
will now be eXplained.

The voluntary chain and independent wholesaler are re-
lated. The voluntary chain presented in this study is a
group of independent retail food merchants. These merchants
agreed to accept certain obligations as members of the group.
A contract to this effect was signed by each retailer with
the sponsoring wholesaler. The independent wholesaler who
acted as the sponsor of this group is a grocery wholesale en-

terprise with corporate financial structure, but holding no

3

actual financial control over the retail customers as a group.
These retailers will be referred to as voluntary retailers or
as belonging to a voluntary group or as a wholesaler-sponsored
chain. Marketing texts Often use the term voluntary chains to
describe both the retailer-owned cOOperative and the whole-
saler-sponsored chain. This is explainable, due to the fact
that the membership in both groups is voluntary.

The corporate wholesaler referred to in this paper is
actually the phase of the corporate chain which is designed
to perform the wholesaling function for that chain. In the
corporate chain, the retail and wholesale units are all a
part of the same corporation. This case represents vertical
integration including some manufacturing steps through to the
retail stores.

The retailer-owned OOOperative describes a group of re-
tailers that have pooled their financial strength and organ-
ized a business entity to perform the wholesaling function for
them. The retail store Operators are than actually the owners
of this wholesale business. These retailers will be referred
to as OOOperative retailers or as belonging to a COOperative
group.

Independent retailer is used to explain the status of a
retailer who has no affiliation with any other organization.
Operational methods as used here is a general term alluding to

the activities of a wholesaler as far as his contacts with

h

retailers are concerned, but does not attempt to describe the
procedures involved in warehousing itself in any kind of come

pleteness.

Importance of the Study

One of the mentioned objectives of this study was to
gain academic clarification between independent, corporate,
and cooperative food organizations. Due to the conflict of
terms and definitions, such as has been briefly discussed, it
can be realized that a student of marketing might have some
difficulty assigning Specific functions to a particular group.
It is hOped that some clarification can be gained from this
report on what is actually involved in these three organiza-
tions in the grocery field.

There appears to be a trend within industry in recent
years to make facts known concerning Operations. This trend
is certainly different from the policy of secrecy which was
believed so necessary to successful grocery Operations in the
past. Certain business activities, such as a proposed strat-
egy or new course of action, undoubtedly should remain con-
fidential. It seems, however, that fewer of these activities
are now coming within the classification of secrecy. Instead,
the business man realizes that through comparison and study of
other methods there exists an Opportunity for the solution of

problems, and thus, progress can be realized. The National

Association of Food Chains is an example of an organization
which is concerned with this idea. In this report, an at-
tempt has been made to make known some operational facts with-
in the segment of the food distribution industry selected.

It should also be pointed out that a comparative study
can have the effect of presenting clearly the advantages of a
particular business. Such facts might actually have been
overlooked or unappreciated in the past. A vacillating store
policy can develop when such business advantages are over-
looked. A lack of clear cut policy can result in a weakening
of the service which a particular business can make to the
econnmy which it serves.

The importance of progress within business is so great
as to appear unnecessary to mention. In spite of this seem-
ingly Obvious condition, there are occasions when American
business has resisted progress. It is becoming.more evident
each day that the dangers to be realized from complacency in
our business practices are rapidly increasing. NO other
single thing would be more desirable from the standpoint of
the work contained herein than to point out the importance of

constantly searching for better business methods.

Limitations of the Study
The food industry is Often Spoken of as the largest in-

dustry in our nation. Therefore, the samples chosen for

6
discussion at this time give no assurance of being represen-
tative samples. The personal interview was the most impor-
tant method utilized for collecting information. An attempt
was made to cover each business in a similar manner by pre-
paring an outline previous to the interview. However, it was
not always possible to go through the outline in any kind of
a uniform manner. Therefore, certain omissions and commis-
sions are likely to have occurred.

Some businesses, due to their size and nature, had much
information readily available. This was in printed form and
lent itself readily to the purposes of this report. In other
cases, the majority of the material concerning the company
Operations was gained through interviewing and re—interviewing
company officers.

One of the enterprises appearing herein is greatly sepa-
rated from the other two in terms of geographical location.
Variance which arises through consideration of the effects of
the human element must also be considered. For example, man-
agement reorganization could be taking place to cause one to
believe that the present or past performances were not at all
representative of what could be eXpected in the future of the
company.

Again, it should be stated that this is not a cost analy-
sis study. Because of the differences between these three

businesses arising from location, physical facilities, and

7
varying business backgrounds, here is no basis for compari-

son in a concrete manner.

Methodology

An outline was develOped which was believed would cover
the areas of interest in each of the three types of business-
es to be reported on. a process of mailing these outlines to
companies along with a letter requesting permission for a
personal interview to be guided by the outline was followed.
Some difficulty was encountered in gaining this permission.
Then, it became difficult to cover adequately the topics out-
lined in the amount of time that an ekecutive could allow.
Often more than one visit was required. The interviews were
followed by letters requesting clarification on questions
which appeared after the interviev.

Secondary sources of information were not, in most cases,
as fruitful as the primary method of gathering the facts de-
sired. However, the opening discussion presented in this .
paper with the purpose in mind of acquainting the reader with
a general concept of the food wholesaling structure on a
nation-wide scope, was gained entirely from secondary sources.

In some cases, letters were written to persons who were
connected with a particular business only in an indirect ca—
pacity. The purpose here was to clarify certain points which
were involved in a general way with the particular wholesale

enterprise under study at that particular time.

Ori'nizations Which were Contacted
The first consideration was to select companies about
which there existed the most secondary information. However,
it soon became apparent that the most important limitation in
selecting Specific organizations was the problem of gaining

.ermission for the interview, and consequently, the informa-

P

tion required.

Other considerations were location, previous contact,
and successfulness of the particular business. It was decid-
ed that it would be more beneficial to interview a thriving
organization than one which was on the brink of collapse. A
more complete presentation could be made of those firms with

which the writer had become the most familiar.

Warehousing Considerations

It is recognized that certain physical plants, warehouse
building types and methods of handling merchandise will in-
crease warehousing efficiency. Large quantity purchasing has
within itself the possibility of savings to the purchaser.
These savings result from efficiencies of mass buying prac-
tices. Therefore, it can be assumed that an organization with
the best physical plant and in the best position to utilize
wisely mass purchasing and selling will be the organization

with the lowest costs involved. It is not intended to discredit

9
the importance Of the various problems involved in obtaining
the most efficient Operation from any given physical condi-
tion whether it is the most modern warehouse Operation or
one of the Older types. herein a comparison is made of the
systems of Operation and not of Operational problems, except
as they pertain to the functioning of the organization.

The problem of comparison is further complicated by the
fact that there is a lacK of uniformity of definition Of
terms. Descriptive terms within one organization represent
different facts than are represented by another organization
using the same term. chn very common terms, such as gross
sales, net sales, cost of goods sold and selling expenses,
lack clear mutual uiderstanding. This leads to misinterpre-
tation and the comparison of items which appear to be alike,
but which are quite different. Operating procedures differ
and there are no accounting methods existing to match them.1

In every wholesale trade, it is easy to visualize that
no two establishments are surrounded by exactly the same Ob-
stacles and advantages. Ratios are not, therefore, a satis-
factory substitute for judgment. Profits in wholesaling are
seldom the reward of a single brilliant tactical maneuver to

. L . .. fl . . - . 2
naintain satisiactory Operating margins and expense ratios.

 

lOrin E. Burley. "Marketing Research, Operating Surveys
and analysis." Journal of narketing. septenber, 1949. 14:2
p. 218.

2Ibid., p. 223.

COST COMPARISON BETWEEN

TABLE I

10

MULTI-OTORY nun SINGLE-STORY STRUCTURES
WITH Tar SALE cacss FLOOR ARRAS*'

 

 

 

Item Multi—Story Single-Story

Gross Area in Sq. Ft. 72,000 72,000
Area Lost By:

Columns 2,976 1,168

Elevators 1,512 None

Stairs 2,160 None

Approaches 3,600 None

Outside Walls 3,120 1,260

Total 13,368 2,h28

Total Usable Area 58,632 69,572

Percent of Total 82 96
Land Required (Acres) 2 2
Cost of Building 16h,000 122,000
Cost of Land

(p6,000 - 1 acre) 3,000 12,000

Total 167,000 134,000

Price Per Sq. Ft. 9 2.27 $ 1.70
Price Per Usable Sq. Ft. 2.77 1.76
Price Per Usable Sq. Ft.

Land and Building 2.85 1.93

 

 

 

*Source: Streamlined Wholesale Grocery Warehouses. De-

partment Of Commerce.
Superintendent of Documents.
Government Printing Office.

Industrial Series NO. 18.

Iashington: U0 3 o
p. 1h.

11

Table I presents the advantage to be sained in the
Operation of a single story warehouse structure in compari-
son to a multi-story building. The savings of 90.92 per
usable square foot represents a considerable competitive ad-
vunta e in favor of the single story wholesale structure.
Further simplification Of the warehousing process through
mechanization and scientific allocation of Operations devel-
Oping greater efficiency will tend to increase this com-
petitive ad‘antage.

Receiving and Sdijylflg are vital phases for a wholesaler.
Congestion at shipping and receiving platforms appears in-
evitable even Where the entire ground floor Of a Wholesale
house is devoted to this phase Of the Operation. Congestion
here invites slow Operation which reduces output and neces-
sarily increases occupancy costs per ton handled. Due to the
low unit markup, a grocery wholesaler must be interested in
tonnage movement. The Wholesaler can remain in business in

9,:

a competitive market only by the eiiicient handlin’ o

H)

a
large tonnage of merchandise.

hulti-story buildings seldom contain any one floor which
is large enough in itself to contain an entire assembly line.
Layout, then, presents a problem which is ordinarily solved
by assembling the order on various floors. This separation

brings about extra Operations in communication and extra

l2
tranSporting between floors. Blevators seldom are construct-
ed tO safely bear the weight of industrial iacdi s which
can be substituted for manual move:1ent of goods usually ac-
m,lisnea by hand jack a:1d skid or the ho nd truck.3
is one story warehouse presents certain adva nta ' over
the mul ti-story one as discussed. However, it is not always
possible for a wholesaler to move his business into a modern
structure due to many reasons. The well planned single story
building can still rehiain as the goal and, at the same time,
Operating costs can usually be lowered through mechanization
Of the present multi-story location. Any effort at stream-
lining is ordinarily progress in the right direction.

‘rie persorinel of a given oreanization have the power to
increase the output or to keep the output Of a poorly con-
structed warehouse at a high level, even when restrained by
poor Operating conditions. Likewise, an inefi'icient crew in
the finest Of warehouse structures, using the most efficient
methods and machines, can render these advantages useless by
their efforts through lac ch Of prOper training and imprOper
supervision and management. Thus, an adequate training and
supervision program for all personnel involved needs to be

..‘

13-.....ng Cl.

 

3W. h. heserole. "New Technique for Grocery Iarehouse."
Domestic Commerce heprint. hay, 1945. p. 3.

 

13
A single story structure mazes possible a more efficient
Operation than in a multi-story building. The fact that it
is possible is no guarantee that a savings will be realized
in the operation. Construction planning is an exceedingly
:mportant aSpect of this inC‘eased efficiency. Each ware-
house is usually built to fit the needs of a Specific busi~
ness. The manner in wnich these needs are supplied is depend-

ent upon the proper planning before construction.

Chain, Independent and Voluntary Food Groups

A discussion of three specific Operating wholesale or-
ganizations will be presented in following chapters. At the
present time, an attempt will be made to present the compara-
tive importance of voluntary, independent and corporate chain
stores in national food distribution. This will be done by
comparing sales and numbers of stores shown in Table II.

It should, first of all, be recognized that the total
independent stores do a much greater volume than the chains.
However, if these independent stores are reduced to those be-
longing to voluntary and retailer—owned groups and to the un-
affiliated stores, it will be seen that the chain group be-
comes dominant as to the distribution of sales in the majority
of years snomn. The cnain group does not lead in the number
of stores. The number of stores of voluntary and cooperative

groups are considerably greater in each year represented than

are the number of stores with chain affiliation.

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15

It is evident that the chain store is claiming a domin-
ant prOportion of total sales. This is being accomplished
by comparatively few stores. The trend in the number of
chain stores shows a marked decline over the 1939-1951 period.
Independent stores show this decline to a lesser extent. On
the other hand, the number of store units with voluntary af-
filiation have increased.

The warehouse of the corporate chain store is an example
of integrated wholesaling. Such warehouses generally act as
the headquarters for the officers of that particular division.
There is no need for salesmen to contact retailers, but rath-
er, supervisors may be thought of as performing part of the
functions of the salesman employed by regular wholesalers. A
highly scheduled and economical Operation is possible, due to
the complete control which the warehouse headquarters main-
tains over merchandise ordering by retail units. Since the
retail unit must receive the bulk of its merchandise from the
company warehouse, there is a possibility of reducing the
line to the most rapidly selling items. There is no need for
a credit department or credit investigation. However, the
accounting department within such an organization takes on
particular significance since the records for the stores of

.99
1,-

the entire brancn are maintained by this warehouse.

 

hTheodore N. Becaman and hathanael H. Engleo Wholesaling
Principles and Problems. flew Yor‘: The Ronald Press, I9L9.
p. 259.

 

 

16

This study is next concerned with wholesaler—sponsored
and retailer-owned cooperative stores. One of the features
which brought these organizations together and still exists
as a strong incentive is the benefit to be derived from hori-
zontal cooperative advertising. Large scale centralized buy-
ing with attendant private brand develOpment is another ad-
vantage of these two types of distributive organizations. In
considering the factors which contribute strength to these
groups, one must recognize the merchandising services and the
closer relationship which the wholesale buyer is going to
feel toward the retailer who looks to him for merchandise
that will sell. Probably one of the most significant factors
in the inception of organizations of this retailer-owned and
wholesale-Sponsored chain type is the emotional stimulation
which both wholesaler'and retailer share. Undoubtedly, the
resultant re-dedication of efforts has increased the effect-
iveness of many businesses in our economy.5 These advan-
tages are not gained without some disadvantages becoming ep-
porent through the same organizational structure.

Retailers who have an ownership interest in a warehouse
are likely to become discouraged through the legitimate con-
flict of interests. There is likely to be an overwhelming
interest in the retail operation as compared to the whole-

saling problems. Often the attempt at economy results in the

 

 

Slbid., p. 280.

l7
hiring of inadequately prepared management. The importance
of management is increased in view of the fact that over-all
operations can be enforced typically by no means stronger
than suggestion or prOposal.

The retailer of the wholesaler-Sponsored chain has no
money invested in the wholesaling phase and may, therefore,
withdraw from the group more easily. The power of central-
ized control is again limited practically to a suggestion and
preposal basis. The conflict of interests also exists as a
considerable disadvantage. The group can have varying ideas
about what COOperative action is due to the fact that not all
of the members are in a position to operate in a like manner.
The obvious solution is to attempt to obtain a group of re-
tailers who have similar Operational problems.

There is a significant difference in the operating costs
of voluntary group and retailer-owned warehouses. The fig-
ures in Table III also indicate Operating cost fluctuations
within the groups. It is believed that this range is due
primarily to the differences in services rendered and the in-
crease in efficiency of operations. In general, the retailer-
owned group costs compare to those of the cash and carry
wholesaler (5 percent) and wholesaler-Sponsored group costs
Compare to those of the regular service wholesaler (10 per-

Cent).

\

61bid., p. 282.

18

 

 

 

 

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HHH mnmde

19
This eXpense was also shown to fluctuate relative to
the amount Of sales to retail owners or voluntary members.
This condition, illustrated by Tables IV and V, stresses the
importance of the unity of effort or the value of OOOperation

between wholesaling and retailing phases.

history Of Food Wholesaling

Food wholesaling has always been closely dependent upon
the facilities of transportation. During the nineteenth cen-
tury period, water transportation was the principal mode used
for large quantity tranSporting. Thus, warehouses were lo-
cated along water fronts of seaports, canals and river har-
bors. Much competition develOped among wholesale businesses
for the more desirable location sites. This resulted in the
building of multi-story units rather than single floor ware-
houses.

The introduction Of the elevator in the 1850's did much
to perpetuate the multi-story warehouse. Previously, many
other rigger's devices had been used in the raising and lower-
ing of goods. The elevator was more efficient than any of
these devices and resulted in an Operational saving to the
benefit of the wholesaler.

During this period, products were packaged in a consid-
erably different manner than they are today. The barrel,
bale, hogshead, cask, chest and sack constituted the shipping

Containers in greatest use. These items were bulky and heavy

20

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(

 

 

   
 

 

 

 

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madam ho pdmohmm mOme updofinmddndpmfi mHmESO Hfiwpmm on
.mmmsmmxm weapwnmmo madam mo admonom

 

emsoa ”mmszso mmAHeemm oe mmqam so meeezaomsm
membommmee awesome m>Ha¢mmmooo mmqeaaam

>H mnmqg

21

 

 

 

 

 

 

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5.0 ooo.msm.sms mam weapnomoa poz
H.0H ooo.smm.mm em peaches oa seep mama
H.m ooo.~oa.omm ems peaches a.om-oa
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mmmH<MHHOmS mbomw MMdBZDHO>

b mqmfia

22
exceeding greatly the average fifty pound unit package Of to-
day. Because of this and in an effort to increase storage
Space, low ceilings along with many floors characterized the
warehouse construction. The low ceiling is poorly adapted to
the modern warehouse Operation which often stacks goods to
considerable heights.7

The grocer Of this period was naturally influenced to a
large extent by the progress and influence Of the wholesaler
who was the principal source of supply for the retailer. The
goods which the grocer received were in bulk quantities re-
quiring re-packaging in many instances. This activity re-
quired much time which added to the necessity Of having 30 and
to percent margins. Many food products were produced by the
consuming unit. This condition supported the low volume Oper-
ation which produced yearly sales per employee Of $2,000 to
$3,000.8

Always following the dominant factor in transportation,
the railroads supplied the impetus for wholesalers to move
from the waterfront to the railroad. The re-locating of ware-

houses did not result in improved buildings. Wholesalers

 

7M0dernizing and Operating Grocery Warehouses. United
'States Department of Commerce. Domestic Commerce Series Num-
ber 26. U. S. Government Printing Office, Washington, D. C.
1951

'8George E. Kline. "How Stores Have Changed Over The
Years." The Progressive Grocer. 31:10, October 1952. p. 5h.

 

23
continued to eXpress the tendency to disregard the influence
which physical facilities have on Operating costs until after
the first World War.

The competition of the corporate chain forced the reali-
zation Of the necessity of reducing Operating costs upon the
wholesale business. The problems Of materials handling be-
came of significance with the advent Of the Davidson System
in the late 1920's. This system attempted to apply the sav-
ings Of the assembly line techniques to materials handling in
the warehouse. The importance of construction, use of mech—
anization and other time saving devices are now generally
recognized throughout the food wholesaling industry. However,
the vast majority of fbod wholesalers still continue to Oper-
ate from multi-story buildings.9

The retail phase Of the industry has progressed as fast,
if not faster, than wholesaling in the improvement of methods.
One of the greatest progressive steps at the retail level is
the change from service to self-service. The story Of this
change is factually presented by a study of percentage margins
and yearly sales per employee as shown in Table VI. The rev-
olutionary effects Of self-service in food retailing has had
far reaching effects within the entire food industry. Self-

service and volume selling started out hand-in-hand.

 

9Modernizing and Operating Grocery Warehouses. Op. cit.,
p. 2.

GROCERY MARGINS

TABLE VI

AND SALES

2h

PIER EL'TLOYEE*

 

 

W
Annual Sales Margin
Year per Employee Percent Remarks
19th C. $2,000 - 3,000 30 - LO
Service stores
Goods out of reach of
1900 4,000 - 5,000 25 - 30 customer
More packaged goods
1925 8,000 -10,000 20 - 25 More perishable goods
_ 31 percent with self-
19h6 26,000 15 - 20 service
76 percent Of sales
made in self-service
1951 42,000 - stores

 

 

 

 

*Source: George E. Kline.

Over The Ye
31:10, Octo

are." The

"How Stores Have Changed

Pnsgressive Grocer.

 

ber, 1952.

P. 51+.

25

Self-service lowered the Operating expenses of retail
stores. More emphasis was placed on the packaging of the
product at the production level. The increased volume of the
individual retail unit created a change in emphasis on
sources of supply. The wholesaler began to lose his position
of dominance in the field Of food distribution which he held
a century earlier. The former producer was characteristic-
ally a smaller, independent business man. The retailer also
fitted into this classification. These Operators relied
heavily upon the wholesalers' service. Direct selling or
buying was practically non-existent.

The present expansion of manufacturing into mass-produc-
ing industries has placed increased emphasis upon manufac-
turers' sales volume. The unwillingness of wholesalers to
promote one single manufacturer's line stimulated the activ-
ity of direct selling. The development of large scale re-
tailing with the attendant interest over cost control and
price appeal have generated pressure for direct purchasing in
hOpes of Obtaining goods at a lower price than through the
other channels of distribution.10

Table VI indicates in condensed form the evolution of

food retailing. The nineteenth century store had the lowest

 

lONathanael H. Engle. "Chain Store Distribution vs.
Independent Wholesaling." Journal of Marketipg. September,
1949. p. 2hl.

 

26
sales per employee and the highest markup. A gradual pro-
gression is shown toward higher sales per employee and a re-
sultant reduction in the markup percentage on the individual
item. The higher sales volume makes possible this reduced
differential between purchase and selling price, because of
the profit influence of merchandise turnover. The increased
emphasis on sales volume is indicated by the growing impor-
tance Of self-service. Through this device, the largest
sales per employee are obtainable, due to the fact that the
personal selling on the part of the retail salesman is re-
duced. The customer selects the desired merchandise from
conveniently accessible displays. The personal salesmanship .
has been partially replaced by other types Of salesmanship
which the well informed food merchandiser must be aware Of
and must utilize to get the maximum sales per employee and
the maximum efficiency from his enterprise.

Prepackaging is one of the important tools of self-serv-
ice merchandising. The package partially replaces the sales-
man, and the importance of packaging is indicated in Table
VI as it progresses in relation to the increase in sales per
employee. A self-service package must attract attention, de-
velOp interest and give information about the product in a

ll
manner which is effective enough to close the sale. The

 

llEgmont Arena. Chap. 18. "Packaging for the Mass Mar-
ket." Paul Sayers, Editor. Food Marketing. New York:
iVICGraW'Hj-llo 1950. p0 2260

 

my

27
size and design Of the package makes it possible for the
customer to select with ease.

The higher sales per employee shown for 1951 is the re-
sult of self-service, prepackaging and the other factors of
mass marketing Of food at retail. The differential between
sales and cost price is not shown for 1951, but current re-
ports indicate this is in the vicinity of 17 percent for the
combined sales Of groceries, fresh meats and fresh fruits and

vegetables.

Trends in Distribution Channels

Traditionally the Wholesaler of the nineteenth century
was the dominant figure in the marketing of all consumer goods.
He was the important financier of the manufacturer and the
retailer. This was due largely to the fact that there was a
smaller, agrarian population in the nation with a slower stock
turnover resulting. Transportation and production were slower,
requiring retailers to carry larger inventories. Thus, large
stocks with slow inventory turnover made heavy demands on the
working capital.

After the Civil War, changes began to occur in manufac-
turing. Machines with increased efficiency were developed and
costs were generally reduced in manufacturing. The increased
volume production with attendant decreased costs per unit set
the stage for the entry of the business philOSOphy Of large

volume, low margin selling.

28

Manufacturers now began a drive for volume sales. This
was done by branding and advertising in an attempt to differ-
entiate a particular product to the consumer. This advertis-
ing and promotional activity on behalf Of the manufacturer
resulted in demand creation. Since the manufacturer was di-
rectly responsible for creating this demand, there was re-
luctance on his part to allow the wholesaler the usual mar-
gin of profit. Volume, low cost per unit selling was much
slower to be accepted by the wholesaler than by the manufac-
turer.12

In an attempt to combat this demand for lower selling
profits which were being imposed by manufacturers, the whole-
saler established private labels of his own which provided
him with a larger margin and, in turn, received the selling
emphasis of the wholesaler. Activity of this type served to
split the manufacturer and wholesaler farther apart.

The last quarter of the nineteenth century saw the be-
ginning of the growth of large scale, integrated retail or-
ganizations, such as, department stores, chain stores, mail
order houses, and supermarkets. Each Of these organizations
was interested in Obtaining volume through lower selling
prices. This goal was made possible by the following activ-

ity. These organizations purchased directly from the

 

12Edward A. Duddy and David A. Revzan. Marketing. New
York: McGraw-Hill Company, Inc., l9h7. p. 252.

 

29
manufacturer in large quantities. They dispensed with many
services on the behalf Of the retailer. They Operated in
cities where pOpulation was dense. In this manner, they were
able to undersell the independent retailer who was the custo-
mer of the wholesaler.

It was becoming Obvious to wholesalers that they were
being faced with a problem involving both horizontal and ver-
tical integration. The success of the wholesale business
was dependent upon the success of the wholesalers' customers.
The retailers' doors were never locked against the salesmen
of other wholesalers. However, if the retailer was to be
successful, he must make it possible for the wholesaler to
Operate economically. The chain organization represents a
streamlining between producer and consumer. This condition
is important tO the independent retailer. The independent
must realize that his help in reducing wholesaler eXpenses is
actually reducing the cost of goods at the retail level.

On the other hand, the wholesaler must respect the prob-
lems of the retailer. This would be indicated by assisting
the retailer to buy judiciously and to avoid overstocking.
Furthermore, only merchandise needed by the customer and im-
mediately deliverable to the retailer should be sold. Final-
ly, the wholesaler had to become interested in cOOperating
completely with the retailer in all possible phases and to

help the retailer to Operate a better store.

30

The full service wholesaler is traditionally the person
referred to when the word "wholesaler" is used in common
parlance. In 1929, it was estimated that one-half of the
total supply of manufactured consumer goods passed through
the hands Of a service wholesaler. Data Obtained by Census
of Business surveys between 1929-1948 indicate that the num-
ber of such wholesalers has increased 79,78h to lh6,518, al-
though their overall sales have declined (See Tables VII and
VIII).

During war years, there is an indicated shift to direct
selling. It is believed that the companies are discovering
a higher cost in direct selling to get comparable distribu-
tion. The wholesaler is the key factor in distributing a
relatively low priced article which is sold in comparatively
small quantities to a large number of outlets over a wide geo-
graphic area. Items successfully jobhed by wholesalers are
most Specifically those which manufacturers merchandise by
advertising, sales promotion and retail missionary work. The
manufacturer must have a sufficiently wide distribution be-
fore any return can be realized on money spent for sales pro-
motion.

Direct distribution on the part Of manufacturers incurs
heavy investment in fixed assets, inventory and salaries.
These represent, to some extent, inelastic costs which are in-

flexible in periods Of declining sales. Direct distribution

31

 

 

 

 

 

 

 

 

 

 

 

 

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cameo .1
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mBZflmeHHm¢Bmm mu<mmaom3 ho mmmEDz
HH> Manda

32

.mhmammmaogs no sOHpmwoommm HmGOflpmz

 

 

 

 

 

 

 

 

 

 

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“meow_soz .wsfiammoaoms .mawsm .m Homswnpwz was swaMomm .z msooomsa “mmomsom*
¢.wa m.m I o.m o.wm m.m4 ooa mama
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use handsoo some? made modem teach; Hmpoe meow
mpsmw< oHOpm MHdm mnmnspowmssmfi
nacho

 

 

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mBZEEMmHAm<Emm mflfimmqoma

HHH> mqmwa

33

by the manufacturer is enhanced by large scale production.

A long line of merchandise Of a high unit value or perish-
able or style goods also aids in direct distribution. The
success of a direct distributing.manufacturer is augmented

by a strong financial position and a densely pOpulated market
of large unit purchasers.

Tables VII and VIII point out three things Of relative
importance for this discussion. From.this data, it can be
Observed that there is a decline in the total sales Of whole-
salers prOper classification and an attendant increase in
the number of businesses in this classification. Wholesalers
prOper are those organizations which are usually independent
and are engaged in the buying and selling Of goods on their
own account. This includes wholesale merchants, exporters,
importers, and limited function wholesalers.

The information listed under the classification Of
agents and brokers indicates a similar condition to that found
under wholesalers prOper. However, there is shown here a de-
cline in sales associated with a mild increase in the number
of establishments. A broker is defined as a wholesale middle-
man who negotiates transactions between buyers and sellers
without having direct physical control of the goods. They
transfer important market information to their principals and
are paid a commission on sales of the product in the terri-

tory over which they have selling jurisdiction. Selling

3h
agents Operate similarly to brokers except that they are
given full authority as to prices, terms and sales territory.

The manufacturer's sales branches are wholesale outlets
owned and Operated by manufacturers. They are used almost
entirely for the distribution of their own products. These
sales branches are of the type which carry no stock, but act
as a sales office Specifically, and those that do carry a
stock on hand and, thus function in the capacity of a spec-
ialty wholesaler to a limited extent. During the 1929—l9h8
period, a rather marked increase is snown in the sales from
manufacturers' sales branches. This sales increase is also
accompanied by an increase in the number of outlets of this
type.

Table IX presents the comparative importance of the three
types of wholesaler establishments shown. The service whole-
saler occupies the most important position in sales as well
as numbers. From a sales standpoint, the 1933 depression
period had a more serious effect on the service wholesaler
group. The number of cnain store warehouses was reduced dur-
ing this period, but sales for the same 1933 period increased
considerably.

Thus, it is evident that there was a tendency toward a
reduction in numbers of chain store warehouses during the
depressed economic conditions of 1933. The increase in sales

of the chain warehouses in this same period reveals the

35

302

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mmma mmma mama mmma mmma mama .

 

 

 

 

 

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madam pmz

 

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mo memes mamme mo mnzmme meaome

NH mHm¢B

 

36
greater influence claimed by this group in the less active
as compared to a more prOSperous economic period. It can be
seen that there has been a definite increase in chain store
warehouses.between the years 1933—1939. However, their in-
fluence on the total market has not changed to any consider-
able extent.

The following pages will attempt to present a living
comparison. This introduction furnishes background informa-
tion on wholesaling in general as well as some specific
types. It is thereby intended that the reader might become
better acquainted with the structure of the whole as well

as the elements to be analyzed.

CHAPTER II
A CORPORATE FOOD CHAIN
History

The founder of this business, Bernard Henry Kroger, was
the son of a German immigrant who came to this country in
1821. The post Civil War depression period was the scene of
the failure of the elder Kroger's dry goods business in
Cincinnati. At the age of 13, the younger Kroger obtained
his first job which was in a drug store. His next job was
with the Great Nbrthern and Pacific Tea Company. He was
fifteen years old when he took this job which introduced him
to the grocery business. His duties with this organization
were to solicit orders for coffee, tea and sugar. Then he
helped fill and deliver the orders, being paid a 3 percent
commission on his sales of coffee and tea.

Mr. Kroger worked for two other small sized grocery
businesses before organizing his own store. He was made man-
ager of the last store in which he worked. This store had
been showing consistent past losses. The store's business
increased a great deal under the first year of Hr. Kroger's
managership. The managership had been accepted on the basis
of a p12.00 a week salary and 10 percent of the profits, if
any. At the end of the year, hr. KrOger's bid for a partner-

ship in the business was refused. This is when Hr. Kroger,

38

along with his partner, Mr. Brannigan, went into business
for themselves.

Two major setbacks were encountered in the first year
of Operation Of the new organization. A wagon route was one
of the first and foremost features which Mr. Kroger empha-
sized in the new business. An expensive horse, new wagon and
harness were purchased by the partners for the wagon route.
The horse and wagon, loaded with groceries, were destroyed in
a collision with a train. The partner, who was in the wagon,
was not injured. The business was located in Cincinnati on
Pearl Street very close to the Ohio River. Mr. Kroger ar-
rived at the store one morning to find that the river had
risen and the store floor was covered with three feet of water.
The partnership had begun with a capital of $772.00. At the
end of the year, despite the setbacks mentioned, the assets
of the business were $2,600.00. NO net profit was indicated.1

Mr. Kroger purchased his partner's interest the follow-
ing year. A problem soon presented itself in that the store
lease expired.‘ The leasor demanded more rent from this suc-
cessful business man. PeOple told Mr. Kroger that his busi-
ness was successful because he had a good location. However,
Mr. KrOger felt that there were more facts concerned with

his success as a grocer than location alone. Against popular

 

1The Kroger Company. Mimeographed Material.

39

advice, Barney Kroger decided to give up his advantageous
location and move into a new location which was on a side
street.

hr. Kroger's hunch was justified. His old customers
stayed with him and he Obtained new customers regularly.
when hr. Brannigan's Share in the business had been purchased,
the name Of the business was changed to the Great Western Tea
Company.- Kroger's success with the one store stimulated his
interest in Obtaining other stores. In 1885, two new stores
were Opened, and there were seven stores by 1891; 17 stores
by 1893. The Kroger chain organization had begun to take
form. ‘

The business was incorporated in Ohio in 1902 as the
KrOger Grocery and Baking Company. A sizeable increase in
the number of stores was evidenced by the acquisition of the
Great China Tea Company in 1908. Further growth through var—
ious other purchases is indicated by Table X.

In 1943, the company purchased the Manufacturers and
Merchants Indemnity Company. Another subsidiary is the Wesco
Foods Company which is active in the buying of fresh fruits
and vegetables. The present name of the Kroger Company was
adOpted in 19h6. This company, as Of December 29, 1951,

Operated 1,978 stores and had a total net sales of $997,086,000.2

 

2John Moody. moody's Manual Of Investments. 1952.
p. 1866.

no

The Kroger Company now Operates 25 branch Offices which
control a total of 1,985 stores. These stores are located
in 1,392 cities. Each branch has a great degree of indepen-
dence from the remainder of the company. The complete Kroger
organization includes 21 manufacturing plants and 29 ware-
houses.3 A recent report announced that total sales for this
company had t0pped the one billion dollar mark. This volume
made the Kroger Company the twenty-sixth United States' busi-
ness to reach the one billion dollar sales figure.

The general office of the entire company is located at
Cincinnati, Ohio. The various divisions of this office are
presented on the following page, Chart 1. Since it is a
corporation, the stockholders, represented through the board
of directors, are at the head of the entire organization.
Next in line of authority is the president.

The divisions on the organizational chart indicate the
scOpe of the company. Few outside agencies have to be called
upon for the business to accomplish its goal. The manufac-
turing Of merchandise is controlled to a limited extent. It
will be noted that many of these divisions Of the general

office are again represented at the branch level. The

 

3Thomas Fanos, Jr. A Study of the Construction Of News-
paper Advertisements Within Retail Food Chains. A Thesis.
Michigan State College. 1952. p. 85.

“Time. February 23, 1953. p. 94.

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1+2
headings will indicate to the reader the responsibilities
assumed by each division. Assuming that this is the case and
without going into a detailed discussion of these divisions,
some things concerning this chart should be presented at this
time .

The independence from the assistance of outside agencies
was mentioned before. The organization chart shows that the
major needs for the Operation of the business have been re-
duced to separate divisions. Specialization is utilized as
each division is concerned with the problems of whatever par-
ticular phase it is involved with. Responsibility is appor-
tioned upon the men in charge of each Special category. Re-
lationship or interdependence is indicated. In this manner
cooperation and integration of the entire Operation is fos-
tered. Thus, the greatest realization can be made of the ad-
vantages Of specialization without loss of the ultimate Ob-
jective of the business. A chart such as this defines the di—
rection of control and the responsibilities Of each division
head.

Chart 2 shows the organization as represented by the
branch. The branch is a unit of this company generally ar-
rived at through geographic considerations and needs Of a
Specific area due to the concentration of retail units in that
locale. The overlapping of Operating divisions such as the

merchandise divisions between the branch and general office

#3

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levels will be recognized. The object in the duplication of
divisions is to gain results in a complimenting and not in a
repetition of efforts between the general Office and the
branch. The important autonomical position of the branch is
made possible through the complete organization Of all oper-
ating phases at the branch level.

Table K shows the sources of new outlets and manufactur-
ing businesses Which contributed to the eXpansion of the com-
pany. It will be noted that the majority of acquisitions
were made from smaller chains of food stores. This informa-
tion indicates that the greatest period of eXpansion came in
1928. During this year, 1,660 business units were purchased.
The following year also Showed a large gain amounting to 592
units.

The high point in total sales came in 1929, as indicated
in Table V . A decrease in total sales followed this high
point until the year l9hl. bales then continued on a yearly
increase. However, since the high sales year of 1929, the

number of store units shows a steady decrease through 1952.

Purchasing Procedure
The buyer is responsible for procuring the necessary
needed items. He must maintain prescribed inventories in re-
lation to the budget. Buying is done through various company
field representatives and through the general Offices Of the

company.

TABLE X
AC<.;UISITION or sroms*

#5

 

Name City Year Stores
Cincinnati Grocery CO. Dayton, Ohio 1903 -
Schaeffer Grocery CO. - 1903 -
Shappell Nagel Company Cincinnati, Ohio 190A 1h
Great China Tea Company Cincinnati, Ohio 1908 40
Schneider Gro. & Baking Co. " " 1908 15
haurer Remley heat &

Grocery Company St. Louis, MO. 1912 25
Ohio Grocery & Baking Co. Columbus, Ohio 1916 8
Community Grocery CO. Detroit, Mich. 1917 104
Raleigh Stores - 1917 8
Schneider Bros. - Mayne

Wholesale Grocery Detroit, Rich. 1916 13
Tanian Brothers Columbus, Ohio 1917 12
Tiedtke Thrift Stores Toledo, Ohio 192h #8
D. P. Childs Stores Indianapolis, Ind.l92h 70
P. W. Sloan Co. Paducah, Ky. 1927 -
Cleppe & Bartosch Muskogee, Okla. 1928 5
P. w. Ellis Company Indianapolis, Ind.l928 a
Curtis Creamery Grand RapidS,Mich.1928 -
Three Rivers Grocery CO. Fort Wayne, Ind. 1928 h
Hoosier Grocery Stores

Of Ft. Wayne Fort Wayne, Ind. 1928 73
Foltz Grocery & Baking CO. Cincinnati, Ohio 1928 195

TABLE X (Continued)

46

 

 

Name City Year Stores
Missouri-Illinois Stores

Company St. Louis, MO. 1928 148
Eagle Grocery CO. Pittsburgh, Pa. 1928 114
C. Thomas Stores, Inc.

(with subsidiary and

affiliated companies) Grand Rapids, Mich1928 167
Piggly-higgly Valley CO. Louisville, Ky. 1928 108
The Middle States Stores

Company Cin.-Dayton, O. 1928 30

(P.W.)
The Columbus Piggly-

Wiggly CO. Columbus, Ohio 1928 31
Heilman Baking CO. Kadison, hisc. 1928 none
Fly & Hobson CO. memphis, Tenn. 1928 115
Cox Stores Little Rock, Ark. 1928 176
Sipes Service Stores Oklahoma City,

Okla. 1928 9
Piggly Wiggly CO. Muskogee, Okla. 1928 5
Hoosier Ft. hayne, Ind. 1928 73
Universal Madison, Wise. 1928 81
Piggly Wiggly Cincinnati, 0. 1928 12
Piggdy Miggly Dayton, Ohio 1928 19
P. W. a Kohn St. Louis, MO. 1928 148
Piggly Wiggly Cleveland, Ohio 1928 19
Piggly wiggly Memphis, Tenn. 1928 58
Mid-Continent Stores Wichita, Kane. 1928 -

TABLE X (Continued)

47

 

Name

City

Year Stores

 

kissouri-Ill. Realty 00.
Pisely Wisely

Piggly Wiggly

Pisely Wisely

Piggly Wiggly Johnson
Dunn Stores

Chas. Budnick Stores
Landrum & Sons

McDuvell P. W. Company

Patterson Wholesale
Grocer CO.

Richard Bros.
P. W. Franklin CO.

Roanoke Groc. &
Killing Co.

Consumers
Keyes
Piggly Higgly - Irwin

Piggly Wiggly & Lewis
Ponca Stores

Piggly Wiggly - Franklin

Thrift (H. W. Bray & CO.)

Jamison

St. Louis, Mo.

Ft. Mayne, Ind.
Indianapolis, Ind.
Detroit, Mich.
Grand Rapids, iich.
Hichita, Kans.
Keystone, W. Va.
Ponce City, Okla.
belch, W. Va.

Harrisburg, 111.
Columbia, Mo.

Tulsa, Okla.

Roanoke, Va.

madison, Wise.

Kemphis, Tenn

Oklahoma

'Tulsa, Okla.

Herrin, 111.
Kansas City, Kans.

Roanoke, Va.

City, Okla.

1928
1928
1928
1928
1928
1928
1929
1929
1929

1929
1929
1929

1929
1929
1929
1929

1929
1929
1929
1929
1929

10
16
28

324
10
11

21
15
41
35
91

48

TABLE X (Continued)

 

 

Name City Year Store:

Piggly Wiggly Roanoke, Va. 1929 8
Liberty Roanoke, Va. 1929 5
Piggly Wiggly - Harrisburg Herrin, Ill. 1929 2
Patterson Green Lantern Herrin, Ill. 1929 12
National Tea Kansas City, Kans. 1929 9
South Michigan Piggly

Wiggly Co. Battle Creek, Mich.1930 8
Piggly Wiggly Haynes Columbia, MO. 1929 -
P. W. Oklahoma Co. Tulsa, Okla. 1929 -
Jos. Peebles Sons Cincinnati, 0. 1932 1
Minn & Lovett Atlanta, Ga. 1935 -
Larkin Stores Peoria, Ill. 1937 67
P. H. Butler Co. Pittsburgh, Pa. 1938 9
Oakley Stores Terre Haute, Ind. 1939 58
Model Grocery & Baking 00. Springfield, Mo. 1941 15
Carrs, Inc. Janesville, Wis. 1945 6

 

*Source: The Kroger Company. Mimeographed Material.

TABLE XI
racers COMPANY SALES 1902 - 1951*

 

 

Year Stores (In Tagagands)
1882 1 (b)**
1885 3 (b)**
1891 7 (b)**
1893 17 (b)**
1902 40 1,751
1907 83 3,862
1910 119 6,448
1911 113 6,389
1912 157 8,070
1913 162 8,475
1914 196 9,283
1915 , 209 10,435
1916 258 12,556
1917 516 23.342
1918 554 25,851
1919 712 34,603
1920 903 50,706
1921 992 44,851
1922 1,413 53,754
1923 1,800 74,339

1924 2,127 90,125

 

TABLE KI (Continued)

 

 

Year Stores (In ngizands)
1925 2,856 116,235
1926 3,369 146,009
1927 3,749 161,261
1928 5,260 207,373
1929 5,575 286,611
1930 5,165 267,094
1931 4,884 244,371
1932 4,737 213,160
1933 4,400 205,692
1934 4,352 221,175
1935 4,250 229,907
1936 4,212 '242,273
1937 4,108 248,444
1938 3,992 231,295
1939 3,958 243,356
1940 3,727 258,115
1941 3,477 302,765
1942 3,174 388,847
l943 2,999 422,427
1944 2,896 448,381
1945 2,730 457,332
1946 2,611 567,487

TABLE XI (Continued)

‘_—_

 

-__.

51

 

Year Stores (In gfigizands)
1947 2,516 755:282
1948 2,349 825,668
1949 2,190 807,739
1950 2’05“ 861,243
1951 1,978 997,086
1952 1,927 (b)**

 

*Source: The Kroger Company.

**(b) Unobtainable.

Mimeographed Material.

52

All canned fruits and vegetables are Obtained at the
branch warehouse level by ordering through the general Office.
This is thought of as buying from the general office. The
procedure is identical to that of procurement through any
other supplier. However, stocks of merchandise are not main-
tained at the general Office. This Office simply acts as an
ordering organization for all of the branches concerning
these items.

Negotiated buying of private label canned goods is a re-
Sponsibility of the general Office. Ordinarily several or-
ganizations are contracted as suppliers. The various branches
then order the private label requirements directly from the
manufacturing concern and not from the general Office as is
the case with other canned goods.

The branch produce buyer is in daily contact by phone
with the procuce subsidiary of the company which is located
in Chicago. This subsidiary teletypes market information to
the branch produce buyer daily. Using this information as a
guide, the branch orcer is placed. The bulk of the fresh
produce is purchased through this subsidiary, and the remain-
der of the items are Obtained on the local market. Produce
is warehoused in the branch warehouse and store deliveries
are made several times a week to individual stores. The com-

mon practice is for daily produce deliveries.

53

Facilities are also available for the warehousing of
meat products in the branch warehouse. All meat warehoused
here is ordered from processing plants which are in no way a
part of the company.

It is the responsibility of the branch buyer to arrive
at the retail price. To aid in this, past records are main-
tained showing the markup percentage of each group of items
and the resulting sales profit which this markup produced.
The prices which are placed on the goods are the retail price.
All selling price calculations are carried out at the ware—
house level. The retail store manager is informed of these
prices by means of printed forms commonly represented by the
shipping invoice in non-centrally controlled businesses.

Purchasing of goods for this retail food chain are actu-
ally carried on through two levels similar in organization.
These levels are represented by central office and branch of-
fice purchasing officers. Thus, there are found grocery,
meat and produce merchandisers all of whom head a staff and,
in turn, report to the vice-president in charge of merchandis-
ing. This is at the central office level. At the branch,
there are also grocery, produce and meat merchandisers which,
in turn, head a staff and are responsible to a merchandising
manager or some officer who takes the place of a merchandis-
ing manager. In cases of smaller branches, this position is

filled by the branch manager.

54
The similarity of organization does not mean that the
functions at the two levels are of a duplicating nature.
(Hie grocery merchandiser at the branch level oversees the

1

\erk of specialists vno are responsible for the taSk of nego—
tiated buying and the procuring of many other grocery prod-
ucts. The branch grocery buyer is then able to order his re-
quirements through these central offices, knowing that the
buying adjustments have been given every possible considera-
tion necessary to aid in placing the product on the retail
shelf‘of a store in his branch at the lowest possible cost.
The meat, produce and, in some cases in which a Special dairy
depelrhient exists, dairy merchandisers work hrough their
certral.office counterparts in a similar manner although dif-
ferirmg as to form because of the fact that the other classes
0f eroducts reguire different sources and, therefore, involve
buying techniques wnicn are necessarily different.

'The mercnandising staffs at the central office level em-
PlOY buying specialists as was mentioned in the case of the
gjccerjrjnerchandiser. The meat merchandising department es-
tahthflies contact with permanent buyers at the various meat
market.locations. Produce buyers report to the produce mer-
Chafldisjnng section of central office on conditions in the
field Of‘ production. These men are constantly on the move

1.

H

Curing tina‘various growing seasons because the varying c

fiatlc Ccndditions produce changing markets throughout the

55
period of production. Permanent buyers are also employed in
certain areas of heavy production such as the west coast.

Sales strategy planning is an important function of the
central office. The mercnandisers and buyers of the various
departments naturally play an important role in sales strat-
egy formation. The creation of sales plans requires the ut-
most knowledge of all persons concerned. From these meetings,
policy for the future is determined. Advertising mats are
distributed to the various branches. The advertising book
and display catalogue further aid the branch in taking advan-
tage of sales planning at the central office level. Through
such centralized planning, bargaining power is also increased.
There exists a clear cut, efficient medium through which co-
ordinated sales-planning involving producers can be carried
out. In this manner, maximum utilization of the advantages
which can be gained by working with manufacturers is possible.

The branch is allowed a great deal of tolerance in the
utilization of the prOposed advert’siig mats and general
sales plan. This policy reflects the recognition of differ-
ent markets in widely separated geographic areas. Further
discussion is presented on this point under the section of
this paper involved with advertising.

The branch level buying organization is typically repre-
sented by the same buying offices as at the central office
level which include grocery, meat, produce and sometimes a

separate dairy merchandising division. The buying phase it-

56
self is actually considered a part of the merchandising
staff. In some cases, a buying office, such as grocery mer-
chandiser, will contain a buying and a selling department.

In other cases, the selling department function is primarily
performed by the merchandise manager of the given merchandise
division. This serves to incorporate a close relationship
between sales and purchasing.

An example of the coordination of these merchandise de-
partments is indicated by the technique followed in deciding
upon a new product. A typical panel is formed of the mer-
chandising staff, district managers, grocery buyer and sales
representative. Hereby, an Opinion is arrived at to either
stock the particular item or to reject it. This is a vary-
ing procedure and in some cases a decision can not be made
solely on the outcome of this meeting. The various groups
closely involved with branch sales planning are also given an
Opportunity to aid in mahing the decision.

Similar coordination is shown by the planning of coming
sales and advertising strategy. This is done through meet-
ings of the merchandising staff, and other members of the
company who have an interest in this policy formulation.

The survey form is also used to facilitate purchasing
within the organization. This is the name given to a form
which is sent to the various store managers within a district.

The main objective of such a form.is to gain information

57
concerning the volume of a certain item which a given store
manager feels he can sell within a certain amount of time.
Time enters into consideration because products which are
surveyed are usually items that are receiving some type of
promotional backing. It is, therefore, desirable for the
store manager to coordinate his supply of this product with
the length of time the promotion will be in effect. The
store manager returns the survey form to the particular buyer
involved. An accumulation of the total surveys can then be
used by the buyer to control the amount which he is to pur-
chase. The store manager must submit these survey forms to
the buyer several days before the actual sale is to occur.
The survey also serves the function of informing the store
manager of products which are to be featured at a coming date.
This, however, does not appear to be the primary function of
the sales survey. The work of informing store managers is
carried out by means of a Special sales plan sent to them
weekly.

In addition to surveys, buyers are aided by another re-
port form which is filled in by the store manager. Such a
form is used especially for seasonal items. The store manager
receives this form at the same time he receives his order of
merchandise. At the end of the sales period, the information
is known concerning the amount ordered and sold. This in-

cludes consideration of the amount sold at price concessions,

58
and other information of value in the movement of the prod-
uct over this period of time. The admpleted form is then re-
turned tO the buyer. The buyer then returns this same form
one year hence to the same store from which it was received.
The manager in the store then has the Opportunity to see ex-
actly what occurred last year concerning the sale of the par-
ticular product.

The experience Of the buyer receives much attention when
it comes to the selection of new products. Before the item
is considered, the buyer must answer certain questions in his
own mind about it, such as profit possibilities, storage re-
quirements, how can it be merchandised, what is the backing
of the manufacturer and what the competitive situation is.
Upon this basis, the buyer makes his decision Of whether or
not to submit the product to the inepection of the merchan-
dising board. The merchandising board consists mainly Of all
of the branch buyers and merchandise managers. If it is de-
cided to show the item to the board at the next meeting, a
check sheet is prepared by the buyer with the data of impor-
tance concerning the product in question.

The buyer also presents samples of similar items already
contained in the line so that a comparison can be made be-
tween the Old and the new at the time Of the board meeting.
Even if the board agrees to accept the new product, the buyer

must decide the initial amount to be purchased. In many

59
cases, a test Of the product is made by sending some Of it
to a few stores in the district. The sales in these few
stores then indicates to the buyer the extent of his ordering
in considering all Of the stores. The sales could possibly
show the buyer that the product should not be stocked at all.
The test stores are used primarily for items which are en-
tirely new. The product is tested for a given sales period
and the decision to buy is aided by this sales information.
This testing technique is variable. Some items receive no
sales test at all.

Merchandise control and thus, buying at the wholesale
level, has been greatly helped by inventory control machines.
The principal involved here is the utilization Of a model
stock control plan. Stock reordering is based on this model
stock plan. It should not be overlooked that the model stock
is subject to constant revision since it is dependent upon

such things as seasonal and economic factors.

Store Procurement
The personnel composing the branch management are gener-
ally located at the branch warehouse. This, then, becomes a
focal point of the organization. The typical chain store
warehouse assembles and stores dry groceries, fresh meats and
fresh produce. The retail units then order from the branch
warehouse.

In some cases, the standard order catalogue is used for

60
ordering goods from the warehouse. The quantity desired is
marked in the catalogue with a wax pencil. The completed
order is returned to the warehouse with the truck which
brought the goods ordered the previous time. The order cata-
logue is arranged into sections. These sections correspond
to the diaplay arrangement Of the products in the store. The
order catalOgue is not re-used.

Control sheets are used in ordering for the bakery, meat,
produce and in the grocery departments Of some branches.
These sheets provide a means of recording past orders. This
information covers a four week period. Ordering being done
at the present time can be guided by referring to what has
been ordered in the past. The control sheets supply a de-
tailed history Of past ordering and movement Of the goods.

The ordering of dry groceries, and other products as well,
is facilitated by the use of control sheets. The control
sheet lists items in sequence as they are found displayed on
the store shelves. The merchandise is also arranged in the
same sequence in.the waxehouse. Space is allowed on the
sheet for two orders a week for eight weeks. The store per-
sonnel write in the Space provided.the number of units Of
any given item desired. The decision concerning the number
of units is facilitated by the knowledge Of the number of
units ordered in the past, which the control sheet shows, and

the present inventory which is observed at the time of ordering.

61

The amounts written on the control sheet are then trans-
ferred tO a sheet which lists only the code number of the
article. This sheet is sent to the branch warehouse and the
control sheet is retained by the store. Similar procedures
are followed in the produce, dairy and meat departments.

The store manager is informed Of the retail prices for
merchandise delivered other than through the warehouse by a
bulletin which is sent from.the branch Office. The salesmen
contacting store managers must be cleared through the branch
office before the company will honor any bills for merchan-
dise purchased. The salesman must keep in contact with the
general Office concerning such things as price changes. Or-
dinarily sales of this type are on a contract basis for a
given period Of time. The retail price for the merchandise
is determined at the time Of the salesman's call at the gen-
eral Office. These prices are then sent to the store mana-
gers in bulletins from the branch Office. Three copies are
made of the order placed by the store manager at the time Of
the salesman's call. At the end of the week, the store mana-
ger sends all of his copies of orders for merchandise which
he has purchased from salesmen to the branch Office. The
store is then charged for these goods at retail. The sales-
man also sends a COpy of the receipted bill to the branCh
Office. The salesman's copy and the copy sent by the store

manager are then compared and paid.

62

The following page shows a representation of the order
form.and the control sheet form. NO attempt has been made
to represent these by scale. The content, however, is the
same as the forms used in practice. These are samples Of the
forms used in the grocery department of the food store. The
meat, produce, bakery and dairy departments also utilize the
control sheet principle in ordering although they take on a
different form from the ones represented here.

The store manager is informed of merchandise to be feat—
ured through a sales plan sent to him before the time of or-
dering in the store. Other techniques are used to keep
store personnel posted on merchandise which is receiving
Special promotion. The district manager plays an important
role in this respect along with Special announcements mailed
to store managers from.various merchandisers at the branch
headquarters.

Farm products or any products purchased locally are paid
for in cash by the store manager. The receipt for these
goods is then sent to the branch Office. Charges are made
back to the store at retail.

The ideal condition would be to have one order delivered
to each store each week. This rule varies with backroom
storage area, sales volume and other considerations. Emer-
gency deliveries can be Obtained usually in the same day that

the emergency order is placed.

3
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61.

Each store is given a prescribed time for its orders to
be in the warehouse. The order is placed approximately four
days before it is received. Some Of the larger volume stores
have three deliveries a week scheduled. These stores divide
the order into three sections. Ordering is done for one sec-
tion of the store at a time and each section comprises a load
Of merchandise. The entire store is not covered in the or-
dering process when this method is used. Some.managers pre—
fer to order for the entire store even when the orders are
received three times a week. All merchandise is billed to

the store at retail price. The manager does not calculate the

retail price of any of the merchandise.

Store Supervision

The store manager is under the direction Of a district
manager who is in turn under the supervision of the general
district manager. The district manager is available to as-
sist the store manager at any time a Special problem arises
where the store manager considers that his aid is needed.
The district manager also makes regular unscheduled calls on
the various stores in the district. A district usually con-
tains about ten stores and the district manager is reSpons-
ible for the prOper Operation of each one of these stores.
when something goes wrong, such as consistent inventory short-

ages, he must spend a considerable amount of his time at this

65
one store in an attempt to aid the store manager in solving
the problem involved.

The general district manager controls the Operation of
all stores in the district through store reports. These re-
ports are in the form of weekly sales reports with a compar-
ison of the sales for this same week one year ago along with
the sales of the immediately preceding week. The number of
clerk hours to sales is also reported (one clerk hour for
each $100 sales is the goal). Period inventory reports are
also sent in to the district manager as well as weekly cash
register balance reports snowing the cash register overages
and shortages for the past week. The general district mana-
ger also visits districts along with the district manager.
The general district manager must confine his visits general-

ly to districts which have the most pressing problems.

Mercnandising Program

The principal function of a distributing organization
such as this one is selling. All activities must be pointed
toward the ultimate goal of increasing sales. Merchandising
meetings are designed to coordinate the selling activities of
the entire organization.

The merchandising personnel of the branch office con-
sists principally of grocery, produce and meat buyers and
the merchandise managers. The buyers are reaponsible to the
merchandising manager who is, in turn, reSponsible to the

branch manager. A merchandising board is centered around

66
these individuals at the branch level. Other persons on
such a board are district managers, advertising department
representatives, and warehouse and service department offi-
cers. Store managers ordinarily attend these meetings on a
rotating basis (See Chart 3).

During their weekly meetings, new products are presented
to the group. Their feeling is obtained as to whether or not
the product should be stocked. At this time, cans of goods
are often Opened and samples are judged. The buyer has an
Opportunity to present all of the facts concerned with the
product which would affect the sale. mach man on the merch-

andising board states his op'nion concerning the product and

f)

it- sales potential.

(

Advertising and special sales promotions are presented
for the coming sales period. The advertising layout is pre-
sented to the group just as it is to appear in the paper for
each of the four weeks. Each person on the board is per-
mitted to express his opinion concerning the advertising.
There are times when the advertising man must re-plan his en-
tire layout due to the group opinion. There are other times
when the layout is not changed in any way. Further discussion
will be presented concerning the mechanics of the advertising
department in this chain organization.

Sales performance for the past period is reviewed at this

meeting. The performance record indicates the weakness which

(I

,

can be overcome by proper action in the coming period. Sales

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68
profits and volume are compared to a sales and profit budget.
This serves to indicate the position of the branch concern-
ing planned Operations. The merchandising meeting is pro-
vided for the consideration of past performance and the pre-
sentation of plans for the coming period.

This information is carried back to the store managers
through the general district manager and district managers
by personal communication. The sales plan is an important
printed communication which the merchandising group has with
the store managers. A sales plan lists all items which are
going to be advertised in the coming week. Such advertising
will appear on Thursday approximately eleven days after the
store manager receives the sales plan. This allows time for
the store to receive a delivery from the warehouse before the
advertising is printed.

The "survey" is sent to each store manager by any one of
the buyers. The buyer can then determine more accurately how
much of an item.a store manager believes he can sell during
this promotion or under other specific selling conditions.
The survey is a method of determining the selling potential
of all the stores in the branch. Such information is then
used by the buyer in deciding what quantity to buy.

It is recognized that the actual organization of the
weekly sales meetings is variable. At regular intervals, the

planners of sales strategy meet with the field organization

69
personnel primarily reSponsible for the successful execution
of sales strategy. Such is the general pattern of the sales
meeting.

The field group is given recognition through these meet-
ings. They are allowed to participate in future sales plann-
ing. Reasons for policies can be stated at this time and any
questions arising clarified at once. It provides the Oppor-
tunity for the responsible personnel in a selling organiza-
tion to meet for a short period each week to take part‘in a
planned program for future prOgress. The exact techniques
used to accomplish a sales objective are necessarily variable,
reflecting the personalities of the group. However, the,over-
tone of Optimism appears to be a constant element in the ef-
fort to accomplish the selling objective.

The period sales meeting which is held once a month is
a larger meeting than the weekly merchandising meetings that
are held each Monday. Plans for the entire four week period
are discussed at the period meeting. District managers and
some store managers are included at this time. The weekly
merchandising meetings consist principally of the merchandis-
ing heads, buyers, advertising and management departments.

In general, the weekly meeting is a fbllow through on the
plans of the period meeting and is a less extensive meeting
as far as policy formulation and number of employees present

are concerned.

70
Advertising5

The advertising of this grocery chain is approached
through two advertising organizations within the company.

The functioning of these two advertising departments and the
relationships of one to the other will be explained.

The organizational chart of the general office indicates
an advertising department located under the sales promotion
department which is part of the merchandising division of the
general office. A more complete idea of the organization of
the general office advertising staff is shown by the follow-
ing chart (Chart A).

The entire advertising department consists of six sec-
tions and 28 employees. These employees are responsible to
the advertising manager who reports to the vice president in
charge of sales promotion. a brief description of the duties
of these various departments will serve to eXplain more fully
the role which this advertising department plays in the over-
all promotion of the company.

The packaging department is the smallest of the six de-
partments. The reSponsibilities here are in the development
of labels to be used on manufactured products of this food
chain. These labels are designed and produced in this de-

partment.

 

5Thomas Fanos, Jr. A Study of the Construction of News-
paper Advertisements Within Retail Food Chains. A Thesis:

h chigan State College. 1952. passim.

71

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72

Each branch is contacted concerning the particular news-
paper requirements and requests for that area. Local condi-
tions, competition and what other branches are doing is given
consideration.

The radio shows are actually develOped by outside ad-
vertising agencies. They are reimbursed the standard 15 per—
cent fee. The planning and steps involved with the produc-
tion, from the advertising standpoint are part of the duties
of the radio division.

Store diSplay involves the creation and production of
store window banners, display signs, and interior decoration
involving merchandising. The store display is part of the
production department.

The sales message or written word is prepared by the
cepy section. The importance of this department can be readi-
ly recognized since the printed message is the selling mess-
age of the advertisement. The new approach to the presenta-
tion of sales message requires creativeness and this message
must be tied in closely with the work of the art department.

The copy or selling message is sent to the art depart-
ment. This is then considered and apprOpriate art is fitted
to the copy. The necessity for close cooperation between

the art and con

All

departments is thus made evident.
The production department is in charge of scheduling all

work in process. This department coordinates all departments

73
and in this way becomes the general overseer of activity in-
volved with the formation of the advertisement from the
point of the creation of idea to the presentation of the
finished work to the newspaper.

Special requests of the branches are also sent to the
production section. Arrangenents are made for the shipment
of finished work, including Special requests, to the various
branches. The work of the copy and art sections are aided
by files maintained by the production department. Proofs of
all advertisements are maintained from four to five years
back. The advertising book and display catalogue are pre-
pared by the production staff. These two forms are the prin-
cipal means of communication between the general office ad-
vertising and branch headquarters advertising. The advertis-
ing book will be discussed first.

A branch receives this book two weeks in advance of the
period for which the advertisements are to be prepared. ha-
terial contained in this book is in the form of a full sized
newspaper page. ,These pages within this book are intended
to be used in the capacity of suggestions. A branch adver-
tising manager is free to use or refrain from using this ma-
terial as he chooses. However, plates of these pages are
held in Cincinnati and sent to branches on request. The re-
lationsnip of this book to branch advertising will be dis-

cussed later.

71»

The free hand which branch advertising enjoys permits
the service aSpect of the advertising book to be treated as
a service and not as a must. Completely independent layouts
are created by some branches. Independent creation is en-
couraged on the part of the branch advertising manager. The
general office submits its suggestion to the branch primarily
in the effort to guide and to stimulate the branch advertis-
ing activity.

The entire program will be seriously handicapped if ade-
quate point-of—sale preparation is not made available. The
obtaining of this point—of~sale material is made possible
through the use of the display catalogue. A COpy is sent to
each of the branches along with the advertising book.

Actual size representation would be too cumbersome to be
practical; however, proportionality is maintained in the rep—
resentation of window banners, signs to be hung on wires,
shelf signs, display cards and all similar material contained
in the diSplay catalogue.

Order forms are enclosed upon which the number and types
of signs are indicated by the branch along with what is de-
sired to be printed on these signs or display pieces. In this
way, the general office notifies the branches of the material
which is available of this point-of—sale and display type.

The branch can then select from this what items are desired

75
and the branch can control the message that is to appear on
these signs. Earthernore, the catalogue is separated into

four sections correspondina to the four weehs of the adver-

featured each week.

U2

tising period in which a suecial sale i

General advertising policy is formulated by regular
meetin;s of top level officers of the company. This meeting
is conposed of the president and vice—presideits on consulta-
tion with branch nanagenen , merchandising divisions, adver-
tising manager, sales promotion manager, research staff,
public relations department and specialists from these vari-
ous departments. Ionthly meetings are held by the vice-

presidents for the purpose of advertising policy direction.

Past performance and pork is reviewed and future nla.s are

J-

discussed. The advertisinq pronotions are planned three
periods prior to the period in which the a‘vertisenent is to
be published.

after one of the monthly.meetings for planning advertis-
ing promotion, the prodJCtion manager assembles the managers
of the production, copy and art departments. The detail
work ehind the monthly program is then planned. The produc-
tion department begins its job of overseeing and coordina-
tion of efforts of all units in order to create the finished
procuct.
This discussion has been concerned with tie general of-

fice level advertising. Cne branch of this company has been

76
selected to present briefly the branch level advertising
procedures.

The particular branch under discussion contains one
hundred and fifty stores. These stores are principally lo-
cated within the city of Detroit, but there is considerable
representation in bordering cities and smaller towns and
villages. weekly sales of this branch average $1,000,000.
The advertising department for this branch consists of the
advertising manager and his assistant.

Chart 5 shows that the advertising department is located
under the merchandise manager. This department is then on
the same level as the grocery, meat, and produce merchandisers.
There is a weekly Monday meeting between the branch manager
and the heads of these four mentioned departments. At this
time, advertising is formulated for the entire four week per-
iod. Consideration is given to the planned advertisements
in proportion to the importance which is imposed by the time
factor. In the advertisement to appear four weeks hence,
the general theme is decided upon. This theme can take the
character of any motif desired. Attention should be called
to the fact that the general office has sent the advertising
book corresponding to this same period that is under discus-
sion by the branch at this time. Layouts planned to appear
three and two weeks hence are given further refining. The

advertisement appearing in the present week quite naturally

7-
7

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78
undergoes the most complete refinement in the process of
preparation for production.

Layouts are then constructed for two Detroit papers.

In addition, six different layouts are prepared for distribu-
tion to fifty-three smaller community papers. The following
breakdown shows how layouts are distributed:

1 layout for the Detroit News

l layout for the Detroit Times

1 layout for 8 smaller community newspapers

1 layout for 18 smaller community newspapers

1 layout for 23 smaller community neWSpapers

l layout for A smaller community newspapers

The indicated community newspapers receive mats of the
advertisement on Tuesday night of the week of publication.
These mats are prepared by the Detroit office in the follow—
ing manner.

It is necessary to produce a new layout for each of the
six groups of newspapers mentioned. The layouts which are
necessary to produce the mats sent to the smaller papers indi-
cated are prepared actually one week in advance of publication
rather than during the week of publication as is the case of
the larger papers. Layouts are pnapared, corrections made on
proofs, and finally mats are made by the printer. These are
the mats that are then distributed to the community newspaper.

The principal reason for the six different preparations

appears to be primarily dependent upon the six various sizes

79
called for. One Detroit neWSpaper receives a double truck
or two~page advertisement while the other Detroit paper will
print just a single page. A primary rule is that the smaller
layouts receive a prOportional reduction in items advertised.
Thus a new layout is required rather than Just a reduction
in scale of the main or larger sized layout. Such a simple
reduction in size might have the possibility of production
cost reduction, but it is also quite likely that a consider-
able amount of the advertisement personality of this company
would be sacrificed in the attempt to gain such a possible
saving.

The personality of the company advertisement receives
considerable respect from both the general office and branch
personnel. Use is not made of any syndicated or prepared ad-
vertising. Local areas are recognized as requiring different
advertising themes. Branch offices are practically autono-
mous units to help fulfill the requirement of individuality
and advertising personality.

The company feels that advertising personality is impor-
tant because of the similarity of supermarkets regardless of
company. Advertising personality separates the stores of
this company from competitive supermarkets even if these other
markets are nearly identically similar in layout, construc-
tion and even location. Therefore, personality of the adver-

tisement is given high priority within this company.

80

Personnel Policies

Group insurance plan. A.Prudentia1 Life Insurance

 

Policy is made available at a charge of 55 cents for every
four week period. This insures the owner of the policy for

a "basic" $1,000 plus an extra amount of insurance supplied
by the company that may change from year to year. At present
the extra amount is $1,000 making the total coverage of the
policy holder 392,000.6

This policy can be converted to a regular life insur-
ance policy if the employee should leave the Kroger Company.
No medical examination is required to effect this conversion.
A supplemental plan is provided for store managers and any
other members of the period payroll.

After three months of employment, any Kroger employee
in a management position with a minimum salary of $2,000 be-
comes eligible for the supplemental group life insurance
plan. This plan provides additional insurance at the annual
rate of $7.16 per $1,000.7

All employees are eligible for health and accident in-
surance. The cost and benefits of this insurance depend on

basic weekly earnings. Table XII shows the cost of this

 

éKroger Group Insurance Plan. A Company Bulletin.

ZKroger Supplemental Group Life Insurance Plan. A
Company Bulletin.

TABLE XII

karma HEALTH AND ACCIDENT INSURANCE*

 

 

 

 

 

 

:— as; :;=-===
Weekly Earnings Weekly Benefit Premium Payment
24 - 28 $ 15.00 .90
28 - 32 17.50 1.05
32 - 36 20.00 1.20
36 - 40 22.50 1.35
40 - 48 25.00 1.50
48 - 58 30.00 1.80
58 - 70 35.00 2.10
70 or above 40.00 2.h0

*Source: Kroger Company Insurance Plan. A Company

Bulletin.

81

82
insurance and what may be received in weekly benefits. The
benefits of this insurance cover any non—occupational ill-
ness or accident if disability lasts longer than seven days.
Occupational disabilities are covered by workmen's compensa-

tion or employers' liability insurance.

Credit union. The credit union exists to aid employees

 

by lending them money for approved reasons at low interest
rates. It also provides the method whereby a systematic
savings plan can be set up. The payments to this plan will

be deducted from the salary.8

Vacations. A one week vacation with pay is given every

 

employee after a year's continuous service. Longer service
entitles the employee to longer vacation time. Vacation

schedules are planned early in the year. Management is in-
structed to do all it can to schedule vacations at the time

9

the employee desires.

Retirement program. The retirement program provides the

 

employee with an income which is independent and in addition

10
to Social Security benefits. All costs are paid by the

 

8Your Job at Kroger. A Company Bulletin.

9Ibid.

 

10KrogerEmployees' Retirement Program. The Kroger Com-
pany. February 1951.

83
company. To calculate the annual retirement income, the em-
ployee multiplies 3/h of 1 percent of the first $3,000 of
his average annual income for the past ten years prior to
retirement. The difference between the average annual income
and $3,000 is multiplied by 1% percent. These two figures
are multiplied by the total number of years service, after
25 years of age, and the sum of these products gives the ann-
ual retirement income. If the average annual income does
not exceed $3,000, the average earnings will be multiplied
by B/h of 1 percent and this figure multiplied by the number
of years to obtain the retirement income.

For clarification, the example below is given of the
yearly retirement income a retired employee would have after

25 years of service with an average annual income of $5,000:

(.0075) ($3.000) - $22-50

(.015) ($2,000) . $30.00

$52.50 x 25 = $1,312.50 yearly
retirement

Profit sharing plan. This plan provides for a means

 

'whereby Kroger employees may save money regularly and also
share in the company's profits. Two separate funds are set
aside under this profit sharing plan. The savings of the

employees are deposited in fund A, called the savings fund,

and contributions from company profits are added to fund B,

81.
the profit sharing fund (See Table XIII). The assets of
both funds are placed in the custody of the Central Trust
Company. After two years of continued service, every em-
ployee 21 years old or older may join the plan. As much as
5 percent of the regular weekly pay can be deposited.

Each year the company will contribute graduated amounts,
depending upon the profit before Federal income taxes. Mini-
mum earnings are set at $315,000,000 before taxes in any one
year before any contributions to the fund can be made.

The employee will receive a credit in the profit shar-
ing fund in proportion to the contribution the employee makes
during any given year. Upon withdrawal from the plan, total
credits will be paid from the savings fund and earned credits
Will be paid from. the profit sharing fund. Credits are de-
termined on a percentage basis in preportion to years of mem-
bership. Less than three years earns no credits in the prof-
it Sharing fund. After three years, 15 percent of employees'

credits will be received upon withdrawal, and after 20 years,

100 percent of the credits will be paid.

Management Training
Candidates for management training are taken from the
ranks of the organization as well as recruited from the out-
side. Special consideration is given to schooling, work
hiStOI‘Y, interests and activities of the prospective trainees.

Q
‘ UT) '1‘.” e e 0
‘J eplk'ele ntary personality tests which have been standardized

85

TABLE XIII
SCHEDULE or 001mm CONTRIBUTIONS T0 FUND 13*

 

 

Income Before Taxes

 

Percent in Millions
5 d 1 to 25

10 25 to 50
15 over 50

 

*Source: "Share in Your Companies Profits."
A Company Bulletin. Kroger Company.
July 1951.

86
on the present management personnel are given the candidate
to aid in the personal analysis and evaluation.11

Store eXperience is considered as basic training for any
career in the food merchandising field. With this in mind,
KrOger trainees are placed in stores to lay the groundwork
for their future careers. The actual time to be spent in the
stores is variable, depending upon the candidate. The gen-
eral plan calls for actual store experience in produce, gro-
cery and meat merchandising.

An additional Special training program for store manage-
ment is maintained which has the objective of qualifying
special trainees to become store managers within forty weeks.
Classrooms located at the various branch offices and at the
home office are used to coordinate classroom with "in store"
training. Training classes in checker, produce, meat and
dairy are attended immediately preceding assignment to work
in these departments. The trainee is permitted to review his
training with the branch manager and personnel manager after
each phase of the training is completed.

Chart 6 shows an example of a special job sheet used to
guide the progress of the trainee in each phase of his train-
ing. These sheets also provide an Opportunity for the train-

ing personnel to grade the trainee on the work performed.

 

ll"A Career For College men." A Company Bulletin. The
ILroger Company.

Che Ck as Completed

87
CHART 6

SPECIAL TRAINING PROGIQM

FOR STORE MANAGEKENT*

Checking (3 weeks)

Name of trainee

 

( ) 1. Attend three-day check training session

( ) 2. Have trainee read and initial all store mail

( ) 3. Instruct and have trainee sack at busy check
(Control wrapping supply eXpense)

stand.

( ) A. Instruct and have trainee become familiar with
prices of merchandise that is not price marked

( ) 5. Instruct and have trainee maintain check stand

in prOper

(
(
(
(

(

)
)
)
)

)

condition.

a. Change tapes on cash registers
b. Keep Sack rack filled

0. Stock small item merchandise

d. Keep baskarts ready for incoming
customers

e. maintain clean and neat checking area

( ) 6. Instruct and have trainee handle

(
(
(
(
(
(

(

)
)

a. Tax collections

b. Paid outs

c. Refunds and overrings

d. PrOper change in register

e. Relief orders and merchandise coupons
f. Check cashing

g. authorized charge accounts

88
CHART 6 (Continued)

( ) 7. Instruct and have trainee balance his register

( ) 8. Trainee to perform all Operations in checkout
stand pertaining to accurately, friendly and ef-
ficiently checking out Mrs. Smith's order

( ) I have instructed the trainee on these jobs, and
my rating of his performance is:

( ) Excellent Remarks:

 

( ) Satisfactory

 

 

 

( ) fair
( ) Poor
Date

 

Store stamp

 

Store Manager

Approved:

 

District I..anager

 

*Source: KrOger Company. kimeographed Information.

89
A summary Of the general prOgress of the trainee is presented
in Table XIV.

At the completion of this training, candidates have been
eXposed to the complexities of managing a modern Kroger store.
When the store training program is through, the candidate can
go into the merchandising, specialized service or the manu-
facturing divisions of the organization. 1 hose selecting
merchandising return to the stores. Specialized service in-
cludes such jobs as warehousing, accounting, advertising and
personnel. Kroger also maintains 21 manufacturing units.
Products manufactured in these plants under the Kroger label
include candy, preserves, desserts, peanuts and peanut but-
ter, spice, salad dressing, olive packing, coffee roasting,
smoked meats, bread and cake baking, cracker and cookie bak-

ing and dairy Operations including an evaporated milk plant.

Quality Control
The Kroger Food Foundation is an organization located
in.Cincinnati, Ohio. The purpose of this organization is to
icoordinate scientific findings and practical food preparation
ill order to take the guess work out of daily food buying and
1186.12 The efforts of the food foundation have resulted in
'the develOpment of 8h'Kroger products.

The food foundation staff carries on constant testing

 

12"Twenty Five Food EXperts Come To Your House." A
Ccumpany Bulletin. The Kroger Company.

90

 

 

 

TABLE XIV

cpl-mam OUTLINE OF Pnocanss*

Phase Time in Weeks
Utility Clerk 3
Checking 3
Grocery Department 6
Produce Department 6
Meat Department 6
Head Grocery Clerk 12
Accounting Department 1
Warehouse 2
Key Personnel Contacts 1

 

*Source: Kroger Company.

Mimeographed Information.

91
for quality control of all Kroger labelled products. Fruits
and vegetables are inepected as they are packed at the can-
nery. Samples are taken to Cincinnati for quality testing.
The products must be passed at this time before a single can
is shipped to any Kroger warehouse. Samples of every lot
arriving at Kroger warehouses are again tested by these men.
An example of these tests would be the flotation test for
peas and vitamin analysis by use of the Fluorometer and

SpectrOphotometer.

Public Relations

An example of public relations procedure is shown by
the program in which this company participated in conjunction
with the General Federation of Women's Clubs. The two organ-
izations agreed to go together in Sponsoring a community im-
provement program. To this end, the food company pledged
p60,000 as prize money. Club women in all 48 states, Alaska
and the District of Columbia started looking around for
things that needed doing in their communities. The year
long program was announced in January of 19h9 and was consid-
ered highly successful in stimulating ailing communities in-
to self help.13

The scholarship program of this company provides 86 col-

lege scholarships for freshman students in agriculture and

 

l3"Build Better Communities." A Company Bulletin. The
Kroger Company.

92
home economics. The program is conducted in COOperation
with land-grant colleges in 17 middle-western and southern
states in which the company Operates. Each scholarship is
worth s2oo.14

Architecture or building policies reflect public rela-
tions of this chain. Formerly noted for similarity of store
design, consideration is now given to the store design in re-
lation to other buildings in the business district. Thus,
the store is facilitated in taking its place as a store of
that given community and not simply the product of a blue-
print created many miles away.

A glance at the organization Chart 1 shown on page 41
will show that one of the four vice presidents of the company
is in charge of law, public relations and labor relations.
This serves to indicate the high regard which this company
has for public relations. Further inspection of this chart
will show the various departments under this vice president-
ial category.

The food foundation was briefly discussed previously
under the heading of quality control. This foundation also
plays an important role in tne field of public relations
through the activities of the home economist's staff. The

home economist in charge serves in the capacity of hostess to

women's groups touring the food foundation. She has further

 

11*"1951 Scholarship Plan." A Company Bulletin. The
Kroger Company.

93
contact with the public through lectures given at high
schools and colleges and before women's clubs. Testing
kitchens are maintained for the testing of privately labelled
products under practical conditions and for the testing of
old recipes and the develOpment of new. New recipes are
printed in booklets and distributed from the food.foundation
offices. Other recipes appear on company labelled products.
These recipe pamphlets are designed to aid the consumer in
purchasing as well as preparing, and to tell the public of
the objectives of the company.

The problem concerning public relations is approached in
a general way with two considerations in mind. First, the
company considers the community and what public relations ac-
tivities will be needed concerning the community. Secondly,
thought is directed toward the employee of the company and
what must be considered concerning public relations with the
employee in mind.

Under the first category mentioned above would come the
charitable and welfare agency donations. Thus, every store
contributes toward these agencies which are organized in the
community in which the store is located. Special considera-
tion is also given to the support of youth groups, especially
those rural in nature, such as h-H and Future Farmers clubs.
Along this same line would come the college scholarships given

to agriculture and home economic students, and cOOperation

9A
with groups such as women's clubs. Aid is also given to the
alleviation Of any local agricultural marketing problems
whenever such local problems arise.

Under the second division which concerns the employee,
there is the overall theme of indicating to the ahployee the
responsibilities of good citizenship on the local community
level. Public participation is particularly important so the
employee is encouraged to become a part of community Chambers
of Commerce, and philanthropic business groups. Similar at-
tention is given to membership on church boards and school
boards. The employee is given much encouragement along this
line through the medium of pamphlets which are distributed to
him.

Public relations is the subject which deals with the
Opinions of peOple. The product of this activity might be
more easily visualized by considering the intangible business
assets classified as goodwill. Since business goodwill is
made of the Opinions of people, particular significance is
focused upon these Opinions. It soon becomes evident that
actually it is difficult to separate such a thing as public
relations into a given section Of the business. Rather, it
is sometning,which is built from within that exists to assert
an influence upon company policy in such a manner that the
(xxnpany conducts itself in a socially minded manner. The

priiuflmml.divisions of society which must be considered in

95
this work consist of the company employees, stockholders,
customers and Of the community in general.

It can also be noticed that a public relations program
actually has great interest in other phases Of the business
organization such as personnel relations. However, the ess-
ence of the prOgram exists to explain to the public the
business which is involved. Thus, the public comes to know
the policies and methods Of the business; the philOSOphy be-
hind this particular business; its products and its people;
and gains an appreciation of the contribution which the com-
pany is making to our society.

Due to the fact that public relations have as an in-
herent feature the close integration within the framework of
the business, it is difficult to single out existing activ-
ities and label them as public relations techniques. ‘Much
can be learned about public relations in food chains by re-
flecting upon the public Opinion which existed concerning
these chains a few years ago. Compare the condemnation which
they received at that time with their social acceptance at
the present time. The difference can.be largely attributed

to the activities of public relations.

Merchandising Program
The fact that the Kroger Company is a selling organiza-
tion places increased emphasis upon merchandising. All ser-
vice personnel and every Operation of the company is focused

ultimately toward aiding the selling effort.

96

The organization charts show a vice president in charge
of merchandising at the general Office headquarters. The
branch level also indicates the various merchandising divi-
sions. Here, it was mentioned that in the place of the mer-
chandising manager the branch manager Often acted in this
capacity. An inspection of these charts also indicates the
relationship viewed by this organization between buying and
selling. At the branch level, each buying Office, such as
grocery, produce and meat, contains its buyers and its mer-
chandise manager. In some cases, sales assistants will be
employed to assist the merchandise manager in his work Of
planning and coordinating buying with selling. Such an or-
ganization as this presents an idea of the amount of effort
eXpended to produce successful merchandising.

The meetings at the general office and the branch office
level for the purpose of formulating new merchandising poli-
cies and controlling the present merchandising program have
been discussed. From this, the emphasis upon coordination
Of all departments which have a concern in the merchandising
policies can be seen. In this manner, a working theme for a
weekly promotion is determined. Each specialist is given
the Opportunity to add to or correct this theme as he sees fit.
Each person's reSponsibility toward reaching the merchandis-

ing goal is made clear.

97

The information from the merchandise meetings is then
channelled out to the stores by means Of managers, district
managers, general district managers, various surveys and
printed information from the branch Office. Constant record
is maintained of sales and profit, expense, tonnage, custo-
mer count, and other records deemed necessary to control the
merchandising prOgram.

Sales plan formulation, carry-through and tabulation is
somewhat of a more direct aspect of a merchandising program.
However, every phase of this business is a part of the mer-
chandising program. This entire account Of a corporate chain
has emphasized those primary fields Of Operation within that
chain which are directly connected with merchandising.

In this chapter, a discussion has been presented of a
large corporate food chain enterprise. It was seen that this
business had a humble beginning. Now, the company is among
the very largest. An attempt was made to present some of the
important aspects of the functioning business. This case
study indicates some of the Operations performed when retail-
ing, wholesaling and in some cases, producing functions are

all contained within one business.

CHAPTER III
RETAILER-ONNBD COOPERATIVE
Founding

The business chosen to represent the retailer-owned co-
operative type is located in Portland, Oregon, one of the
larger cities in the Pacific Northwest. The population of
this city is approximately 375,000 peOple. Background infor-
mation on the cooperative will be presented first. It is to
aid the reader in familiarizing himself with this type Of
distributing unit.

Previous to the founding in 19l5, a few retailers in
Portland had been buying a limited number of items coopera-
tively. Storage Of these items created a problem which re-
sulted in the building of a separate warehouse. Thus, the
particular cooperative under discussion was begun.

The methods practiced by the existing grocery wholesal- \
ers in the area provided the incentive for these initial co—
operative purchases. hxercising near monOpolistic control
over the retailers, wholesalers' high markups and price dif-
ferentials forced retailers to buy at unreasonably high

. l . ... . . a . . -
prices. The high prices were combined With an attitude of

 

1H. L. Sorenson. "The United Grocers Story." A Company
Bulletin. December 1951.

99
indifference on the wholesalers' behalf concerning the gener-
al welfare Of the retailer. This organization of cooperative
buying was begun before corporate chain store competition be-
came a factor.

The cooperative idea proved its fundamental acceptance
by successfully breaking into the field Of grocery distribu-
tion in this local market and progressing therein. Other
wholesalers became interested in the general plan. In many
cases of private ownership, the voluntary chain organization
Was developed.

The voluntary chain wholesaler differs from the retailer-
Owned cooperative plan in that the retailer is not required
to purchase stock in the wholesale concern nor does the re-
tailer exercise any direct control over the Operations Of the
wholesale phase. Therefore, the wholesaler in a voluntary
chain plays more the role of a sponsor. Thus, it can be seen
that the two plans are particularly divergent in organiza-
tional structure, but each has the same common goal - to in-
crease efficiency.

This new idea surrounding the cooperative movement had
many Opponents. It was dubbed socialistic and doomed to
failure. COOperation in business as conceived by the Roch-

‘ 2
dale weaver group did have a political goal. This political

-———— \r- —

 

2Joseph Reeves. A Century of Rochdale CO-Operation£18uh--.
194 . London: Lawrence and wishart,*19hh. passim ‘\ 1

~

‘_\

\—

100
goal was born of economic iniquity of such a degree as to
impel the Rochdale founders to dream Of their plans being
sometime universal over the nation as Opposed to capitalism.

Socialistic accusation was one of the fundamental
charges made against the newly formed wholesaling cOOperative.
The question, as presented, was not sound. Such an organi-
zation was formed for business purposes only. History indi-
cates that there were no political designs in the minds Of
this group of founders. The oldest retail-owned wholesale
house in America was established more than 50 years ago.h The
fact that a retailer-owned COOperative has existed under the
scrutiny Of competitors and the Federal Government for such
a length of time indicates that the charge Of un—American
ideological motivation has no bearing upon the cOOperative
wholesaler.

A better grasp of the feelings toward this new business
combination can be had by reviewing the newspaper and per-
iodical stories concerned at the time. Direct quotations
from major parts of several of these articles are thus pre-
sented. The following article appeared in the November 11,

1915, edition of the Portland Oregonian neWSpaper:

 

3Some sources do not agree that the "Rochdale Pioneer"
had any political ambitions.

#Donald P. Loyd. "Competitive Equality and Tomorrow's
Problems." The COOperative Merchandiser.. 17:9. p. 13.
September 1952.

 

101

Grocers unite to combat trust. With a represen-
tative membership of 60 dealers already signed and
100 expected ultimately, the , Inc. of
Oregon, organized two months ago and incorporated
yesterday, are prepared to launch formally a fight
against so-called grocers' jobbing trust in Portland
. . . . The Object of the organization is to con-
centrate the buying power and further the mutual
benefit and protection Of its members.

 

The followinr was taken from an article a vearin in the
S

November issue, 1915, Of the Oregon Retailers Journal:

 

A few, perhaps 50 grocers of Portland have held
various meetings for the avowed purpose of discuss-
ing ways and means of instituting a Buyers Exchange
or system of Pool Buying in Portland . . . . The
buyers Exchange imposes upon its members the expense,
service and the necessity for capital today furnished
by the jobber . . . . The Oregon Retailer Journal
can not believe that there is a more economical way
of distributing merchandise in Portland or it would
have already been employed by the wholesalers . . . .

 

Following is an excerpt from an article appearing in the

November, 1915, edition of the Oregon Merchants Magazine.

 

The story reads in part:

Portland has now perfected plans for a big co-Oper-
ative buying syndicate . . . . There are many ways of
helping each other in an organization of this character
and especially it is pointed out that each member by
paying a small sum may have page newspaper advertising. . .

These excerpts from articles present some indication of
the feeling toward the new COOperative and reasons for its
inception. This particular organization, which had its found-

ing at the time these articles were written, now serves 225

retail outlets.

102
Divisional Organization

The basic cooperative formula, as presented by the or-
ganization under discussion, was expanded upon to form a
divisional organization. This divisional organization goes
by the name of the Pacific mercantile Company of San Francisco.
The formation of the Pacific Mercantile Company was to come
after the establishment of the Portland cooperative and sever-
al others located in the Pacific Coast states. As the pur-
pose of the retailers was to bind together,to combine pur-
chasing power and to enjoy other advantages of cOOperation,
so was the purpose in the banding tOgether of the founders of
the Pacific Mercantile Company.

There are now eleven retail-owned wholesale warehouses
comprising the Pacific Mercantile Company as shown in Chart
7. Representatives of the Spartan Grocers in Los Angeles
and United Grocers, Ltd. of San Francisco along with the San
Francisco Grocery Company met in San Francisco in 192A. The
purpose of the meeting was to compare efforts of the United
Grocers, Ltd. organization in hOpes that helpful information
could be taken back to the other groups. As a result of
these sessions, it was decided by the representatives of the
three groups that it would be advantageous for them to com-

5

bine their purchases. Prior to this, the organizations

 

5H. L. Sorenson, op. cit.

103

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10h
mentioned were not connected with each other in any manner
except for the fact that they were retailer-owned COOpera-
tives. The greater buying power of the combined warehouses
was believed to have the advantage of still lower purchase
prices because of the improved bargaining position and the
larger unit of order. At the present time, a retailer be-
longing to any one of the eleven retailer-owned associations
comprising Pacific Mercantile is not only a member of his
local retail owned association, but he is also a member of
the Pacific Mercantile Company. The eleven affiliates of
Pacific Mercantile Company reported wholesale sales volume of
329 million dollars in 1951, and retail sales in excess of

two billion dollars.6

National Organization

Pacific Mercantile Company, as the Western division of
National Retail-Owned Grocers, Incorporated, was officially
recognized in l93h. Prior to this, the Pacific Mercantile
Company had been independent of any other organization and
Operating solely under the jurisdiction of its eight cOOpera-
tive warehouse members. The same COOperative theory prevailed
in stimulating the divisional organization to become a part

of a national organization. The national organization does

 

6George M00re. "The Pacific Mercantile Company."
Western Family Preview and Digest. April, 1952. p. 5.

 

105
not play an important role in merchandise purchasing at the
present time.

Originally, National Retail-Owned Grocers, Inc., re-
ferred to as N. R. O. G., performed most of the duties that
are now carried on by Pacific Mercantile Company and the
other two regional corporations, one located in Chicago and
the other in New York City. The most important function of
the national organization was the buying and selling of mer-
chandise. About four years ago, this method of Operation
was discontinued and the actual buying and selling of merch-
andise is handled by the three separate regional corporations.
However, the national office does maintain a trade publica-
tion, a complete insurance program, a complete trade associa-
tion and also performs a certain amount of public relations
work which is for the benefit of the entire retail membership
as well as the distributing units.7

Pacific Mercantile Company represents the regional div-
ision in which the particular retailer COOperative under dis-
cussion is located. Several merchandise labels are owned by
N. R. O. G. Such labels, in effect, are controlled by Pacific
Mercantile Company. Controlled labels are treated as private
labels in that goods under this label do not appear in any

but member stores. Usually 100 percent of the purchases of

 

7This trade publication is the ngpanative Merchandiser,
published every month by N. R. O. G. Editorial offices, 309
W. Jackson Blvd., Chicago, Ill.

 

106
private label merchandise made by the retailer-owned COOpera-
tive members are purchased through Pacific Mercantile Com-
pany. These purchases of private label merchandise consist
almost entirely Of canned fruits and vegetables. Shortening,
margarine and a limited number Of other items are also avail-
able under the private label.

The cost Of belonging to N. R. 0. G. and Pacific Mercan-
tile Company is based upon an assessment arrangement. The
total net cost Of Operating the organization is assessed
against its members on a basis Of volume done through the
various wholesale houses.8 This is the typical cooperative
procedure for pro-rating expenses and allotting rebates.

Table XV shows the growth of Pacific Mercantile Company
since its inception in 1935. Not only have total sales risen,
but sales per store have also shown a marked increase, indi-
cating the trend toward a membership composed of larger in-
dividual retail units. The rapid growth is also indicated
through the increase in total sales volume and an attendant
increase per unit. Such a rapid growth rate indicates the
acceptability of this cooperative method as applied to food
distribution. It must be recognized that there are limita-
tions upon the inferences to be gained from the growth rate

as presented here. However, such expansion can be used as an

 

8Based on written communication with general manager Of
this COOperative.

TABLE XV

107

GROWTH OF PACIFIC MERCANTILE COMPnNY*

 

 

Year Sales Volume Membership Sales per Store
1935 $ 30,000,000 2,350 p 13,000
1950 291,000,000 6,375 h5,600
1951 329,000,000 6,543 50,300

 

 

 

 

*Source: Western Family Preview and Digest. April,

1952. p.

16.

108
indication of the acceptability Of the services Offered by

Pacific Mercantile Company.

Warehouse Ownership

The warehouse is owned by the retail members as the name,
retailer-owned wholesaling COOperative, implies. All cooper-
atives are similarly financed with only minor differences
occurring. A person desiring membership applies and his in-
tentions are published in the weekly bulletin which is sent
to the various members of the COOperative. In this manner,
all members are informed of the application for membership.
The admission or rejection Of the application is decided at
the next board of directors meeting. Any member is permitted
to express his views concerning the candidate at this meeting.
The directors can then either reject or accept the applica-
tion. Thus far, all applicants have been accepted. This is
likely due to the advance screening Of the candidate before
application is even filed. This screening is an informal and
variable process.

A new member makes an initial purchase of ml,000.00 of
stock. This stock must be transferred before any merchandise
is purchased. A second m1,000.00 in stock is contracted for
and is purchased through a time payment plan. Usually this
plan calls for the placing Of the member's rebates toward the
retirement of this second p1,000.00 stock purchase contract.

Of course, the stock can be purchased with cash if the member

109
so desires. However, the member is required to have on de-
posit within 60 days an amount equalling the estimated pur-
chases which he would normally make over a period Of two

“reeks 0

Credit Policy

All retailers' warehouse accounts are required to be
paid within seven days. Each Friday the books are closed and
statements are mailed to members. Payments must be mailed by
noon on the following Monday or a 1 percent penalty is charged.
The penalty is re-assessed each week the bill is overdue.
The policy of charging a penalty is strictly adhered to. A
collection policy of this type is designed to prevent one per-
son in the group from taking advantage Of another member's
capital provided by prompt payment. Such strict adherence

thus acts to benefit the entire group.

Board of Directors

The board Of directors consists Of seven active retail
members. Each one is elected for a three-year term. One
year must elapse between the termination of a term and the
re-election Of a given member. The terms are on a rotating
basis so that new members are brought into the group in a
COntinuous process. Members are elected at an annual stock-
hOlders' meeting. The general manager Of the warehouse acts

as the secretary—manager of the board Of directors.

110
The general manager is hired on a yearly basis. This
person is permanently associated with the board of directors
in the capacity Of secretary-manager. All major issues,
such as building policies, must be passed on by a two-thirds

vote of the members.

Warehouse Organization

An average of forty peOple are employed in the warehouse
and twenty in the office, all Of whom are unionized. A union
contract contains the provisions for hours, wages, vacations
and hospitalization benefits and is used as the basis for all
personnel relations. The following organizational chart,
Chart 8, indicates the various departments and their respon-
sibilities.

The great emphasis which is placed on low cost Operation
creates much interest concerning the employment policy Of co-
operatives. In order tO produce savings in Operation Of the
warehouse, constant attention must be placed on expense in-
curring items such as Operational methods, services, and per-
sonnel. This constant surveillance has a tendency to improve
the efficiency of these particular items.

Considering warehouse personnel, the greater efficiency
Objective is usually attained through employing fewer more
highly paid employees than more employees at a lower rate.

An attempt is, therefore, made to attract highly efficient

labor. The likelihood for the greatest Operating efficiency

111

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112
is thus enhanced. Responsibility for the attainment of per-
sonnel efficiency rests primarily upon the general manager.
Since many reSponsibilities are placed on the general mana-
ger of a retailer-owned cooperative, the importance Of this
position within the cooperative framework must be recognized.

In an organization of this type, the retail members, or
customers of the business, are the owners and occupy the tOp
position in relation to other departments as shown in the
chart. The board of directors is the functional group repre-
senting the owners. The general manager holds the position

of key man in the warehouse Operation.

Advertising

Two groups of retail members within this cooperative ad-
vertise collectively. For simplicity, they shall be referred
to as group "A" and group "B". There are 21 stores in the
"A" group and 16 in the "B" group as compared to a total mem-
bership of 220 retail stores.

The advertising for each Of these groups is handled
through the advertising department located in the warehouse
building. This is a self sustaining department in which
there are four people employed.

Each group has its special qualifications which must be
met by the retailer before admission is allowed. These
qualifications depend primarily upon the particular type Of

store Operation. When once accepted, the retailer must

.A/_

113
continue to meet these standards Of Operation. Any member
may, by conforming to certain standards, become a member of
either Of the two advertising groups.

The "A" group is made up of stores which are designed
to compete with self service, cash and carry competition.
This is definitely a volume-minded group. The advertising
of the "A" group is, therefore, distinct from the advertising
Of the "B" group. The "B" group stores are generally lower
volume stores having credit and delivery services.

The organization of the actual newspaper advertisement
occurs in this manner. Ten.members from each group are
chosen by the entire group to meet each week to choose the
items to be advertised. The two groups function independently
Of each other. The items selected at this time will appear
two weeks hence in the daily newspapers having state-wide
circulation which are printed in the city Of Portland. Each
group meets again on the Monday previous to the Friday on
which the layout is U) appear in the newspaper. At this
time, changes are made and the perishable items, such as meat
and fresh vegetables are selected which will appear with the
dry grocery items chosen the previous week. A bulletin is
then sent to each member Of the group to inform them Of the
perishable items to be featured and the price at which they

will be advertised. After the first meeting, a bulletin is

11h
also sent to inform the retailers Of the dry grocery items
being featured.

The main determining factor in selection is to choose
timely items for advertising. Buyers are Open for consulta-
tion by the men selecting the items. However, the buying
and advertising departments, although communicating freely,
are still quite independent Of each other. The advertising
committee is elected for one year. Ten people are elected
and a minimum of five must be present before work on the ad-
vertising can begin. Any cooperative advertising rebates
earned are collected by the wholesaler and distributed to
the.members of the advertising gnaup.

One person is employed to check daily the prices Of
items in competitive retail outlets. One national chain and
one local chain is considered as competition for this pur-
pose. The person checking makes her intentions known tO each
individual store manager in whose store she is checking. In
turn, she gives him prices being charged by retail outlets of
the COOperative, if he so desires. This retail price infor—
mation is used by the advertising manager and representa-
tives of each of the advertising groups in aiding them in
their selection of items. The information on competitive
prices is printed in order book and returned to each member
with the merchandise order. An assessment Of $5.00 per month

per member is made fOr this service.

115
Buying

An estimated 90 percent Of the salesmen who contact the
buyer are brokers. The remainder Of the goods are Obtained
through factory representatives and through the Pacific Mer-
cantile Company. Purchasing through brokers is of the re-
order routing type of buying. Now items are decided upon by
the buyers themselves. There are three buyers in this par-
ticular organization including the general managerxmho
handles a large part of the negotiated buying. Most other
purchases are made in a routing fashion.

Two private labels are sold by this Portland COOperative.
One procedure for obtaining private label merchandise Oper-
ates in the following general manner. A packer is contacted
and a price is agreed upon. The merchandise ordered is Of
quantity large enough to justify a price differential to the
purchaser. The buyer then notifies headquarters of Pacific
Mercantile Company informing them that such a purchase has
been made. The labels for this merchandise are then for-
warded to the canner by the Pacific Mercantile Company. When
the pack is completed, it is stored in the warehouse of the
particular cooperative buying the goods. Buying in this man—
ner is not a principal method Of Obtaining merchandise for
this organization. One private label is placed on standard
grade and the other is on fancy grade merchandise. The great

majority Of the private label goods are ordered directly from

116
Pacific Mercantile Company. The remainder of the inventory
is purchased almost entirely through local brokers and fac-
tory representatives.

A weekly bulletin edited by the buyers is sent to each
member. The bulletin lists price changes as well as any per-
sonal advertising desired by member, such as "for sale" fix-
tures or other business needs. This bulletin is the inform—
ing medium through which every store is notified of price
changes and it serves as a direct contact between warehouse
management and retail owners.

Merchandise shipped or delivered directly to members is
classified as "drOp shipment" merchandise. The goods are
billed to the COOperative organization. The cooperative, in
turn, adds 1 percent to the order and collects from the re-
tailer. The retailer is charged the same price for the goods
as the warehouse is charged, except for the addition of ap-
proximately 1 percent.

The markup schedule, Table XVI, is presented to indicate
the grouping of merchandise to correspond to Specific per-
centages by which the cost is increased to arrive at the
selling price. The ten different groupings indicate that
pricing is car_ied out with a consideration in mind of the
ability of various products to sustain unequal increases in
the cost. The wholesale price to the retailer is important
because of the extreme price consciousness of the consumer in

purchasing food.

117
TABLE XVI
L'lK-UP salmDULE *

 

 

Product Price Increase

Cigarettes 1.00
Canned Milk

Oil and shortening

Sugar 1.01
Tobacco
Coffee l.00

Cleanser - soap

Canned soup

Franco American products
Jello and pudding

Tea 1.02
Cereals

Baby food

Flour and mixes 1.03

Peanut butter
margarine 1.045

Crackers

Corn meal and nominy
Dog and eat foods

Lried fruits

Macaroni products 1.05
mayonnaise and dressing
Canned meats

Rice

Syrups

Canned vegetable juice
Dried Vegetables

Salmon 1.03
Tuna 1.03
All others l.O3

 

*Source: Information gained during interview with
general manager.

118

The wholesaler must consider the factor of Operational
eXpenses. As in any business, these eXpenses must be met by
income from sales. The customer of the cOOperative is a
part owner, yet there is nothing to prevent his purchasing
from other wholesalers who could provide a more competitive
price. Furthermore, the markup schedule indicates the possi-
bility of some retail members actually receiving a dispro-
portionate share in patronage dividends because the dividend

rate is set at a fixed rate, while pricing is variable.

V’Retailer Relations

One man is employed within this organization whose pri-
mary responsibility is the well being and satisfaction of
the retail member. This position carries the title of con-
tact man and creates the direct channel of contact between
the retail member and the warehouse organization. The con-
tact man has his office located in the general office of the
warehouse and is responsible to the general manager.

The contact man is on call to go to the store of any mem-
ber making this request. A regular schedule is also followed
whereby stores are visited without Special request from the

wners. Suggestions are offered to retailers at the time of
these calls. The wholesale-retail cooperative as discussed
herein has no direct control over the Operations of the retail

members. This system is quite reversed from the voluntary and

11?
corporate chain in which the retail unit control is a primary
consideration. The supervisory status and limitations of the
contact man are thereby confined to suggestions which are un-
enforceable.

Principally through the contact man this COOperative
does attempt to impress retail members with the desirability
of certain actions. Suggestions are offered to the retailer
at the time of these calls. One of the common situations is
a failure of the retailers to feature the two private labels
through preferred shelf and display space. Failure to have
adequate shelf price markers is another common example of a
condition which the contact man attempts to remedy.

Shelf stripping and markers can be purchased through the
warehouse. In a case where a store needs these items, the
contact man will make the necessary measurements and take the
order for the materials needed. The order will then be taken
into the warehouse and the necessary materials sent as soon
as practical. Common requests which retailers make of the
contact man involve such things as store fixture purchasing,
layout and departmentalization, self service meat installa-
tion and general remodeling problems. The contact man as-
sists the retailer through personal aid and by contacting
Specialists concerning these various requests.

Another important function of the contact man is to sup-

ply the general manager of the warehouse with a knowledge of

120
the feeling or attitude of the retail members. After each
call, he makes out a report including all happenings that
occurred during the call. These reports are then turned over
to the general manager. This makes it possible for the man-
ager to be aware of the condition existing in several stores
in a matter of minutes. This information would require many
hours to obtain if the calls were made by the manager in
person. Irregardless of the time consideration, such a sys-
tem of examining the individual member units and learning the
prevailing attitudes is regarded as superior to a system
whereby the general manager would make these calls in person.

A visit by the contact man provides an excellent time
for the retail member to unload his complaints concerning
the Operation of the warehousing phase. The contact man
thereby plays an important part in member morale by encour-
aging these questions from the retailers. The thinking of
management is that more information on problems actually gets
into the hands of the manager through this report system
carried on by the contact man than if the manager were to
make these calls in person because of a.natural reluctance on
the behalf of a retail member to make his complaints directly
to the person responsible.

The visit of the contact man is also used to discuss
market conditions and other purchasing conditions which would

be of interest to the retailer. The contact man makes every

121
attempt to gain the confidence of the retailer. Particular
attention is made to the future plans as well as the present

conditions and problems of the members.

Delivery

An order guide to be used in sending in the next order
is sent to the retail member with each delivery. This order
guide lists all supplies and merchandise available at the
warehouse. It is used in conjunction with mechanical billing
which makes the retailer's use of it imperative when reorder-
ing. The following information is supplied to the retailer
by this order guide:

1. Description and code number of the merchandise.

2. Cost of merchandise f. o. b. warehouse.

3. Group two ceiling price.

h. Group four or suggested or competitive ceiling price.

5.

Percentage Of profit on the quoted price (point four).

A member who wishes to pick up his order at the ware-
house is ordinarily required to have his order at the ware-
house at least twenty-four hours in advance of the time de-
sired for pickup. Members desiring to have their orders de-
livered by the COOperative's trucks will be given a definite
schedule of delivery. To comply with this schedule, the re-
tail member must have his order in the hands of the warehouse

at the Opening of business on the preceding day. Orders, for

122
example, scheduled for delivery on Wednesday must be at the
warehouse by 8:00 A. M. on Tuesday.

Deliveries to members are charged for on a percentage
basis ranging from 1 to 3 percent of the invoice depending
upon the distance the retail member is located from the ware-
house. This delivery charge is made monthly when merchandise
is shipped in trucks belonging to the COOperative.

The schedule of delivery charges presented, Table XVII,
provides information on cost of delivery service to the re-
tail customer based upon the distance which the customer is
located from the warehouse. This information does not tell
what the function of transportation costs the wholesale phase
of the organization. Although exact information has not been
collected on the disbursement of the retail customers, or the
volume of business according to the various divisions in the
delivery charge schedule, it is quite probable that the ma-
jority of sales would be accounted for by customers within
the seventy-five mile zone.

With this in mind, consideration is given to a recent
national average for delivery expense. It was reported that
for wholesalers in the sales category over $6,000,000 the
delivery eXpense averaged 1.526 percent. This figure was
obtained by averaging the delivery eXpense of five firms.

9John R. Bromell. "Survey of Wholesale Grocers Profit
and Loss Figures." Wholesale Grocer News. 26:9 December,
1951. p. 17.

 

123
TABLE XVII
CHfiDULB OF DELIVERY CHARGES*

CO

 

 

Percent Of Invoice Distance in Miles
1.0 first 50
1.5 50-75
2.0 75-125
3.0 beyond

 

*Source: Information obtained from personal

interview with general manager.

121+
Monthly meetings

A meeting is held every month in.which the entire mem-
bership is invited to attend. Prior to the member meeting,
a board of directors meeting is held. The usual practice is
for the board to meet from 6:00 to 8:00 P. H. and then the
general meeting is convened.

The meeting is conducted by the president of the board
of directors. Each meeting is variable in its organization,
but the principal features are usually the report of the gen-
eral manager and the ensuing question and answer period. It
is the common practice to give a $5.00 door prize at these

meetings.

Dividends

The patronage dividend is one Of the strong features Of
any COOperative enterprise. This dividend has never been
less than 2 percent of purchases by members. These refunds,
for the past few years, have been made in non-negotiable re-
deemable notes bearing interest at a percent yearly. The
redemption Of the notes is in the hands of the board of direc-
tors. These notes can be sold, however, and the owner real-
ize a cash value thereby.

Some question is raised concerning the tax position of
the retailer-owned cooperative. The present practice is for
this organization to file an income tax report, but to pay no

taxes because there is no profit. All income which would

125
appear to represent a profit in a private organization is
treated as an overcharge and distributed among the.members
on a basis prOportional to the purchases of the individual
members. The markup on the gpods taken by the warehouse or-
ganization is to provide income to pay for operational ex-
penses.

If such a condition should come about whereby the over-
charge Of the warehouse would become taxable, a simple policy
of eliminating this overcharge and a type of deficit Opera-
tion could be practiced. Instead Of the warehouse paying a
dividend to the retail member at the end of the year, the mem-
ber would be required to pay a certain amount to the warehouse
to make up the deficit incurred through the Operation Of this
function. There has been no need to utilize this system Of

Operation thus far.

Office Management

Order receiving and billing procedures are under the di-
rection of the office manager along with all accounting and
record keeping duties. The tub file system is used in stock
control and order picking. The standard record card and auto-
matic accounting machines are used here as well as in the ac-
counting department.

The financial statement information, Table XVIII, was
Obtained by interviewing the head accountant for this COOper-

ative. At the time of the interview, the record keeping

126
system was undergoing a Change. Therefore, the significance
of the reported percentages is less than if they represented
a longer period of time. These figures were not obtained
from an examination of the financial reports, but rather in

’the course of the interview.

TABLE XVIII
FINANCIAL smrmmm INFORLxIATION’“

 

Cost of Operation 3.2 percent
Sales 7.1 million**
Dividends 2.07 percent

 

*Source: Personal interview with the head
accountant

**£Stihl&ted 0

Further significance, however, is indicated by these
figures when compared with other compiled information. The
United btates CSHSJS of business for 1948 shows an average
Operating eXpense for general line grocery merchant whole-
salers of 6.6 percent. This sane eXpense category amounted

10
to 11.3 percent in 1939.
Operating expenses for voluntary group wholesalers aver-

aged 8.3 percent for the United States total according to

 

10U. 8. Census of Business. 1948. Vol. 4. Wholesale
Trade. Table 10. p. 105.

127
p ll _, . .
the l9h8 survey. The same group of statistics shows the
average Operating expense of retailer-COOperative grocery

, , l2
warehouses as 4.0 percent.

Special Benefits

members have the Opportunity of purchasing a limited
assortment of goods through the warehouse organization which
are unrelated to food products. These goods are most repre-
sented by such items as food store equipment, automotive
equipment and household appliances.

The warehouse arranges for group life, products liabil-
ity, and workman's compensation insurance for the members.

A new member is entitled to $500.00 life insurance. From
then on, the insurance is based on the individual's purchases.
The purchases for the preceding year are used for the pur-
pose Of calculating the amount to which the retail member is
eligible.

Products liability protects members against claims made
which state that injury was incurred from food items pur-
chased from any given member. This insurance costs each mem-
ber $8.00 per year.

Workman's compensation insurance is available on re-

quest. This provides the same protection afforded by the

 

llIbid., Table 83. p. 8.45

lzIbid., Table 8F. p. 8.h6

128
Oregon Industrial Accident law to both employers and employees.
The payments for this insurance are based upon the individual
employer's payroll. The charge is approximately 30 cents per
p100.00 payroll.

A new member is eligible for $500.00 life insurance
under the COOperative's group plan immediately upon the ac-
ceptance of his membersnip application. A report on each
member's purchases is sent to the insurance department of the
National Retail Owned Grocers Association once a year. Each
member's coverage is based upon his purchases for the year,
Table XIX, which are reported to the insurance office at this
time. Therefore, insurance is calculated on the past year's
purchases for each member. The maximum insurance, regardless
of purchases, is $5,000.00.

The life insurance premiums are paid through the cooper-
ative. At the time disbursements covering patronage dividends
are made, the insurance premiums which have accrued for each
member are deducted from the patronage refund. The premium
is approximately 917.00 per p1,000.00 of insurance at the pres-
ent time.

The foregoing discussion presented the origin and, to
some extent, the develOpment of a retailer-owned cooperative.
A division of the business was made indicating the extent or
duties performed and the line of authority. Wholesale pur-

chasing, delivery, retailer relations, and other practices

TABLE XIX

SCHEDULE OF GROUP LIFE INSURANCE*
PAYMEJTS BASED ON PURCH.SE

VOlume Of Annual Purchases

-
___

Amount of Insurance

129

 

 

Under $ 9,000 $ 500.00
9,000 to 12,000 750.00
12,000 to 15,000 1,000.00
15,000 to 18,000 1,250.00
18,000 to 21,000 1,500.00
21,000 to 2h,000 1,750.00
24,000 to 27,000 2,000.00
27,000 to 30,000 2,250.00
30,000 to 33,000 2,500.00
33,000 to 36,000 2,750.00
36,000 to 39,000 3,000.00
39,000 to 42,000 3,250.00
h2,000 to hh,000 3,500.00
45,000 to 48,000 3,750.00
h8,000 to 51,000 h,000.00
51,000 to 54,000 4,250.00
5h,000 to 57,000 h,500.00
57,000 to 60,000 4,750.00
60,000 and over 5,000.00
*Source: Taken from Member's Handbook, 1952.

130
were discussed to provide greater familiarity with this
functioning organization. It will be noticed that there was
not any discussion of some areas such as personnel training
and public relations. This is due to the fact that these
Specific departments were not found existing in a formal way
within the framework Of the business at the time the study

was made.

CHAPTER IV

INDEPENDENT WHOLESALER SPONSORING
A VOLUIITAR‘I CHAIN

History

This business was actually founded before the Civil
War. However, the owners who contributed the name by which
the company is now recognized did not gain control until
1892. A program of eXpansion through purchases of existing
'businesses was pursued in the early 1900's. Besides the pur-
chases Of existing grocery wholesalers, two branch warehouses
were established in the 1900 to 1930 period. These branches
and acquisitions were all in the state of Michigan.

In 1938, a wholesaling business was purchased in Toledo,
Ohio. Two more wholesale outlets were established in Ohio
within the next eight years. At this time, the company Oper-
ated a total of six modern, one floor and three multi-floor
warehouses. In aodition, 77 cash and carry branch warehouses
Supplemented the nine main warehouses mentioned.

These smaller, supplemental branch warehouses are a
.Product of a wholesale cash and carry system inaugurated by
'Uais company in 1928. Such cash and carry outlets Offered
arenat convenience to retail merchants. The smaller retailer
was ‘the principal customer of these cash and carry units.

The acceptance was immediate and growth steady to the present.

132
Trend in Growth1

In terms of the percent Of the total market, the peak
period for sales was in the 1925-1926 period. The trend
since this time has been toward a declining portion of the
total market. The Toledo branch was discontinued in 1952.
There are seven branches now in Operation, including one in-
stitutional division. In addition, there are sixty to seven-

ty cash and carry depots.

v” Purchasing

A policy of decentralized buying is followed. Buyers
in each branch are responsible for purchasing all merchandise
needed. The buyer is responsible to the district manager for
his buying activities. The district manager, in turn, is
responsible for the overall warehouse Operation. New items
are purchased only after a consultation of buyers and the
branch manager.

The emphasis is on private label goods. An estimated
350 items are packed under this private label. A type of ne-
gotiated buying is practiced for these goods; however, there
is no warehousing by the company Of large quantities in an-
ticipation Of demand.

A merchandising committee exists at the central Office
levwel. The contract for products of the private label are

“;

1This information taken from a company pamphlet.

133

made here. The various branches are then contacted by repre-
sentatives of these authorized packers where the quantities
of purchase are determined.

Some private brand items are ordered directly from the
packer and others are purchased from brokers. Each shipment
of private label is examined by cutting cans from this ship-
ment. A practical test based upon the buyer's experience is
applied to determine the acceptability Of the products.

This private label has been in existence for twenty-five to
thirty years. Purchasing on a turnover basis is also prac-

ticed for all other merchandise.

Order Handling

Two principal methods of receiving orders from retailers
are in use. These are the mail-in type order book which is
utilized by mechanical billing and the salesman who calls and
writes the retailer's order. Salesman are employed in all
branches except one. The selling emphasis is on private
brands. Each retailer is called upon once a week.

In the one branch not employing salesmen, the retailer
is eXpected to mail his own order to the company. This sys-
tem is now being utilized on a trial basis. In this experi—
mental area, supervisors are employed instead Of salesmen.
The ideal purpose of the supervisor is to give retail assist-
ance. HowevOr the main role he has played thus far is to

make collections and pick up orders from retailers.

131.

It is recognized by the company that warehousing and
delivery costs are the key to successful grocery wholesaling.
Before any work toward efficiency of Operation can be effec-
tive, the warehouseman must have the assurance Of larger
orders from the retailers. Delivery expense reduction has
been attacked in several ways.

Delivery trucks are owned by the company and Operated
by unionized drivers under the supervision of the warehouse
superintendent. Policy concerning delivery is to deliver to
each customer once a week. One of the techniques Of delivery
cost reduction is to Operate trains and shuttle drivers. The
train refers to the usual truck or truck and trailer arrange-
ment with another trailer attached. The shuttle drivers are
located at stations along the route. By this means, drivers
are provided without the usual delay for rest. Such a sys-
tem is used for orders in the vicinity of 315 miles round
trip.

A delivery cost as a percentage of sales record is main-
tained. The costs are in categories referring to metrOpOli-
tan service orders, long distance orders, and delivery to the
Cash and carry depots.2 Delivery costs as a percent of sales
is one method of efficiency determination. The greatest im-

Portance of such records lies in the field of comparison of

2These figures are treated as confidential company in-
fOIInat ion.

135
past company performance rather than comparison to the in-
dustry. This is due to the fact that such a comparison fails
to take into account differences in trade and territories
served by different firms.3 Delivery cost is a direct cost
and, thus its control within the company is Of major conse-
quence because of the importance of direct costs in distri-

bution.

Organizational Chart

Chart 9 shows the organization of the company and the
relationship of the branches to the central office. It will
be noted that the branch appears autonomous and this is the
actual condition. The central office plays an important
part in overall company Operation, but the various branch
divisions are quite independent concerning their individual
Operations.

From the organizational chart it can be seen that the
company is incorporated and under the direct control Of the
stockholders, board of directors and the president. Next in
line are the various staff Officers. The merchandising com-
xhittee is Concerned primarily with the purchase of private
label merchandise. The advertising manager has the reSponsi-

bility of planning advertising strategy for the private

 

 

3netnods of Handling and Delivering Orders Used By Some
Leaéling Wholesale Grocers. United States Department of Agri-
fdflisure. Market Research Report NO. 13. May, 1952.
wasnington, D. c. p. 43.

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137
label. Such promotional work is separate from the advertis-
ing and promotion at the retail store level. A store engin-
eer represents another staff Office which is unique enough
to necessitate some clarification in this discussion.

It is generally conceded that the person in the store
engineering capacity must be as much a retailer as an archi-
tect. He aids retailers who are remodeling, building new, or
needing rearrangement in their present stores. The store en-
gineer also assists in the solution of routine problems, such
as supervisors might pass on to him. Expenses and charges
for the services of the engineer are paid by the branch which
sells to the retailer wno received the assistance. Any
equipment that is sold to the retailer by the engineer is in-
creased 5 percent over the purchase price to the division.
Profit resulting from such sale is applied by the division to
the engineer's salary. All cuStomers are provided this ser-
vice wnetner they are members of a voluntary group or not.

In this manner, the retailer can purchase required fixtures
at a price slightly above the price to the wholesaler and
technical assistance for no additional charge.

Next in line are the branch managers wno are in charge
of the various brancnes of the company. Organizational Chart,
page 136 shows the various divisions at the branch level. As
indicated, the merchandising manager has charge Of the sales-

men and works with the supervisors within branches where they

138
are employed.

Further duties of the merchandising manager include
planning the weekly promotional program, recruiting new
stores to the voluntary group, organizing retailer meetings,
training supervisors, evaluating potential store managers,
and working closely with all supervisors. His primary duty,
however, is to see that the company is making it possible
for the retailer to be competitive. The cash and carry sales
manager is in charge of the cash and carry units supplied by
the branch warehouse. Responsibilities of the other officers
indicated on the chart are, by their titles, self eXplanatory.

At the present time, this company has no plans for ex-
pansion. In fact, the recent withdrawal from the Toledo
branch indicates a possible trend toward more consolidation

of outlets.

Pricing

The proper calculation of selling prices is one Of the
most important problems which the wholesale grocer has to
solve. The brief discussion herein devoted to this subject
is not meant to imply that the company concerned is unaware
of the importance of pricing. Instead, much attention is
devoted to the problem, some of the aspects of which are pre-
sented herein.

It is believed by the management of this company that

the ideal situation would be to base the selling price on

139
the cost Of merchandise or on a cost-plus system with cost
considered as the billed price less a 2 percent cash dis-
count. h difficulty arises in that this system.would not al-
low competitive selling Of turnover items. In the Detroit
marketing area, the difference of items below cost is usually
equal to the cash discount. Reference to Table Ll indicates
the pricing methods used on some groups Of merchandise.

This practice allows the retailer to obtain these goods at a
price nearer to the wholesale cost. This, in turn, makes it
possible for the retailer to place competitive prices on

these important high turnover items upon wnich price is an im-
portant consideration of the consumer.

Cost plus is generallypreferred by retail customers in
this area; however, this policy is less flexible from the
Jholesaler's standpoint. The general plan is to add a cer-
tain percent to each invoice although there are varying meth-
ods all termed cost plus. The Objective of the plan is to
provide an incentive for retailers to order in larger quanti-
ties. Thus, the all important reduction Of direct wholesaler
costs inherent in larger purchases by retailers could be re-
alized. In the Detroit area, the lowest price basis which
this company uses is 4.5 percent. This is for city orders of
over $1,000. The 4.5 percent is the increase applied to the
base price set by the wholesaler. Thus, it will be seen that

this wholesaler can Operate near a gross profit of h.5 percent

lhO

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plus the 1.5 percent cash discount or a total gross profit

of 6 percent of cost.

Nationally branded items with a rapid turnover are some-
times sold near cost less other discounts as indicated in
Table LE. It is estimated that these items average 25 per-
cent Of the retail order and that this, consequently, reduces
the gross profit average about 1 percent. Some items which
have been Selected for advertising are sold regularly to re-
tailers at cost with the amount purchased limited to the
needs for that week.

Table XII indicates the method of assigning delivery
charges used by this company. Such charges are applicable
to one division of the company.

Delivery charge is used as a tool to increase the size
of the order. From this table, it can be seen that large
order size is considered of such great importance by this
company that a rebate is awarded and, in the case of country
deliveries, no charge is made for the delivery of the
largest orders.

At the present time, the company does not provide any
financial aid to a retailer with the exception that the terms
cxf sale are payment within one week. In exceptional cases,
it: is required that the Order be paid for on delivery.

The pricing scnedule Shown in Table XXII indicates the

metxnod used to determine the retail purchase price using a

TABLE xxx
SCHEDULE OF DELIVERY CHARGES“

1h2

 

 

 

City Country
Total Delivery Total Delivery
Selling Price Charge Selling Price Charge
3 125 1.75% t 200 1.75%
250 1.50 250 1.50
500 .50 600 .75
Over 500 NO charge 1,200 .50
1,000 or over Rebate .5 1,200 or over 0.0

 

 

 

*Source: Information Obtained from questionnaire.

143
TABLE xxII
PRICING SCIEDUIE’“

 

 

A. Delivery Charge: (a fixed percent not shown)
Minimum Delivery Charge: $2.50

B. monthly "W" Service Charge:
Minimum "W" Service Charge: $25.00 monthly -
payable in advance with balance above minimum

service charge payable at end Of the month.

lst p2,000.00

$2,001.00 to p3,000.00 @ --$ ) Percent
p3,00l.OO to 90,000.00 0 --% ) Increases
pe,001.00 to 98,000.00 a --5 ) Not
98,001.00 and over 3 --p ) Shown

C. "R" service charge Of 93.00 a week for group stores

 

*Source: Personal interview with a company officer.

1M»
cost plus method. There is first a minimum delivery charge.
The monthly "W" service charge is the warehouse charge. The
schedule of percent increases corresponding tO various pur-
chase volume ranges indicates the technique used to arrive
at the wholesale price. As the volume of purchases increas-
es, the percent charge decreases. However, it should be
noted that the retailer must, in a sense, work his way
through this schedule. The "R" charge is p3.00 a week which
is for group stores only.

The total charge based upon volume calculations and the
correSponding percent is then paid at the end of the month..
The #25-00 warehouse fee paid at the first of the month is
deducted from this charge as described in the pricing sched-
ule, Table hKII. Cost-plus methods vary. It is not in-
tended that the method presented is representative. It is,
however, one approach taken by this company to aid in proper
pricing. A given warehouse of this company which uses any
type of cost-plus plan does not also use other types of pric-

ing; 3.18 13.0008 0

Advertising Rebates
The advertising groups generally pay the entire cost of
the advertising. This cost is divided equally among all
group stores in the particular area. Advertising rebates
are calculated at the warehouse level and returned to the re-

tailer. Distribution of these rebates is made on an equal

145
basis to all. In the past, the rebates have paid for approx-
imately 25 to 35 percent of the retail advertising cost.

The rebates originate mainly from manufacturers who
mane their contributions for COOperative newspaper advertis-
ing. stores in voluntary groups are the only ones which re-
ceive these cooperative advertising rebates. One exception
is the rebate on National Biscuit Company products which is
made to all stores affiliated with this wholesaler. Such

affiliation is not the same as that of the voluntary group.

Voluntary Group
The group movement was initiated by this wholesaler

out of the recognition of the need for a program of services
to the retailer. The inauguration of departments to provide
these services was inherent with the develOpment of the
voluntary group. On the other hand, it also made it possible
for the wholesaler to offer services to all of his customers
who would desire to request them. Thus the wholesaler could
provide the same services to all without forcing them to pay
if they did not choose to benefit from these services.

Store engineering, dealing with problems of remodeling
and store layout is one of these services. This also in-
cludes location of a building site, locating merchandise
within the store, providing retailer with equipment at the
lowest possible cost, and assistance with other matters deal-

ing with the physical facilities of the store.

146

Another service is the concentrated assistance which is
given to the retailer during an Opening of a particular
store. The following is a "guide used for opening new
stores" which the company uses, as shown on the next page.

Schools for retailers would be of great assistance it
is believed. However, such schools are not being utilized
at the present time.

The store supervisor has an important role in the volun-
tary group. The objectives of the supervisor are presented

as they appear on a company printed form titled "What's Our

)

Job?" Ideally, the ~u,ervisor should be limited to 35 stores

6

which would be assisted at scheduled intervals. He should
see each at least one and one-half days every three months.
The optimum voluntary-retailer membership is believed by this
company to be approximately 300 stores.

Membership is increased principally by word of mouth.
It is the duty of the retail merchandise manager to approach
a prOSpect. Negotiations prior to the joining of the group~
by the retailer are transacted with the retail merchandise
manager.

The obligations of the wholesaler and the retailer to
each other are given specifically in the following wholesal-
er and retailer Operating agreement. Generally the retail-
ers' obligations are to: concentrate purchases with the

Sponsoring wholesaler, maintain a COOperative attitude,

1h?
GUIDE FOR OP EITING NEW STO.ES

 

 

 

SUPERVISOR
NALE & ADDRESS
Agreement signed
Financial Statement made out“' Advertising Contract
New Account Application Form Accounting Service
Placed on Allotment List Insurance

 

 

ALL RATION INVENTORY STAMPS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FIAi RES

Adding Machine Egg ScaI3“"‘ Platform Scale
Awning 4 Garbage Can Refrigerator Case:
Banana Knife Super Valu Sign"— Scales
Candy Scale Price Tags 5' Scoops
Cash Register Light Fixtures Tape Machine
Cheese Knife ___ Meat Slicer ‘—"" Twine Holder
Coffee Mill Moulding Self Service Gliders
Compressor Paint ~ "“—
Egg Candler__ Paper Cutters

OUTSIDE ”LRCHANDISE
Beverages Heinz Products Potato Chips
Yeast Loose-Wiles Pop Corn
Kraft Products Coffee - Bread

(Hills, Folgers and Donuts

Butternut) Cake
Milk, Cream __
ADVERTISING
Specials Boxholders
Number of Circulars Mailing Permit or Stamps
Routes Grand Opening Kit
MISCELLAL SOUS

Cigarette License Hire Clerks
Egg License
Beverage License Wall Signs
Milk License Departmental Signs
Oleo License Fruit & Veg. Signs
Beer License Fruit & Veg. Pricing Sets

 

 

Rubber Stamp Pricing

 

Bank Accounts - Money Aprons

 

1A8
WHAT'S OUR JOB?

1. Store Engineering To Save Members EXpense.

2. Planning Grand Opening, Birthday Sales, Etc., Helping
Set-Up Store In "A Ready To Go Condition".

3. You Have Information on Market Conditions, Trends, Etc.
hhich Can Be Helpful To Your Members In Operation of
Business.

A. help That Member To Analyze His Store To Gain More In
Sales and Profit.

5. Work With Each Member With The Weekly Sale Plan To Fit
It To His Store SO He Will Sell More Merchandise.

6. Work With Each Member To Help Him In Controlling His
Over-Stocks.

7. You Must Realize Your Store's Perishable Depts. Are The
Most Important To his Store's Future Sales and Profits.
These Departments Must Have:

1. Freshness At All Times
2. Good Displays - Price Tagged
3. A Full Line At All Times

8. This "Retail Plan" Must Be Sold At All Times - Talk It -
How? Keep Your members' Interest To The Highest Pitch
Possible On This Deal.

1. Showing And Suggesting New Methods To Them.

2. Telling One Member What And How Other Mem-
bers Are Doing.

3. Last - Impress Bach Of Your Lembers That
In You They Have The Best Contact Man
Aver. Sell Yourself. Sell Your Methods
And You Will Sell Merchandise.

1&9
4.:10L33‘4M“ £le P31 nILEH origami: G “can;
THIS AGRHZXHHT entered into between

i
, , or Branches, hereinafter referred to as
buppIy Depot, and the undersigned independent Hetailer,

 

 

nhhhhns the hetailer desires to be licensed and
I‘rancnised by the Suwly Depot to use the trade- -name
and distribute Lieicnandise at retail under the trade—marks
hereinbelole desolibed.

NON THJZSLOhn, in consideration of mutual promises, it
is agreed as follovm

THE SL’PLY DEPOT HILL:

1. License the Hetailer to display the sign and
to identify and advertise himself as deaIer.

 

2. Supply the Hetailer from its entire line of merchan-
dise (excluding store equipment, store supplies and comnod-
ities under Pair Trade Laws ) at supply Lepot's
cost or adjusted cost F.0.B. :upply Depot. Adjusted cost is
defined as a figure either above or below cost or marhet to
be determined by Supply Depot, taking into consideration
netailer's super market competition.

 

3. Furnish the Retailer with sign or signs on a
rental basis, and Supply Depot to carry public liability in-
surance protecting Supply Lepot and Aetailer against the
damage for persor nal injury to third persons resulting Irom or
attributable to or the proximate cause of which is the ex-
istence of such sign or signs with a limit of 950,000.00 re-
sulting from one accident.

TEE RETAILHR HILL:

1. Confine his purchases to and cooperate with the Supply
Depot insofar as practicable, including the mailing of orders
according to delivery schedule and accompanied by blank
signed Check written in inn and payable to .

 

2. Accept from Supply Depot on a rental basis, one or
more signs at the agreed rental of sl.00 per sign
per annum or fraction thereof, payable in advance and agreeing

 

150

VHOLESALER AND RETAILER OPERATING AGREEMENT
(Continued)

further that said sign or signs shall remain the absolute
property of the Supply Depot, free from any liens or encum-
berances.

3. Cooperate with Supply Depot, eSpecially in the use
of retail advertising and promotion of Special sales events
as evidenced by execution of advertising agreement as col-
lateral hereto.

h. Pay to Supply Depot in advance service and warehous-
ing fees according to current applicable fee schedules.
Such service and warehousing fees to compensate the Supply
Depot for cost of warehousing, supervision, buying, merchan-
dise, shOpping and advertising service.

5. Conform to Supply Depot's Specifications as to inter-
ior store arrangement and store front identification.

6. Refrain from diSplaying other signs or insignia de-
tracting from signs.

7. Subscribe to and maintain membership in the Retailers
Service Department of Supply Depot and pay the scheduled fee
therefore, if, as and when such Department is put into Opera-
tion.

8. Where special services are required for store engin-
eering, floor plans, blueprints, advertising help, account-
ing or special supervision other than routine, to pay for
such Special service a per diem charge of $15.00 per day plus
hotel and traveling eXpenses.

9. Not question in any manner during the life of this
agreement or subsequently the validity and/or ownership of
any trade-mark or trade-name owned or controlled by Supply
DepOt o

10. Recognize the Supply Depot's right to select its cus-
tomers and in the event of termination of this agreement the
ownership of trade—marks or trade-names owned or controlled
by the Supply Depot shall not be questioned and further recog-
nizes that there is no obligation on the part of the Supply
Depot to continue to sell merchandise to Retailer under its
own labels or any other labels, after termination of this
agreement as hereinafter provided.

151

WHOLESALLR AND LJTAILJR OPERATING AGREEMER
(Continued)

THIS AGRJVRHRT shall continue in full force and effect
until cancelled by either party upon one week's notice in
writing, in :hich event the Retailer agrees that within the
one week period he will discontinue the use of the trade-

ame and/or trade-mark __ and all names and marks con-
fusingly similar thereto and W111 remove the said sign or
signs and return to the Supply Depot in good condition,
transportation charges prepaid, and to repaint the store
front in other than red and yellow colors and to
do all things necessary to inferm the public that the
affiliation has been terminated. Failing to do so the
Supply Depot shall have the right to enter the Retailer's
place of business and thereupon take possession for itself
or for its own use all identification and the Re-
tailer agrees to reimburse the Supply Depot for such change
of identification expense.

 

 

 

 

Dated this day of l9__
Retailer By
Supply Depot
Trade Name Supervisor

 

 

1

Eifective Date

 

 

address

152
coordinate in store promotions with the group neWSpaper ad-
vertising, maintain the prices advertised, and Operate a
clean, well—managed store.

It is believed that such obligations tend to focus the
retailer's full attention on selling and functions of retail
promotion other than buying. The problem of buying for the
merchant becomes the full time responsibility of the Spon-
soring wholesaler.

The obligations of the wholesaler are discussed in the
following outline titled "cooperative merchandising plan."

In summary, the three basic goals of this wholesaler are
stated or else implied in this outline. These goals are: to
provide the retailer an adequate assortment with an inventory
maintained in a consistent manner; to provide a promotional
program which is aimed at the consumer; to maintain the neces-
sary services to improve and hold the competitive position of
the retailer.

The most outstanding feature of this voluntary group is
its advertising service. The warehouse salesman or the
supervisor, who replaces the salesman in some cases, meets
with a group of the retailers of his territory. This group
selects the items to be advertised. The list of items is
then sent into the warehouse where it is given a final check
mainly concerning supplies of any particular item. From the

wholesaler, items selected and approved go to a printer who

A.

153
000133. @113 ISRCHARD SII'IG PLAN

This is a "Total" Retail Merchandising Program.
Helps you buy everything competitively with chains
through group buying.

1.

Groceries

a. A full "supply" line of nationally known
best sellers, and the companion non-
footballed line.

b. Pricing based on the Detroit market. Same
basic plan as large chains pay for groceries.

c. A complete "hard hitting" week-to-week re-
tail advertising and merchandising program
at low cost which brings results.

d. A preprinted order form with chain store
shelf prices as the suggested retail prices.

9. The services of a competent sales supervisor
whose cnief duty is to help you be a more
successful retailer - to advise you of new
and proven retail merchandising, Operation
and management ideas and techniques.

Meats: A central buying and merchandising plan to
give you added sales and greater meat profits.

a. The services of a skilled meat supervisor to
train personnel in how to make a profit.

Produce: a produce merchandising plan by which
you sell and buy 00mpetitively with chains and make
a fair profit, with policing your costs.

Retailer participation in cooperative advertising allow-

ances.

Daily market flasnes on important market changes, and a
weekly news bulletin. - The Profit maker.

The services of a competent store engineer to advise you
on store layout changes which should improve sales.

An attractive sign for your store which marks it as an
economical and quality place to trade.

Retailer meetings with eXperienced meat and produce con—
sultants.

15h
makes the layout and mate. These mats are sent to the news-
paper which serves the area in which the group is located.
The actual meeting of the retailers takes place approximately
two weeks before the effective date of the advertisement.

The charge, as was stated before, is divided equally
among all stores irregardless of the sales volume of any in-
dividual store. The rebates are distributed to each retailer
by the wholesaler. The wholesaler checks the items to be
advertised each week and then the manufacturer is contacted
for collection.

To assist in sales promotion, the warehouse sends four
posters to each store. Along with these posters, each re-
tailer receives a weekly stenciled bulletin which contains a
review of next week's advertised items, suggested and compet-
itive retail prices, and merchandising information. To a
large extent, the cooperation of the retailers is maintained
through the weekly meeting of retailers' committee and the
warehouse supervisor or salesman. Some emphasis is also
placed on the use of private brands to gain retailer COOpera-
tion.

Central accounting is obtainable by those stores which
request it. A private accounting firm provides this service.
Stores which are being financed are the only ones required

to have their accounting done in any specific way.

155

All members must follow the standard program of Operat-
ing a complete self—service food store on a cash and carry
basis. Policy of this nature is aimed at attracting a larger
segment of the consumers by offering top Quality merchandise
at the lowest possible prices. Such standardization of
Operation is one of the features of the voluntary group.

EXpansion into new departments, such as meat, produce,
and frozen foods is not within the immediate plans of the
company, due to lack of funds. However, a meat merchandis—
ing plan is being Sponsored. Through this plan, the retail—
er is not called upon by a meat packer's salesman. Instead,
the retailer phones his requirements to the grocery ware-
house. Orders from all retailers are then sent to the pack-
er. Trucks of the packer deliver to each retailer without
any storage taking place at the warehouse. A meat merchan-
dising supervisor employed by the warehouse calls on the re-
tailers. His tasks involve inspecting the quality of meat
received and assisting in merchandising the retail cuts.

Some of the more important considerations of a food
wholesaler sponsoring a voluntary retail group have been dis-
cussed in the preceding pages. Emphasis has been placed up-
on the aSpects involving the retailer. Thus, store procure-
ment, pricing delivery, supervision, assistance, advertis-

ing and sale promotion programs were presented.

K

CHAPTER V
SUMMAA’ AND CONCLUSION
Summary

The object, as stated in the beginning of this report,
was to compare three different types of food chain organi-
zations. The problem was approached from the standpoint of
the nature of the relationship between the wholesale and re-
tail outlets. In one sense, the organizations performing
the wholesale function for each of these chains could be con-
sidered similar in that many of the functions performed are
similar to all three. Actually, the Operating situation fac-
ing each of these wholesalers was found to be quite different.

It is a well known fact that certain physical facilities
and operating techniques within the warehouse enhance Operat-
ing cost reduction. Thus, the wholesaler can charge the re-
tailer a lower price and the retailer, in turn, can realize
a competitive advantage therefrom. Since these three chains
may actually be thought of as representing competing busi-
ness philos0phies, it is of utmost importance to their com-
petitive position that the wholesaling function be performed
at the greatest level of efficiency. The retail selling
price is one factor determining the competitive position of
any given store or chain. Another factor is the advantage

to be gained by the retailer from retailer-wholesaler

157
COOperation. These advantages are expressed through ser-
vices offered by the wholesaler to aid the retailer in
prOper merchandising and store Operation. In short, such
advantages are those gained from retailer-mindedness on the
part Of the wholesaler.

The efficiency and effectiveness with which such ser-
vices are performed affect the cost of these services and,
consequently, the competitive position Of the retailer to
nearly as great a degree as warehousing techniques and the
retail price of merchandise. The extent and technique of
performance of these services by three chains was the primary
subject considered in this report.

The relative position of stores in terms of sales and
store numbers composing these various types of chains was
discussed. Although sales per individual store of corporate
chains have increased, the percent of the total market
claimed by this group has not increased in recent years.
From this, it appears that the non-corporate chain stores
have maintained their places in the market. However, it
should be recognized that the number of stores affiliated
‘with wholesaler-Sponsored and retailer-COOperative groups
have also increased. Some reduction in sales and number of
stores have been realized in the independent store classifi-
cation. The overall trend seems to indicate larger sales
VOlume per corporate chain store with an increase in the num-

‘ber Of non-corporate chain food stores.

158

The grocery wholesaler has changed a great deal from
the wholesaler of the past. Emphasis is now centered upon
volume sales and low operating eXpenses allowing the lowest
possible selling price for the retailer. Retailer-mindedness
is an ever increasing consideration of the grocery wholesaler.
Many methods have been employed to satisfy the apparent need
for wholesaler-retailer teamwork.

It might be thought that this need was the driving force
behind the formation of the first retailer-owned COOperative.
However, discriminatory bargaining practices of independent
wholesalers were given as the primary reason for formation
of such cooperatives. Assistance to retailers was one of the
stated factors in stimulating the formation of wholesaler-

sponsored voluntaries, although chain store competition is

Often given as the reason for this action.

Corporate Chain

The corporate chain presented here was seen to grow from
a small business. There was an apparent desire from the
standpoint of the founders of this chain to control the whole-
saling, retailing and, in some cases, production facilities
related to such a business. Maximum control over all phases
of the business can, therefore, be realized. Due to this
fact, the corporate chain presented in this report has de-
velOped many methods of control and communication between the

wholeSale phase and retail unit. Since the retail sales are

159
the recognized Objective of this company, all other activi-
ties become complementary to this. Retailer-mindedness then
becomes an extremely important consideration in this Operat-
ing philOSOphy. Various techniques have been develOped to
provide the greatest aid to the retail unit.

Some indication of these techniques is expressed in the
purchasing procedure, as developed in Chapter II. Iegoti-
ated buying responsibility is assumed by experienced buyers
at the general Office level who perform the task of buying
certain products for all branches Of the chain. The branch
buyers utilize market testing and a merchandising committee
for determining the desirability of certain new products.
Purchasing by the retail units is controlled in an efficient
manner. Deliveries to the stores are set as to frequency and
occurrence and control sheets are used to facilitate purchas-
ing at retail. Survey forms recording the success of tech-
niques used on past sales of certain seasonal products are an
additional aid to the branch buyer and the person doing the
ordering for the stores.

Coordinating warehouse and retail unit purchasing pro-
cedures is one of the teaks of the district manager. Such a
person must be well informed on the problems at the ware-
house and retail levels. He forms the main stem of communi-

cation between planning at the general Office and branch ware-

house levels and the execution of plans in the retail store.

160

Store supervision is another task of the district mana-
ger with the assistance of the general district manager.
Records are maintained which provide a control over present
Operations, thereby, some guide is obtainable concerning the
adequacy with which a given retail unit is performing in re-
lation to the present sales program.

Regular merchandising meetings between the buying and
selling groups within the organization provide an Opportun-
ity for a high degree of planning, cooperation, and coordina-
tion of effort. Due to the fact that a central control of
all retail units does exist, central planning can be quite

ffective.

Advertising claims much emphasis from both the COpy lay-
out and selection of products to be advertised. PrOper lay-
out receives assistance from Specialists at the general head-
quarters level. The products are, in part, selected by the
merchandising board; thus, the greatest possibility exists
for the selection of the prOper items and the coordination of
advertising with other merchandising plans. Different COpy
layouts are made for outlying districts, therefore, distinc—
tive advertising is provided to smaller newspapers with local-
ized distribution.

A personnel program is an integral part Of this company.

Included is *TOU insurance a credit union revision for
3 3

161
retirement, profit sharing and a vacation schedule. In this
manner, the employee is provided additional benefits over
and above his regular wage or salary.

Training, utilizing classroom techniques, is coordinated
with practical experience in the stores. These classes are
held in the branch warehouse which an employee attends before
going into any one of the various store operational phases.
Management training is given a special consideration. Such
training extends through the university level whereby the
company provides financial assistance to employees showing
outstanding management potential.

New product develOpment and quality control are given
special attention by the Kroger Food Foundation. New recipes
are devised and, along with old ones, are tested to aid in
home food preparation. These recipes and other special in-
formation on food uses serve as a merchandising aid to the
KrOger stores.

Public relations practices take form in almost every ac-
tivity of this company. Certain scholarship, cooperative
community programs, and employee and store participation in
local groups and projects are examples of public relations

at work for this chain.

Retailer-owned Cooperative
The retailer-owned cooperative was found to be a busi-

ness owned and controlled by a group of food retailers through

162
a board of directors. Seven retail members serve on the
board along with the general manager of the warehouse. Back-
ground information indicates that this cooperative was begun
in order to escape discrimination from independent wholesal-
ers. Thereby, retailers could be provided with merchandise
at a lower cost.

Several years of successful Operation have gone past
since the founding of this cooperative. Many services are
now being offered to the retail owners who are also the prin-
cipal customers of the business. Such services were not in-
cluded in the original plans of the organization. Some out-
standing examples of these services are included in the fol-
lowing: private label merchandise, negotiated buying in co-
operation with the Pacific mercantile Company, delivery ser-
vice, retail contact man to call on the retailer, provisions
for insurance, formation and COOperation with voluntary ad-
vertising groups, credit, and other benefits.

The desire for low cost Operation places much emphasis
on the production of each employee. This results in a ten-
dency toward fewer, more highly skilled employees. The gen-
eral manager has an important position within the cooperative,
primarily because he is reSponsible for the successful opera-
tion of the complete business and must often bear the burden

of making decisions without the assistance of Specialists.

163

Advertising layout service is provided by two advertis-
ing groups formed from the membership. Items are selected
by a committee from the group and printed in two Portland
papers with a state-wide circulation. An advertising depart-
ment is maintained at the warehouse to provide layout and
complementary services to the advertising groups.

A contact man calls on the retailers to learn their
attitudes in relation to the cooperative. He also makes sug-

gestions and aids retailers in their merchandising problems.

Wholesaler-sponsored Voluntary

The case selected in Chapter IV presents an example of
a large independent wholesaler. Central Offices of this busi-
ness are located in Detroit with several branch wholesale
houses located throughout the state of Michigan. Special
cash and carry depots are also maintained.

The branches operate practically as individual, indepen-
dent businesses, each receiving a large degree of freedom in
its daily activities as far as the central office is concern-
ed. The central office staff is affected principally with
negotiated buying of private label products, long range
planning, and private label promotion.

Delivery charges are set so as to favor large orders so
that direct costs may be controlled. In some cases, pricing
techniques are used wnich favor the purchaser of larger

quantities. In other branches, selling price is calculated

16h
in a standard manner by increasing certain groups of merchan-
dise on a fixed percent.

Advertising service is maintained whereby a wholesaler
representative and a group from the chain meet and select
items to be advertised. Such items are then checked and
sent to the printer by the Wholesaler. After the mats are
made by the printer, they are sent to the local papers serv-
ing the particular group of stores. debates for cooperative
advertising are collected by the wholesaler and passed on to
the retailer.

Store engineering service is maintained to aid customers
in remodeling and store layout problems. All customers who
desire it receive this service, Retailers are charged a 5
percent increase over the price to the wholesaler on all fix-
tures purchased through the wholesaler. The retailer is not
ordinarily assessed for the services of the engineer.

A need for assistance at the retail level and the bene-
fits to be gained from joint wholesaler-retailer planning
was recognized by this independent wholesaler. Independent
retailers were thus recruited by the wholesaler and a whole-
saler-sponsored chain developed.

Retailers receive much assistance from the wholesaler
during the Opening of a new store. Supervisors are employed
to provide continued merchandising assistance to the volun-

tary group members. It was stated that three hundred was

165
believed to be the Optimum number of stores for a voluntary
chain. Bach supervisor under ideal conditions would have 35
stores to call upon. At the present time, the supervisor
is concerned mainly with collections and duties more related

to a salesman than a supervisor.

Conclusion

It would be highly desirable at this time to say that
one of these Chains herein discussed was definitely better
than the others, or that retailers of each type could obtain
merchandise at as low a price as any of the others, but this
can not be stated from the information presented. Due to the
many problems involved, it was not deemed practical to carry
on the necessary investigation to determine effectiveness
from a cost standpoint. Various factors were discussed, how-
ever, which are directly related to the effectiveness of the
retail and wholesale unit relationship.

Assuming that the connection between the wholesale and
retail phases is of primary importance in the ultimate com-
petitive position of each of these groups, the question then
concerns what factors are important in such a relationship
and how they should be performed. From the facts gathered,
the corporate chain seems to be the leader in the develOpment
of techniques, through staff and complementary functions, to
aid the retail store. Such an Operating procedure is prac-

tically dependent upon the factor of central control. This

166
type of control is not utilized by either of the other two
chains. Dependence upon corporate chain store techniques by
the other two types of chains is likely to be quite hazard-
ous.

The corporate chain has been successful in coordinating
efforts toward the assistance of the retail unit, but much
effort has been incurred in so doing. There exists the dan-
ger of cumbersomeness and repetition due to the large size
of the organization. For the most part, the business is con-
ducted by men who do not have any considerable ownership in-
terest. Therefore, they are not likely to have the incentive
equivalent to that of an owner. nepecially is this true at
the retail level where store personality is such an impor-
tant element to the American buying public and is so depen-
dent upon the attitude and ability of the manager of that
store. Therefore, more emphasis needs to be placed upon the
importance of the store manager's position. Certain profit
sharing and bonus plans are in Operation to attempt to over-
come the incentive problem. It is possible that more decen-
tralization of responsibility with emphasis on the branch
as being practically independent would eliminate some dupli-
cation of efforts and allow for greater flexibility of oper-
ation.

The retailer—owned cooperative would seem to exist as

the organization with the greatest potential concerning co-

167
ordination between the retail and wholesale phase. Such a
condition would be due largely to the fact that the retailer
is owner of the retail unit and also part owner of the
wholesale organization. Incentive should, therefore, be
strong to COOperate with the wholesale phase as well as main-
tain the highest possible Operating standards at the retail
level. However, there is also likelihood of a conflict of
interests between wholesale and retail operations and a de-
emphasis of prOper management of the wholesale phase in lieu
of expense reduction.

The great advantage of this cooperative is that all mem-
bers share a common problem and have a common goal - the suc-
cessful Operation of the retail unit. Failure of any one
member will reflect back to weaken the position of the group.
The prOper Operation of the warehouse is of particular sig-
nificance to all members because of their ownership interest
and the fact that the cost of merchandise is reflected in
such management. With this in mind, a high degree of COOper-
ation between the wholesale and retail phase should be at-
tainable. Such a situation would represent a fairly optimum
condition.

In the case of the cooperative used in this example,
little real effort was seemingly evident to impress upon re-
tailers the advantages of COOperation. A contact man was

employed who acted principally in the capacity of an emissary

168
between warehouse and store management. Such a means of
communication is undoubtedly serving a useful purpose within
this COOperative, but there is danger in confusing the duties
of laison with the tasks necessary to instill the desire for
and create the situation of progressiveness within the re-
tail members.

Retail advertisements were prepared by a Specialist and
printed in newspapers with statewide circulation. There was
no consideration given to the preparation of mats for local
papers which serve the trading areas of particular stores.

A practice of sending mats to smaller papers could likely
increase the membership of the advertising group. The bene-
fit received by retailers from such centralized advertising
could advance their competitive position, thereby increas-
ing the strength of the entire COOperative group.

It is likely that the performance Of the retail func-
tion is going to benefit more by a procedure of educating
the retailer concerning the facts of Operation with which
the wholesaler is faced and the actions by which the retail-
er could best profit. Such an attitude of give and take im-
plies ideally a comparatively small group of similar stores.
Therefore, it could be more important for emphasis to be
placed upon a homogeneous and somewhat limited membership
rather than an extensive group.

The effectiveness of corporate chain techniques of

169
supervision do not appear promising in their application to
cooperative chains. Great strength can be realized in an
organization of this type if members can be convinced of the
desirability of Specific actions. However, facts rather
than edicts are going to be more important in accomplishing
coordination and increasing the effectiveness of the retail
unit.

Some evidence exists that the independent wholesaler
Sponsoring the voluntary chain discussed is striving toward
corporate chain techniques. The hazard involved in such
action is the fact that independent retailers must be dealt
with and not simply retailing units of a corporate chain.
One of the greatest advantages of the wholesaler-Sponsored
chain is the fact that the retail store managers are, for
the most part, independent merchants. These peOple should
be extremely willing to act in any manner that will augment
their competitive position. This action, however, will not
likely be forthcoming unless convincing evidence concerning
a certain course of action is available.

Attention is, therefore, focused toward retailer-minded
fact finding facilities at the warehouse level. A person
acting in the present capacity of a supervisor would then
depend a great deal upon such facts to clarify his reasoning
to retailers involved. Such an idea as this might appear

impractical and too eXpensive. In answer to this, the

170
wholesaler must ask himself what it is that he needs to ac-
complish and how valuable is such an accomplishment going
to be to him. There is certainly no economy in Spending
even a small amount for activities which are ineffective.

It is possible that the title of supervisor indicates
poor word choice. There is implied in this title the fact
that a supervisor is in some way better equipped than are
practitioners. Such is quite likely not representative of
the case in practice.

The advertising service appears to be one of the most
attractive features of the voluntary chain as far as poten-
-tial retail members are concerned. It is possible that this
fact indicates one of the strongest features of the volun-
tary chain. Avery effort should be made to improve the ad-
vertising service that is being offered.

The effectiveness of the retail Operation has a direct
bearing upon the competitive status of any given retail
chain. There is an apparent tendency toward more wholesaler-
retailer coordination to aid in accomplishing the objective
of retailer effectiveness. The efficiency with which such
wholesaler-retailer relations are performed can, therefore,
be directly related to the competitive position of a food

chain. The most advanced example of such coordination appear-

.L

ed to be indicated by the corporate food chain.

The corporate chain has reached a high degree of

171
development in coordinating all phases of the,entire busi-
ness related to merchandising. It is difficult, however,
for a business organized under a fundamentally different
phiIOSOphy to utilize corporate chain techniques. The basic
problem exists of the need for assistance to the retailer
and for coordination of the retailer-wholesaler phases. The
most effective technique which will provide the solution for
this need will likely vary with each business situation.
Therefore, techniques can not ordinarily be taken from one
situation and used in another. Mather it is for management
to determine the Objectives to be reached and then create

techniques which will satisfy these objectives.

BIBLIOGRAPHY
A. BOOKS

Beckman, Theodore N. and Nathanael H. Engle. Wholesaling
Principles and Practices. New York: Ronald Press,‘l§h9,
746 pp .

Duddy, Edward A. and David A. Revzan. Marketing. New York:
McGraw-Hill Co., Inc., l9h7. 675 pp.

 

 

Moody, John. Moody's Manual of Investments. 1952.

 

Reeves, Joseph. A Century of Rochdale Cooperation l8hh-l94h.
London: Lawrence and Wisehart, Ighh. 202 pp.

Sayres, Paul. Food Marketin . "Packaging For the Mass Mar-

ket," Ch. 18, By Egmdfi Arens. New York:‘McGraw~Hill
Co., Inc., 1950. 335 pp.

B. CENSUS REPORT

U. 8. Census of Business, VOl. IV. wholesale Trade, 19h8.
Table 10, Table 8E and Table 8F.

 

C. COMPANY LITERATURE

Mimeographed Material. The Kroger Company.

Kroger.Employee's Retirement Program. The Kroger Company,
February, 1951.

Kroger Group Insurance Plan. A Company Bulletin. The Kroger
Company.

Kroger Supplemental Group Life Insurance Plan. A Company
Bulletin. The KrOger Company.

1951 Scholarship Plan. A Company Bulletin. The Kroger
Company.

A Career for College Men. A Company Bulletin. The Kroger
Company.

173

Build Better Communities. A Company Bulletin. The Kroger
Company.

Share in Your Company's Profits. A Company Bulletin. The
Kroger Company, July 1951.

A.

Twenty Five Food Experts Come To Your House. A Company
Bulletin. The KrOger Company.

Your Job at Kroger. A Company Bulletin. The Kroger Company.

Retailer~0wned Cooperative. H. L. Sorenson. The United
Grocers Story. A Company Bulletin. December 1951.

Retailer-Owned COOperative. Cooperative Members Handbook,
1952.

Voluntary Wholesaler-Sponsored. Company pamphlet.
Voluntary Wholesaler—Sponsored. Nimeographed Company
Information.

D. GOVERNMENT PUBLICATION

United States Department of Agriculture. Methods of Han-
dling and Delivering Orders Used By Some Leading Whole-
sale Grocers. Market Research Report No. I3. may 1952.
Washington, D. C. 50 pp.

 

 

 

United States Department of Commerce. Modernizing and Oper-
ating Grocery Warehouses. Domestic Commerce Series
Number 26. U. S. Government Printing Office, Washington,
D. C., 1951. 78 pp.

 

 

United States Department of Commerce. New Techniques For
Grocery Warehouse. W. H. Meserole. Domestic Commerce
Emprint. May 19K5. 3 Pp.

 

 

United States Department of Commerce. Streamlined Wholesale
Grocery Warehouses. Industrial Series No. 18. Superin-
tendent of Documents. U. S. Government Printing Office,
Washington, D. C., l9h5. 95 pp.

 

 

E. NEWSPAPER ARTICLE

Portland Oregonian. Grocers Unite To Combat Trust. November,
1915.

17h
F. PERIODICALS

Burley, Orin E. "marketing Research, Operating Surveys and

analysis." Journal of Harketing. September, l9h9o
14:2

Engle, Nathanael H. "Chain Store Distribution vs. Indepen-

dent Uholesaling." Journal of Marketing. September,
19h9.

'Facts in Food and Grocery Distribution." Published by the
Progressive Grocer. New York. l9hO-l952.

Kline, George B. "How Stores Have Changed Over the Years."
The Progressive Grocer. October, 1952. 31:10.

Loyd, Donald P. "Competitive Equality and Tomorrow's Prob-
lems." The Cooperative herchandiser. September, 1952. 17:9.

Moore, George. "The Pacific Mercantile Company."

Western
Family Preview and Digest, April, 1952.

Oregon Retailers Journal. November, 1915.
G. UNPUBLISHE EA ERIAL

Fanos, Thomas, Jr. A Study of The Construction of Newspaper
Advertisements Within Retail Food Chains. A Thesis:
Michigan State College. 1952. 139 pp.

H. WRITTEN COLMUNICATION

Written Communication with General hanager of the Retailer-
Owned Cooperative.

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