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Adamson Presented to Dr. E. M. Barnet to satisfy the requirements of the degree of MBA at Michigan State University - June, 1961. C O N T E N T S 2:533:3— Introduction 1 CHAPTER I "Prior to 1930" . . . . . . . . . . . 5 CHAPTER II "The Operators Adjust to the Needs Of The Public" 0 O O O C O O O O O O 17 CHAPTER III "The Importance of the Central Organi- zationz. . . . . . . . . . . . . . . 26 Part I - The Cooperative Organiza- tions 0 O C C O O O O O C 26 Part II - The Voluntary Chains. . . 39 Part III- The Chain Store Manager . 52 CHAPTER IV "Conoltsion: The Owner-Manager and His Use of the Group Support . . . . 58 BIBLIOGRAPHY _ _.-— *wmw . INTRODUCTION By taking advantage of certain benefits available to him, the independent supermarket operator need not become a dying part of the American scene. Yet in conver- sation with students, instructors, and others, one often hears the remark that the independent merchant has had his day and that it is only a matter of time until every- thing is sold by chain store outlets. They say this is because we now have an economy that fosters big business; and consequently, "the poor little guy" hasn't got a chance. In forming such an opinion, these peeple are oblivious to the following considerations. The first is that both chains and independents have existed for a long time without either gaining a permanent advantage; although, at any given time one or the other may have predominated. The second, is the matter of big business. This is a relative term and consequently what is big business to some is "small potatoes" to others. For example, I worked for an independent firm that had four supermarkets and a total volume of approximately $6,000,000 per year. It this not a relatively "big" business? As another example, let us consider the voluntary chains of which my employers were members. This group was known as Super valu Stores, and the total sales of its retail members amounted to $375,000,000. With the excep- tion of a few stores, these supermarkets were independently operated. Additional evidence for this point of view may be found in the fact that many other independent food store operators are Just as successful as my former employers. Also, there are other organizations to which independents may belong that are doing large volumes of business. Both the corporate chains and the organized inde- pendents are growing, but the independents are growing at a greater rate. Although many would disagree, I believe firmly that the independent supermarket is a type of re- tailing institution that will remain with us for a long time to come as an integral and indispensible part of the total business picture. In this paper, I intend to show that the independent can survive and become an even greater force in the super- market industry. I will first trace the history and devel- opment of the supermarket movement in this country, and will then analyze the current status of the organized in- dependent and its counterpart the national chain. In con- clusion, I will discuss the advantages of the owneremanager type of operator over the employee-manager operator, as I see.it.a v-‘- --w ._._. c ’1". M ‘I‘L‘afi": 3%. .,-. a. L. H ’ I fit A :- - 3 _ Before beginning our historical analysis, it is essential that we define our terms. As our definition of an independent, we will accept the vieWpoint of Super market Insititute which considers an independent as having not more than ten stores. The criterion used here for differentiating between chains and independents is not the number of stores alone, but also includes the managerial relationships involved. Generally, there is no central warehouse in these smaller multi-unit organizations, and the philosophy of the individual managers closely parallels that of the actual owners. The manager of a single in- dependent will be considered as an owner-manager and the manager of a chain store as an employee-manager. The for- mer definition will also include multi-unit store managers. The term "organized independent" is used to differen- tiate between the operator who belongs to a voluntary chain or cooperative group and the "unorganized independent”, who has no binding wholesale agreement. A voluntary chain is a term describing the relationship between a whole- saler and a group of stores whereby an agreement is made concerning the percentage of goods to be purchased from the wholesaler in return for specified services and lower unit prices. The cooperative system is quite similar, except that the wholesaler is not a separate and private businessman. The warehouse is owned by the member stores and a team is hired to manage the wholesale function. '41 w‘ -.5 - Chapter One PRIOR TO 1 O In 1933 the entire grocery and combination store volume was five billion dollars. 1 Today one large chain, the Great Atlantic and Pacific Tea Company, does a volume of $5,049,000.000 2 and even this is only about 10 per cent of the total food business. This apparent growth pattern certainly warrants some investigation. This sec- tion, however, will concern itself with what proceeded the 1930's. The capital needed to open a supermarket today in the 81,000,000 class is $500,000. 3 This has not always been true, because in the past, retailing was on a smaller scale. It was relatively easy to set up a retail business. The size of any particular operation depended upon the socioeconomic factors at work in that location. One indi- vidual could procure and stock a small store with little capital outlay. Since the amount of investment needed was small,competition was fierce and promotional devices were 1. United States Department of Commerce, Census of Business, 1933. 2. Dun and Bradstreet, Million Dollar Directory, 1961 Dun and Bradstreet, Inc., New York, 1960. 3. Roy King, Editor, Food Topics in talk at M.S.U., "The Supermarket Operator Looks Again at In-Store Merchandising and Promotion" - l9 1. virtually unknown. Newspaper advertising was not used until shortly before the advent of the supermarket. Chains started using this medium in 1927 and independents soon afterward. # Trading stamps were first introduced in 1896 by the Sperry and Hutchinson Stamp Company. 5 Without these aids, the owner-manager had the sole responsibility of popularizing himself and his store throughout the area. This owner-manager was often the entire staff, al- though in some cases other members of his immediate family assisted in the operations. He was able to over- see all that took place and to greet each of the customers as they arrived. Because of his immediate familiarity with all the facets of his operation, he kept few records. He simply took the cost of the goods as a base price and I added t0'flnsa.percentage to cover overhead. If he added enough overhead, he made a small profit, and, if not, he was slowly driven out of business by his creditors. Since the owner made all the decisions and had all the responsibility, the success ofthe operation depended upon his own ability and management. This fact is borne 4. Zimmerman, M. M., The Su er Market, p. 10, McGraw-Hill Book Company, nc., New York, 1955. 5. Haring, Albert and Yoder, Wallace 0., p. 4, Foundation for Economic and Business Studies, Indiana University Press, Indianapolis, 1958. u n u. .. .1. -L I I I I out by a tabulation of Dun and Bradstreet in the late 1920's. They found that thirty-five per cent of all business failures were due to incompetence and thrity- three per cent of the failures were due to lack of capi- tal, which may be characterized as a form of incompetence on the part of the merchant. 6 This great dependence on the owner's own ability was an integral part of the retailing in its infant and adolescent periods. It also led to quick demise of many stores. The entire history of retailing in the nineteenth and early twentieth centuries has been the story of the independent store and its owner-manager. However, there have been attempts at various times to put into operation multiple units of retail shops and to have each one run by an employee-manager. Some of the chains lasted for many years only to disappear with the death or dispersion of the owning family. A few have lasted up to the present time, notably those organized within the eighty years prior to our supermarket revolution. Since chains of supermarkets have largely set the pattern for our country's food industry in the last few years, it might be helpful to look at some of the chain developments in the past. 6. Darby, W. D., STORY OF THE CHAIN STORE, p.4, Textile Publishing Company, New York, 1928. Little has been recorded about retailing in the past. However, we do have a record of a Chinese businessman who had many shops during the Celestial Empire. This man, 0n Lo Case, started his chain as early as the year 200 B. C. 7 There are various Greek and Roman records that point up the fact that chains of units with central owner- ship and management existed at very early times. Germany and Japan from the fifteenth to the seventeenth century had chains of commercial organizations. In fact, the Mitsui family chain of drug stores, which was started in 1643, still exists today in Japan. 8 The Hudson’s Bay Company was chartered by King Charles II in 1670 to operate a chain of trading posts in northeniNorth America. This company is still in existence today with both trading posts and department stores in Canada. In the United States there was a group of nine stores located in Ohio. The Worthington Manufacturing Company is said to have started these in 1818. It is interesting, though, that the first really successful chain in this country should be in the food field. The Great Atlantic and Pacific Tea Company opened its first store in 1858 and two more in 7. Nystrom, P. H. "Retail Trade", ENCYCLOPEDIA OF THE SOCIAL SCIENCES, Vol. 13. p. 35. The.McMillan Company, New York, 1934. 8. Orchard, J. E., "Mitsui" ENCYCLOPEDIA OF THE SOCIAL SCIENCES, Vol. 10, p. 550, The McMillan Company, New York, 1933. 1859. This company was established as a family firm and has remained as such until fairly recently. Its opera- tions are widespread in both the United States and Canada. The Kroger Company came into existence in 1882, and Safeway in 1915. All of these firms are still very much alive and today are the three largest firms in the food retailing industry. It would be well now to look at some of the problems and forces which these new retail combines had to face. One of the problems involved public opinion. This problem was not only subtle with reapect to detection and analysis, but was also very hard to deal with. Since such a large percentage of the population was then living in rural areas, there was great difficulty in making a chain unit an integral part of the community. Independent businessmen were quite successful in selling the local population on the idea that buying from a chain store resulted in sending local money out of the area. This pressure increased to such an extent in some areas that considerable action was taken by state legislatures. Each chain company and each unit manager had great difficulty in overcoming local resistance and becoming an accepted part of the community. Even today, this problem is not - 10 - completely solved, as residues of ill feeling toward chain stores still exist in many rural areas. One problem that faced every chain store company was that of finding men who were really interested in running a retail unit. When compared with other chains, the food chain stores were quite small, and consequently had a limited number of employees, but other types of chains needed men that could handle buying, merchandising, per- sonnel, and a whole host of other areas, while operating a fairly large unit. various methods were tried and used by the chain stores. J. 0. Penny started a small dry goods store in Kemmerer, Wyoming, during 1902 which turned out to be quite success- ful under his management. In 1908 he decided to open a second store. This store was to be located in Cumberland, Wyoming, some distance from the original site. He realized that a dedicated, hard-working manager was needed in this location. To fill this position, he hired an acquaintance, Earl C. Sams. When the third store was opened in Eureka, Utah, Mr. Same became a partner in the business. From that time until 1927, each new manager came into the organiza- tion as a partner in the ownership of the store he managed. - 11 - This appeared to be a successful way of getting the type of managers that Mr. Penny wanted. By 1927, the chain had grown to about 900 units. Since that time, the mana- gers have-become partners or stockholders in the entire business. This concept of giving the employee-manager a feeling of direct participation in the operation of the business as a whole has contributed heavily to the success of the J. 0. Penny Company. Despite many difficulties the chains were able to recruit talent, and as a result the period from 1910 to 1930 saw a great mushrooming by chain store Operations. In many cases, success came primarily through tight home office supervision and control. The food store manager had little trouble making decisions, since his every move was dictated from above. Indeed, the parent company formulated a rigid set of rules covering all aspects of the business. Despite the fact that these rules were often archaic and unrealistic, chain companies continued to grow. One company alone (A. A P.) controlled 17,000 retail outlets. 9 The chains had varying degrees of control over their managers and varying growth patterns, but the fact remains that evenduring a time when there was much public opposition 9. Darby, W. D., STORY OF THE CHAIN STORE, P. 13., Textile Publishing Company New York, 1928. ..1 vol I)‘ ”ll 5" s“ -12.. to chain stores, a great many people were apparently satisfied to some degree. This is emphasized by the fact that in the late 1920's about thirty-five per cent of the food volume was credited to chain stores. Since a statis- tdcal comparison between chains and independents was un- available, it was difficult to say which operation was the more profitable. If Judgment was made on the basis of zmmber of stores, the chains were showing great growth. This might have continued for some time had not other mar- ket influences made their appearance, including organized independents. The Appearance of COOpepptives In 1888 the Frankfort Wholesale Grocery Company was organized in Philadelphia by a group of independent food retailers. 10 The basic concept behind this company was vertical integration, or retail ownership of the Wholesale function. Any profits made from business op- erations were returned to the owner members on the basis of their volume during the preceeding accounting period and not on.the basis of shares of stock. This revolutionary idea increased the efficiency and profit motivation of the 10. "Cause and Effect" p. 33, Cooperative Merchandiser April, 1961, Vbl.-26., No. . - 13 - individual operators. The basic idea behind these cooperatives, as they came to be called, seemed to be good, but the financial commitments of the member stores were great. The central unit, however, apparently did not do enough volume to make enough money available to the members to help them finance their operations, to advertise collec- tively, or to do other things the chains could. Even so, there were enough members involved in setups such as these that at least some of the food volume was channeled through cooperative organizations. The real growth of the cooperatives was to come later, after the day of supermarkets had arrived and these large volume stores were accepted by the public. The Appparance of Voluntapies The independents soon found that their survival de- pended upon voluntary cooperation in wholesale buying, so that their wholesale unit price was substantially lowered. In this manner, the voluntary chain movement was born. Despite the fact that this movement was late in getting started in comparison with the cooperatives and chains, it was strongly supported by independent wholesalers and retailers. J. Frank Crimes of William Thompson and Company of Chicago had seen the wholesalers were losing ground -14- during the time that he had audited their books. He realized that this was caused by inefficiency in methods of operations. He also realized that most grocery store owners needed both guidance and assistance in their com- petitive battles. In 1926, he sold his idea to the William T. Reynolds Company of Poughkeepsie, New York, 11 a wholesale grocery house, which consequently became a charter member of the Independent Grocers Alliance. Another pioneer in the field of voluntary chains was the S. M. Elickinger Company, Incorporated, of Buffalo. 12 This wholesaler initiated the practice of promoting a private or controlled brand, operating under the common name, and advertising collectively. This was the first of the "Red and White" Operations. In both of the above examples, the basic philosophy was the same: It consis- ted of pooling the individual retailer's purchasing power, amalgamating the independent retailer to one central warehouse, and providing the retailer with some of the services essential to successful competition with chain stores. Now the retail unit had ties to other units, but at the same time an owner-manager to handle the store decision making without the necessity of following a book of uniform regulations. 11. Zimmerman, M. M., THE SUPER.MARKET, p. 22, McGraw-Hill Book Company, Inc., New York, 1955. 12. Ibid., p. 12. - 15 - §EEE§II The early history of retail marketing in the food industry has been greatly influenced by the "rugged individualist" type of manager. This man started with little capital, was solely responsible for the success or failure of his business, was relatively impervious to social change, and had little influence outside his own tightly-knit community. Nevertheless, he was the proto- type of our modern supermarket managers. The development of chain stores was greatly hampered by rural resistance to change. Not only did country folk object to "new faces" in their community, but they also were susceptible to suggestions that "outsiders" were exploiting them and taking "local" money elsewhere. How- ever, the growing trend toward chain store operations was furthered by the practice of employee participation in company profit initiated by J. C. Penny. The competition between the independents on the one hand, and the chains on the other, led to the establish- ment of two types of retail institutions, the voluntary chain organization and the cooperatives. The systhesis -15.. of two existing institutions incorporated the strong points of both, inasmuch as it combined low wholesale price and strong purchasing power with a continuing independency of operation. - 17 - Chapter.Two THE OPERATORS ADJUST TQ THE NEEDS OF THE PUBLIC In 1930 another movement started. It concerned both the food store customers and the ownership or affiliation of the food store. This movement was characterized by the fact that the consumer was offered a greater variety of product at a lower price, although the quality of service was.lowered. This movement, which resulted in our modern supermarkets, generated much controversy, inasmuch as the year chosen for its debut saw the U. S. strangled by de- pression.’ Since the buying power of the American public was substantially reduced, retail food leaders capitalized upon the concept of supermarket service as a means of retaining their share of the market. In the vanguard of this revolutionary retail movement was the independent Operator, who was aware of and made allowances for pre- vailing market conditions. Since he was cognizant of the financial status of his customers, he realized that the only path to retail economic stability lay in the direction or lower consumer prices and diversification Of product. To realize these objectives, he was forced to eXpand his physical plant and at the same time curtail his indivi- dualized treatment of the customer. -18.. One individual who was equal to the challenge was ihke Cullen. Mr. Cullen was a division manager for Kroger in Herrin, Illinois, in 1930. He believed that the future of the food industry lay in the area of large size, low overhead, high volume stores. He presented his ideas, including estimated results, to the Kroger Company, but twfore his appeal reached the president, William H. Albers-- tum later started his own company of supermarkets--the idea was turned down. 13 Mr. Cullen then felt he must implement his ideas in establishing a new type of store. In August of that year he and a partner Opened a "King Cullen" super- market in Jamaica, Long Island, in a refurnished garage. Since his overhead was extremely low, he was able to con- sistently undersell his competition, to the surprise of his customers and the dismay of his opposition. Successful in his initial plunge into the retail business maelstrom, Chilen expanded his operations in this field. Before long, it was a predominant feature in his section of the country. TWO years later Robert M. Otis and Roy 0. Dawson also decided to try their hand at independent merchandising. HEVTng received financial help from a grocery wholesaler, they Opened a supermarket in the vacant Durant auto plant in Elizabeth, New Jersey. They called their store a Big 13. Zimmerman, M. M., THE SUPER.MARKET, p. 31, McGraw-Hill Book Company, Incorporated New York, New York, 1955. - 19 - Bear Market and used advertising slogans based on this name. They provided low prices and free parking to attract customers from a large geographical area. In these and other early supermarkets, the general sales pitch consisted of low prices based upon inexpensive plant and equipment. These revolutionary new stores caught the fancy Of the public, since it was possible to buy more food for less money. The customers were satisfied, but the competition was incensed. The remaining inde- pendent and chain stores united in a fight against this new giant. Bills were introduced into the New Jersey legislature that, if passed, would have stopped or hurt "Big Bear", and pressure of other kinds was brought to bear on the wholesale grocers and newSpapers. When the newspapers did refuse to accept advertising from Big Bear, the store owners simply had a four page handbill printed and distributed to every home in a ten mile radius from the store. So, it may be said that the independents, by adapt- ing to market needs were able to Jump ahead of their competition, and to reap gains in the form of profit. About 1935 supermarket structure began to change. The country was beginning the climb back to financial stability and more capital was available for consumer - 20 - Spending. Although basically oriented toward the super- market type Of retailing, the consumers desired a more attractive physical plant. Retail management was aware of this shift in consumer taste and adjusted their super- market Operations accordingly. Even the chain store (mmpanies realized that a new era in retailing was at hand, and began to build their own supermarkets. In 1936 A. & P. opened 20 of these stores; by 1943 the number of A. & P. controlled supermarkets numbered 1,646. Between these dates, their "conventional" store enrollment dropped from 14,426 to 4,105. With the large chain firms entering the field, the situation in some ways once again resembled that of the 1920's. Only the early leadership of the voluntary and cooperative groups in pioneering supermarket develop- ment prevented the chains from dominating the field. With their owner-manager stores, the organized independent groups were able to survive. In the last few years, these two types have been showing outstanding growth patterns and are worthy of some further investigation. The succeeding ehaPter‘will look at these groups to see how they Operate to give their Owner-managers the support to compete effect- ively with the corporate chain outlets. - 21 - Before beginning a discussion Of what there is behind the managers in home owned stores, some time should be devoted to the pending rise of a new type of retail Operation. This is of interest, here, as both chain store firms and independent operators are making eXploratory moves in the field of discount house operations. Supermarkets were successful because they combined low overhead with self-service to feature lower retail price. The idea of self-service was first put into use by Clarence Saunders in his "Piggly Wiggly Stores". The first of these opened in 1916 in Memphis, Tennessee. 14 Through the years of supermarket existence, the margin needed to cover eXpenses has become greater due to increasing Operating costs, although the self-service idea has remained in full use. The stage than was set for a new typeof operation that would once again out out many of the frills, ask the consumer to participate by driving to the establishment, and pass along savings to the customers through lower prices. In other words, the idea was to combine low overhead with the self service as it had been done in early supermarkets. The recent discounters have been engaged in selling hard lines of merchandise. These retailers would take 14. Ibid., p. 23. - 22 - a lower rent location, filling it with ineXpensive fix- tures and below list hard goods. It became possible to find many national brand items for greatly reduced prices. Recently, the idea has Spread to include many items which are not given a list price by the manufacturer from which a discount can be made. In this case, the prices on these soft goods are set at a level below that charged for simi- lar goods at ordinary retail stores. The next step taken was to put whole department store operations on a discount basis. Examples of this idea are "Two Guys From Harrison" and "Davegas". These outlets are now carrying almost as many types of items as regular department stores, although as inventories cost money, the selection is Often limited in both width and depth. Recently, these discount features have been applied to items usually found in supermarkets. Naturally, this caused a great deal of discussion in food retailing circles. Both chain store firms and independent businessmen have Opened stores of a discount nature. Some operators have Opened whole discount stores such as Grand Union has done With their "Grand-Way" stores. Others have leased space Within an existing or a new discount Operation and are now operating a supermarket within the unit, such as Red Owl -23- has done in the "Gem" outlet in Denver. Neither type of discount food store has yet been declared the best, since both show much promise. The interesting feature about the rise in discount operations is that Operators are willing to accept this new era and to adapt to it. In the 1930's supermarkets were fought as though they were a menace to our economy. The discount house, however, is being viewed by many as a better way to retail merchandise. This view is held by both chain store companies and independent operators as many realize that they must provide the goods and ser- V1063 that the public wants at prices the public is willing ’00 pay. The Grand Union chain has taken steps toward dis- count Operations. This is an example of a corporate chain making a move. Recently, two independent operators in Minneapolis unveiled their plans to build a complete discount department store similar to Grand-Way and to include in it an indePendent supermarket. This food store operation Will be a part of their own overall operation, but it also "111 be a unit in the Super Valu voluntary chain. Although there has been talk and rumors of asking f . g. or lee-1 slation against discount operations, it is unlikely -24- that such action will materialize or hinder the growth of the discount move. Proposed and actual legislation had little or no effect on the appearance and growth of chain store companies and supermarkets, and it will do little to hamper the growth of the discount house movement if the consuming public is requesting such retail institutions. The food store Operators that realize they will be the ones who will progress with this or any other major trend in the future. W In the early 1930's the country was ready for a new method. of retailing that would offer food for less money. Several independent operators realized the need and attemp- ted to satisfy this need by combining low overhead and self- service. These independents were close to the retail scene and were able to successfully put into Operation a form 01' 8torss known as supermarkets. It was not until later that the chain store companies were able to shift their philosophy and make a similar move. Through the years, however, the costs of running these °°nVentional supermarkets has risen with the natural result °f higher retail prices. This situation had developed -25- even earlier in other lines of retailing; consequently, the discount house was born. Recently, food store sections have appeared in these operations, showing a natural trend of adjustment to overcome the higher margins required in ordinary supermarkets. This move has been made by both chains and independents, and it bears out the fact that most succ- essful food retailers now realize that they must provide what the consumers want whether it is done with super- markets or discount operations. -25.. Chapter Three THE IQORTQCE OF CENTRAL ORGANIZATIONS Part I The Cooperative Organizations We Inave seen that the independent can adjust to market conditiorls if he so desires. Yet there has been considerable discussion in the past few years as to whether an independ- ent food. store Operator can really be as efficient in his CWeratiorl and as effective in his market territory as the chain store. Even when considering the great support of voluntary groups and cooperative operations, some persons question the chances of the independent Operator. Others take Quite the opposite view, as can be shown by the foll- °W1n8 Statement. "We in the retailer-owned segment of the food industry feel very strongly that owner-managers are more PrOthiva, more efficient, and more effective. They have the advantages of securing nationally-advertised merchan- dies at the same price as it is offered to the chains, while retaining the flexibility and incentive of a locally-owned retail outlet," 15 This statement was made by a man Connected with a cooperative group. A similar one 0°“1d have Come from someone interested in the voluntaries. 15- Wayne R. Wilcox, Director, Store Finance and Accounting, Spartan Stores, Inc., Grand Rapids, MIOhigan. -27.. Since this is the case, it is necessary to go deeper into the three types of operations and to see how they op- erate and what the store manager in each case can do and what he has to back him up in the decisions he makes. Independent merchants often think only of the present and of their position in the overall market structure un- less they have some sort of a guiding hand that will channel their strivings for dominance into a progressive pattem - Unaffiliated operators often try to buy their merCh-andise at the place that gives them the "best deal". This makes their merchandise assortment, pricing, services, and so forth, vary with suppliers. When an owner-manager rea112es this, he has two choices if he wants to get ahead. with a group. He may Join a voluntary chain or a cooperative system. The first such Operation to be con- sidered will be the "cooperative" groups of stores and their Owner-managers . Earlier we saw that the idea of cooperative distri- bution systems is not a new idea. Due to various environ- mental factors, however, their growth in food retailing ha 3 be en only within the last fifteen years. This is W itnessed by the fact that this type of Operation did -28- approximately 32.6 billion retail sales in 1948 for 10 or 11 per cent of the total food business. In 1958, the figures were $7.6 billion and 17 per cent. Last year it is es- timated that the retail stores in these programs did 812 billion for 22 per cent of the total business. 15 A growth pattern like this is conducive to the idea that the cooperative warehouses are offering something of merit to the retailers, and that the retailers are also serving the consumers in an acceptable manner. To enroll in a c00perative program is to become a part: owner in the central warehouse operation. This warehouse is mutually owned by the member store owners. 311011 an arrangement ties the store operator to this central Warehouse as his sole or at least main source of supply. This is in_theory the strength of the operation. How closely he follows this plan of using the one source is affgcted by several factors. One is his own personal de- are to see the cooperative survive, and grow. T1118 W111 depend to a degree on the amount of the warehouse Operation he owns through the purchase of shares of stock, and upon his belief in the cooperative idea. Another factor 13 the degree of control the members have allowed the central unit to maintain over them. In order to Join, the member 16. "Cause and Effect" p. 36, Cooperative Merchandiser April, 1961, Vol. 26, No. . -29.. must agree to give up some autonomy, but the amount of autonomy retained by the members will differ from one cooPerative group to another. A third influence is that of the warehouse manager and his staff. The progressive coop has learned that it needs a manager for its associa- tion that will survey the competitive situation of the market territory, formulate an aggressive program to enable the member stores to compete effectively in their locations, and see that all stores adopt this central program in order to work together in capturing a greater portion of the po- tential volume . The central unit provides various services for the members that will help the stores to be more efficient in their operations. Of course, the most significant of these 13 the volume buying that the warehouse is able to do when it has the combined purchasing power of the stores in the grOup. Order patterns of the stores are studied to deter- mine the projected needs of the retail units. The warehouse, than. is able to go about its buying in a more efficient manner, since the future demands can be approximated with greater ease. Also, the warehouse moves enough volume in a 8‘beady manner that it can approach suppliers and brokers as a large account buyer. The total effect is a savings for the warehouse which can be passed along to the dealers in the form of lower wholesale prices. Lower wholesale prices mean that at a retail level the store owner is able to meet the prices of the corporate chain stores. It might be thought that each store owner would automatically reflect these lower wholesale prices in his retail price structure, but there are some owner-managers who would rather price their merchandise at levels above the chain store competition. These Operators fail to realize that they are working a detriment to both their own Operations and to the cooperative group as a whole. In most cases, the retail volume of their stores will be less than it could have been and consequently, the amount of 800918 moved through the warehouse is decreased. The pur- chasing power of the warehouse is hurt, and the group "111 usually receive less esteem from the public. Ob- viously, the independent operator, by the very nature of his status is free to use whatever price structure he de313398; but, the more aggressive cooperative group manager Will ‘3«0 all in his power to promote the use of competitive prices in each of the member stores. The fruits Of his -31- labors will be a solid unit of stores that offer the public prices which compare favorably with those of the competition. There are other services available to the dealer which help to make his operation smoother and more efficient. Retail Accgunting Many central units offer what is usually termed retail accounting. With this, all financial transactions whether they involve money or Just paper work, can be handled at the central level. Many a store could not afford a book- keeper so these matters would often be handled in a hap- hazard 'fashion. Now, they can be done at the warehouse on a mass scale basis, which makes the price of bookkeeping service within reach for the owner-manager. His invoices can be checked for accuracy, his payroll figured, checks w1‘5-1‘13911. and so forth, by persons who do these Jobs as full time employees of the cooperative warehouse. The result is greater control over financial transactions for the store owner. W Another service is that of store engineering. For some t ime, the chains had the well-organized retail units, while -32- the independently operated stores left much to be desired. , Now some cooperatives help in site selection, building planning, stock layout, and other engineering features. This was a great forward step, resulting in greater operating efficiency, more convenience to the consumers, and overall improved appearance. The engineer- ing service is available to an operator for either re- modeling of his present store or for the construction of a. new store. Pegs onnel Training The personnel in chain operations have usually been through either a formal training program or eXposed to on-the-Job training, and in many cases, they have had access to both forms of training. The independent manager, h0WeVer,for many years had hired persons to do specific JObS Within his one store. If these persons seemed to Possess some ability and if there were openings for better «1°b3 in the store, employees could advance. This is true Provided they had not quit in dngust some time prior t° Promotions. A training program was sorely needed. Several of the c00peratives now have such programs where employees get formal and informal help to prepare them for C"tlner Jobs which might appear within the store. The m . ore Progressive of these programs include channels of -33.. transfer between one store and another. If a store is in need of an employee with certain background and skills, there may be Just such a person in another store, where the owner-manager is willing to allow him to transfer. Such a program takes much cooPeration between operators, since it means an employee quits one location and moves to another. This leaves a gap in the first store which must be filled, but the more foresighted of the operators realize that it is for the good of the entire organization to staff the stores with competent employees. He knows that a recipro- cal program is available to him also. It takes under- standing operators to agree to a central program that accounts for the needs and surpluses of the total picture. Merchandising and Sales Promotion Food retailing is no longer a Job of simply filling a large enclosure with groceries and waiting for the traffic t° come in. Supermarkets now need to have extensive pro- grams to promote purchases by the consumers. Therefore, the Value of merchandising has been long realized by those mung ahead in the food business. Chain stores with their great resources could put specialists of this nature on their staffs and implement merchandising programs in the -34- stores. Recently, the cooperative organizations have been making strides in this area of merchandising. In the co- operative supply centers, the profits for a period can be returned to the owner members or they may be invested back into the operation. It is the progressive organiza- tions that use these profits to set up such programs as individual merchandise counseling. The retail dealer can draw upon a central core of eXperts to help him present his meI‘Chandise in such a way that the consumers will buy the Pro ducts of their own accord. The best program will be a Productive mix of sales and merchandising efforts. For this reason, the dealers in cooperatives are en- couraged to work together in groups for advertising and sales promotion. The central units have been most help- ful in this activity in that they help with planning and creating the sales, promotions, and ad mate. The stores (1° 1101'. appear to the public as completely independent Operators, but rather as a solid unit of stores. \Mi 8° ellanegus Services Other types of services are made available to re- tailers in many groups. Included in these programs are such t 13‘1th as coupon redemption; rack service for hardware, health and beauty items, and soft goods; printing of posters; '35- and various other aids. Each of these services to the cooperative unit store operator help him compete with his chain store neighbors. As mentioned before, these all cost money and so it is up to the members to be willing to pay for them through either slightly increased fees for purchases or decreased dividends at the end of the accounting periods. But, if they are willing to pay these costs, they can operate a supermarket with almost as much to back them as any chain store managers. One remaining support that is found lacking in many COOP erative organizations is that of financial strength. Many of the units now are seriously working on this matter so that they will be able to help in the financing of new stores and in helping qualified men become store owners. A Program of this kind takes a determined drive on the part Of all involved, since it means the members are loaning 1mil? funds to the central unit, which in turn will use this money to help other stores cpen and stay open. Wective Organization From all that has been said about these cooperative units, it can be seen that to become a member demands that some self interest must be sacrificed for the interest -35- of the whole organization. However, an owner manager is still the chief policy maker for his store. In addition to this, as a part owner of the warehouse, he has a voice in its management and activities. He is in business for himself and in association with other similar business- men. He has the ability to run his store as he sees fit, provided his policies are within the bounds set up by the associates in the cooperative system. It is imperative that the owner manager remember that he and these associates own the central warehouse together, and that together they have hired the manager and super- vi sory team. The retailers can search for someone with as strong a hand as they want, but it is for their own good to get a manager who will all but force them to pull together to make the cooperative unit work. The coOperative move- ment has grown tremendously, as the earlier figures show, and. it will continue to grow if it is given sufficient support [by the current and future members. L19 Future There is an organization to which most cooperative units belong, called the Cooperative Food Distributors of “nannies. Mr. Ray 0. Herb, Executive Vice President of the - 37 - group, recently published the future for the movement in these words: - "1. One of the most significant trends of our times is the deve10pment of multi-store super markets within the "independent" field. We will see more development from the single store operator in the retailer-owned field because of the greater opportunity for flexi- bility and individual initiative inherent in the retailer-owned system. This does not mean that the voluntary chains won't have considerable development, too, because they will, but ours will be at a faster rate. If all major elements of food distribution con- tinue the rate of growth in this decade as they have in the 50's then the retailer-owned supply system will supply those retailers--independents and chains--who will account for 40% of the total retail food store volume. Many present smaller chains, now operating their own warehouse, will discontinue them and Join a retailer-owned house and invest their money in retail outlets where the return on the dollar - 38 - is greater. Because we have so many warehouse managers who have come up the hard way, who have neither inherited the business nor stepped into a ready- made business, our managers will be better equipped to meet the challenge and change with the times. They are more flexible and can do so. Our managers are closer to the retailer picture and will deve10p their programs to fit the varying needs of their retail members. We have more stores to upgrade and because we have a definite upgrading program going on, we will.be able to increase our average sales per store whereas many of the chains (both corporate and psuedo) have already reached a higher degree of development. Oh yes, they will grow, too, but our rate will be faster simply because we have a lower base to start with." 17 All these aSpirations will need the backing of the antral retailer-owned warehouses; and Mr. Harb adds two jasponsibilities that these units have in order for his proposals for the future to materialize. "To keep up to 17. "COOperative Food Dealers of America Will Lead The Way”, Ray 0. Herb, p. 10 Coo erative Merchan- dissI‘ April, 1961, Vol. 26, No. K. -39.. date and keep the basic policies in line with the needs of the changing frontiers. The need to be more creative in the policy making. To be willing to completely dele- gate all managerial duties, including that of administering the policies which the Board establishes--to the general manager of your organization." 18 The independent retailer, then, does have a future when Joined to a cooperative unit, provided he makes the 130313 of the advantages that are his, It is his own initia- tive that will make the difference. This initiative has its source in two lines, one of which is the success of his own store, and the other being the success of the group to which he belongs. He needs to be aggressively engaged in promoting both units. This is being done and various owner-managers are moving ahead very well in their fight for the consumers food dollar. I am sure it will continue ’00 be true that the owner-managers in cooperatives can Survive and move ahead. Part II The Voluntagy Chains The cooperative movement is not the only affiliation to which an owner-manager may belong. Central wholesalers 18. Ibid, p. 12. -40- lanaij.raing as private entities have in many instances gathe red around them a group of store owners who realize tharb. 'bhey are a greater force if they work together. Whereas, the cooperatives hold their members by the fact 1m£L1t .as members, they own part of the central operation, the: ivoluntary sponsor must make his prices and services of such a nature that the retailers will remain in the group, The voluntary group is held together by the attractiveness of their wholesaler to the retailer. During the period of 1947 to 1959. the per cent of the total fOOd business done by voluntary units has grown from 18 '50 28 per cent. This shows that at least some of the re- tailers are attracted to their voluntary chain wholesaler. The following statistics of three typical wholesale grocery companies that are voluntary sponsors speak out loudly as indicators of success in the field of voluntary chains. Sales of the Fleming Company, headquartered in Topeka, were $11,116,157 in 1944 and $181,359,379 in 1960. Super valu Stores, Incorporated, of Minneapolis 'has seen its sales to retailers rise from $25,996,130 in 1947 to $211,468,077 in 1960. In Buffalo, the S. M. Flickinger Company had a sales growth of $41,236,840 to ’ 867,147,011 between 1955 and 1960. -41.. The over-the-counter price of stock for the first of these three companies was 341.50 in 1954. In 1956, its stock rose to a high of 357.00 and in 1957 the company issued a new stock that opened at $15.00. This issue had a bid price during the week of June 10, 1961, of $53.00 according to Supermarket News issued in June 12, 1961. Super Valu's common stock ranged between 815.00 and $22.00 in 1954. The Supermarket News recorded bid price during the week of June 10, 1961 was $76.00. 19 In covering the backing that the cooperatives give the dealers, general ideas and services were discussed. However, in looking at the voluntaries, one firm is taken as an example. From this example, it can be seen how this method of organization helps owner-managers with their chain 81"0 re opposition. The company to be examined here is one that has had an 841111 rable growth pattern, while becoming one of the top fifteen food firms in the nation. Super Valu Stores, Incor- POI‘a‘ted, has had the sales volume of its retail members increa“ from $59,905,000 in 1947 to $375,000,000 in 1960. M11011 of this success is attributed to the fact that the 19. Mgodz's Industrial manual, Moody's Investors AService, New York, 19 O. -42- wholesale firm has learned to think in terms of the individual retailer. For this reason their company motto is as follows:- "It is the impelling motive of Super Valu Stores, Incorporated, to provide its affiliated dealers with the advantages of low cost warehouse operation, distribution, operating know-how and aggressive merchandising so essential to the development of a strong, successful group of modern, independently owned food stores". 20 Since this company thinks as it does, it was chosen to P011111 up some of the procedures used in making a voluntary Chain affiliation valuable to retailers who wish to re- 081 ve help in their search for efficient operating methods. We will look first at what Super Valu does for its dealers and then at what it expects from them in return. I am greatly indebted to Super Valu, who furnished booklets with. much of the information on the following pages. The Upper Midwest is served through six warehouses Operated by the firm with headquarters at Minneapolis. , The divisions are headquartered in Fargo, North Dakota; 131 Smark, North Dakota; Green Bay; Peoria; Minneapolis, and Des Moines. Each division is operated in a similar Pattern and provides the same types of services for the dealers in the area served. At a recent date, 625 stores 20. How To Ste Forward Throu h Your Affiliation With Super Valu Stores, Inc., p. 3, Super Valu Stores, Inc., Minneapolis, 1961. -43.. were being serviced from these warehouses with the Peoria division only just opened for a few weeks. Buying and Supervision of MeatsI Product and Other Specialties Like the 000peratives, the most mentioned advantage of stores working together is the savings made by intelli- gent buying of sizable orders. The firm under consideration has men trained for the buying of groceries, non-food items, health and beauty aids, produce, meats, frozen foods, equipment, and store supplies. Some of these Specialized departments will be looked at in more detail, since the buying of types of merchandise is coupled with other aids to help in the movement of these products through the stores. The meat program for instance, includes supervision, buying and selection service, warehouse or supply depot Operation and retailer and meat manager training schools. There are meat specialists who spend all their time in the stores helping the market managers run a more profitable Operation. They help in cutting procedures, pricing layout, merchandising, and so forth. The buying of meats 13 * a.” sh". $4.? , " 0 :. \9/4 \ M\>/<0\\. O . ~ e 9% .. . Il/ \ \\.0,/// . '\ WIM’S’QW 59$ 4k? \\‘\ 49¢ . - ‘9 s!” ‘9@\\ ‘\~fi 28 O \ 9 am we fi3§§ ‘,.&¢‘o \ #4359“? ‘P 2:"? \\ WC 42/6 he as. 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