Giant Food LLC

views updated

Giant Food LLC

6300 Sheriff Road
Landover, Maryland 20785-4303
U.S.A.
Telephone: (301) 341-4100
Toll Free: (888) 469-4426
Fax: (301) 618-4614
Web site: http://www.giantfood.com

Wholly Owned Subsidiary of Ahold USA, Inc.
Incorporated: 1935 as Giant Food Shopping Center Inc.
Employees: 25,000
Sales: $5 billion (2006 est.)
NAIC: 445110 Supermarkets and Other Grocery (Except Convenience) Stores; 454111 Electronic Shopping

Giant Food LLC is the number one grocery chain in the Washington, D.C., and Baltimore markets and operates approximately 190 supermarkets in Maryland, Virginia, Delaware, and the District of Columbia. Most of these stores, which are on average 55,000 square feet in size, operate under the Giant Food banner, with a few using either the Super G or Super Giant names. About 160 of the stores include in-store full-service pharmacies, and many of the stores have been expanded to include entertainment centers featuring books, magazines, and DVDs; Chevy Chase Bank branches; Staples office supply departments; and Starbucks coffee bars. Founded during the Great Depression, Giant Food was acquired in 1998 by Ahold USA, Inc., the U.S. retailing arm of the Dutch firm Royal Ahold N.V. Since 2004 the company has been jointly managed with the New England supermarket chain Stop & Shop Supermarket Company LLC, one of Giant's sister companies within Ahold USA.

GREAT DEPRESSION BEGINNINGS

Starting a new business during the Great Depression was a risk for Giant's founder, Nehemiah Myer (N. M.) Cohen, but he had been watching the progress of the "supermarkets" that had begun to open in the early 1930s and felt that they were the business of the future. Cohen, a rabbi, had emigrated from Palestine after World War I and settled in Carnegie, Pennsylvania, where he soon opened a kosher meat market. He later moved to Lancaster, Pennsylvania, and eventually opened three butcher shops there. To open his first supermarket Cohen sought the help of food distributor Samuel Lehrman, who provided the financial backing. Lehrman's son Jacob was also a partner in the venture. They chose Washington, D.C., as their location, figuring that government employment would keep the economy there stable. Giant Food Shopping Center opened its doors in early 1936 as Washington's first mass-merchandise supermarket. Amid the unemployment and breadlines that followed the 1929 stock market crash, Giant Food made its impact on the community by introducing both self-service and one-stop shopping to the consumer. Coupled with its lower prices, these features kept the store busy and crowded from its opening days.

By 1939 Giant had expanded to three stores. Giant's fourth store had a brick-and-glass facade that spelled out its name and was lighted at night, an innovation at the time. Just as the United States entered World War II, Giant opened its sixth store, in Arlington, Virginia, the first outside of the District of Columbia.

The war had a detrimental effect on the supermarket industry as personnel shortages, product shortages, and rationing became prevalent. Giant, like many other businesses, began employing women to counter the manpower shortage, and female checkers soon became a permanent part of the American grocery store.

MOVING TO VERTICAL
INTEGRATION IN POSTWAR
YEARS

Giant stopped expanding during the war, but in 1945 it opened two new stores in Washington and one in Virginia. In the late 1940s, Giant began to move toward vertical integration, leasing a slaughterhouse to ship meat to all its stores. In 1948 Giant bought the Sheridan Bakery, which had been supplying baked goods to the chain. Renamed for Jacob Lehrman's daughter, Heidi Bakery continuously provided bread and baked goods for all Giant stores both from the original bakery location in Silver Spring, Maryland, and from the in-store bakeries developed in later years. (In 1965 the bakery baked a 700-pound cake for President Lyndon Johnson's Inaugural Ball.) In 1952 Giant opened the Giant Retail Bakery in downtown Washington to sell only bakery goods, but this venture was not successful and was closed within a few years. By 1949 Giant had 19 stores, including three in Maryland and three in Virginia.

Between 1950 and 1952, Giant added five new stores, joining in the general expansion of the American economy. At this time, the shopping center concept was taking hold in the United States and Giant put a new store in the Congressional Plaza Shopping Center in Rockville, Maryland. In 1955 Giant Construction Company was incorporated to build Giant stores. Giant Food Properties, an independent company which eventually came under the control of Giant and was later known as GFS Realty, Inc., was established to handle the sale and lease of real estate for the company.

In 1955 the chain opened its first store in Baltimore and in 1956, its first in the Richmond, Virginia, market. By this time 48 percent of all its stores were located in shopping centers. In 1958, riding a new merchandising trend of combination supermarket/department/discount stores, Giant opened its first Super Giant store and within a year had opened eight more. Also in 1958 the company opened its new headquarters and distribution center on a 40-acre site in Landover, Maryland. At the same time, an addition to the Heidi Bakery doubled its production capacity.

In 1957 Giant Food Shopping Center Inc. became Giant Food Inc., and fiscal 1958 saw sales of more than $100 million. In 1959 the company, with 53 stores (including nine Super Giants) went public.

During this time Giant computerized its inventory data, customer information, and payroll and bookkeeping operations. Customer service features added in the 1950s included self-opening doors, mechanized checkouts, and open display cases to make meats and frozen food directly accessible to the customer.

In the 1950s, Giant initiated a scholarship program to encourage students to pursue food management careers. Two of the first five recipients later became senior vice-presidents at Giant. This scholarship program was only one of the ways in which Giant contributed to the community over the years. In the aftermath of the racial unrest of the 1960s, Giant took a leading role in providing food for those made homeless by riots. Giant's then-president Joseph B. Danzansky also directed a food drive, in which local and national businesses supplied food for demonstrators camped in "Resurrection City" in Washington during a two-week protest to call attention to the poor in the United States.

In 1961 Giant's stock began trading on the American Stock Exchange as well as the Washington branch of the Philadelphia-Baltimore Stock Exchange. In its stores, Giant began developing its private-label products and offering plastic housewares and specialty food items in response to customer demands. Giant built its first combination food store and pharmacy in 1962.

COMPANY PERSPECTIVES

Our goal is to be the best food and pharmacy provider in our market area. We will delight our customers with a superior shopping experience, defined by quality, service, selection, value, and excitement, in a clean and friendly atmosphere. We will provide our associates an environment where everyone can contribute and grow to their fullest potential. We will be a leading corporate citizen in all of the communities that we serve. We will conduct all our relationships with integrity and openness. We will ensure our long-term viability through consistently strong growth in profitability and market share leadership.

Although the company had been criticized for bypassing predominantly black neighborhoods, by the mid-1960s Giant did begin to open stores in the inner city. In the rioting that followed the assassination of Martin Luther King, Jr., in 1968, store managers and black employees faced down angry mobs at Giant stores, and the chain escaped much of the looting and damage of the period.

Giant's management implemented three policies during this time which were designed to decrease employee turnover. It began recognizing talented young workers (age 25 and under) and giving them increased management responsibility—the company dedicated itself to promoting from within—and an employee tuition-assistance program was started.

In 1964 founder N. M. Cohen stepped down as president and became chairman of the board, a newly created position. Joseph Danzansky, longtime legal counsel, became president. This election touched off a legal battle for control of Giant between the Cohen family and Jacob Lehrman. The Cohens gained operating control of the company, through their possession of four of the seven seats on the board of directors, but Lehrman remained on the board (the Cohen and Lehrman families continued to each hold 50 percent of Giant's voting stock). In 1977 N. M. Cohen was made honorary chairman of the board, Danzansky became chairman, and N. M.'s son Israel became president and CEO, becoming chairman as well upon Danzansky's death in 1979. Izzy, as he was known, had been in the business since he was a delivery boy in his father's butcher shops before the days of Giant Food. He continued his father's informal and friendly, but strict, management style.

The 1970s were the "decade of the consumer"; Giant responded to this movement by hiring its own consumer advocate, Esther Peterson, formerly a consumer adviser to the Kennedy and Johnson administrations. The company began a program of providing information to consumers about the food they were buying, and also worked with the Food and Drug Administration to develop and test nutrition labeling. Educational and informational brochures were distributed for free, and unit pricing and open dating were implemented. In 1972 Giant opened its Quality Assurance Laboratory to monitor the quality and safety of the food it sold, and in 1974 the company implemented a toy-safety program by pledging to sell only those toys certified safe by the manufacturer.

In another move toward vertical integration, Giant built a warehouse and grocery-distribution center in Jessup, Maryland. The Jessup center opened in 1973 and was a model of automated operations. Danzansky described it in 1974 to Nation's Business as "a Buck Rogers kind of thing. Push a button and the stuff almost jumps on the truck."

In the early 1970s Giant sold its four freestanding Super Giant stores to Woolco and rededicated itself to food retailing. In the inflationary period of the mid-1970s, Giant began discounting its prices, gambling that increased volume would counterbalance lower prices. In 1979 the company had its first billion-dollar year.

KEY DATES

1935:: Nehemiah Myer Cohen and Samuel Lehrman found Giant Food Shopping Center Inc.
1936:: Founders open their first supermarket in Washington, D.C.
1941:: Company opens its store outside Washington, D.C., in Arlington, Virginia.
1948:: As one of the first moves toward vertical integration, Giant purchases a bakery in Silver Spring, Maryland.
1955:: Giant enters the Baltimore market.
1957:: Company changes its name to Giant Food Inc.
1958:: New headquarters and distribution center are opened in Landover, Maryland.
1959:: Giant Food goes public.
1962:: Company builds its first combination food stores and pharmacy.
1979:: Israel ("Izzy") Cohen, son of the cofounder, is named CEO; Giant becomes the first supermarket chain to install checkout scanners at all of its stores.
1994:: J Sainsbury plc purchases 50 percent voting stake in Giant Food.
1998:: Dutch firm Royal Ahold N.V., through subsidiary Ahold USA, Inc., acquires Giant Food for $2.8 billion.
2004:: Ahold begins to integrate the administrative functions of Giant Food into those of sister company Stop & Shop Supermarket Company.
2005:: Giant announces plan to shut down its remaining manufacturing operations.

In 1975 Giant began using computer-assisted checkout and in 1979 it installed price-scanning equipment in all of its stores, becoming the first supermarket chain to do so. While Giant was making supermarket history by implementing scanners, consumer activists and legislators in Washington accused the company of using the scanning system to trick unwary customers into paying higher prices because prices were posted only on shelves, not each item. Giant weathered the storm of protests and proved with its data that the system reduced operating costs.

CONTINUING TO EXPAND AND
VERTICALLY INTEGRATE

Giant Food in the 1980s continued both expansion and vertical integration to hold and build its market position. In 1982 it opened Someplace Special in McLean, Virginia, a gourmet food store that sold specialty items and offered services such as menu planning, flower arranging, delivery service, and catering for its affluent customers. While not its most profitable store, Giant used Someplace Special to test consumer demand for gourmet food and other specialty items. The chain also experimented with warehouse-type stores, opening three under the name Save Right; these were eventually converted to the Giant name. In 1982 Giant closed its Richmond, Virginia, stores after 25 years of operating in that city. By the mid-1980s about half of Giant's stores were food and pharmacy combinations. In the 1970s Giant had created Pants Corral stores in its Super Giants as part of a deal to sell Levi's jeans. The Pants Corral division, which also included 30 freestanding stores, was sold in 1985.

Expansion at Giant in the 1980s included increasing store size; in 1983 it opened a 60,000-square-foot store in a former Super Giant. This flagship store stocked some 40,000 items and combined such features as gourmet food, cosmetics, bulk food items, an in-store bakery, and a salad bar. Vertical integration continued with the opening of an ice cream plant and a soda-bottling plant in 1985, both in Jessup, Maryland. Giant also focused on remodeling and redesigning existing stores in the late 1980s.

Giant attributed much of its success over the years to the principles on which it was founded, the personal philosophy of founder N. M. Cohen. Cohen not only closely monitored his business to spot trends, but was the force behind the company's continuous emphasis on quality, value, and service. Active in the company until he was 90, the elder Cohen died in 1984 at age 93.

Consumer-oriented programs continued to be a part of Giant's service. Giant initiated a point-of-purchase "special diet alert" shelf label to increase customer awareness of low-fat, low-calorie, and low-sodium foods. Sales of these items were monitored for two years and data supplied to the U.S. Food and Drug Administration for use in measuring the effectiveness of such shelf-labeling programs. Giant also participated in an "Eat for Health" campaign with the National Cancer Institute. Bulk food bins, which allow customers to buy the amount they want, and increased availability of specialty food items were offered in response to consumer input, and Giant launched a corporate customer service center to handle questions, concerns, and compliments from both customers and employees.

EXPANDING INTO NEW
TERRITORIES

Giant's growth slowed some in the early 1990s as the company found that it had little room to expand within the existing markets it served. Competition was becoming more heated; discounters and warehousers, including Leedmark, Shopper's Food Warehouse, Price Club, and BJ's Wholesale Club, were cutting into Giant's market share in Washington and Baltimore. Giant began the decade with 149 stores and had added just six stores to the total by the end of 1993. The company did, however, enter the discount drugstore market in 1991 with the opening of its first Super G Deep Discount Drug Store in Maryland. Two other freestanding pharmacies were soon opened in Virginia and Washington. In September 1992, Izzy Cohen, then 79, named Pete L. Manos president of Giant, while Cohen remained chairman and CEO. Manos, who was Cohen's heir apparent, had joined Giant as an accounting clerk in 1960 and worked his way up to the position of vice-president of food operations by 1985.

The years 1994 and 1995 were particularly momentous ones for Giant Food. In early 1994, the company opened its first store outside of Washington, D.C., Maryland, and Virginia with the debut of a store in Bear, Delaware, a suburb of Wilmington. Eastern Pennsylvania and southern New Jersey were soon added to the mix as well, with the company counting on these new northern markets as its base for future growth. Barred from using the Giant name in Pennsylvania, the company decided on the name "Super G" for its supermarkets in the new territories. By mid-1997, there were two Super Gs in Delaware, six in New Jersey, and two in Pennsylvania.

In November 1994, the heirs of Jacob Lehrman (who had died in 1974) sold their 50 percent voting stake and their 16 percent in nonvoting equity to J Sainsbury plc, one of the United Kingdom's leading supermarket firms, for $325 million. Cohen still held the other 50 percent in voting equity and control of four of the board seats, while Sainsbury controlled three board seats. Sainsbury, unable for regulatory reasons to expand further in its home country, had turned to the United States for growth. It had purchased an initial stake in New England-based Shaw's Supermarkets in 1983, then gained full control over Shaw's four years later. Analysts speculated that Sainsbury would eventually take control of Giant as well, and use its two U.S. chains as a base for a nationwide chain.

When Cohen died in November 1995 at the age of 83, speculation about the control of Giant was once again rife. Cohen's will, however, passed his 50 percent voting stake and control of Giant to a holding company controlled by a five-person management team consisting of Manos, who succeeded Cohen as chairman and CEO; Alvin Dobbin, executive vice-president and COO; David W. Rutstein, senior vice-president and general counsel; David B. Sykes, senior vice-president of finance; and Lillian Cohen Solomon, Cohen's sister. Although Sainsbury continued to deny that it wanted to take over Giant, the U.K. firm did increase its nonvoting stake in Giant to 20 percent in 1996.

Despite tough competition in its new Delaware, New Jersey, and Pennsylvania markets, Giant stepped up its expansion plans in 1996 when it announced it would open between 35 and 45 new stores in these states over the next decade. In June 1997 the company announced that it planned to open a new discount drugstore chain called Giant Discount Drug, with an initial ten to 20 freestanding units slated for the Baltimore and Washington, D.C., areas. Meanwhile, a five-week truck driver strike that ended in January 1997 hurt Giant's financial performance in 1997; sales increased only marginally, from $3.86 billion in 1996 to $3.88 billion, while net income fell from $102.2 million in 1996 to $85.5 million.

ACQUISITION BY ROYAL
AHOLD: 1998

In early 1998 Giant pulled back both on its overall expansion plans and on its northward advance as it concentrated on improving its same-store sales (that is, sales at stores open at least a year, a key retail metric). The 13 northern stores were struggling to turn a profit in the face of fierce competition. In May 1998, just a few months later, Giant Food surprised many observers by agreeing to be acquired not by Sainsbury but by the Dutch firm Royal Ahold N.V. Ahold, through its U.S. unit Ahold USA, Inc., completed its $2.8 billion acquisition of Giant in October 1998. To gain Federal Trade Commission approval for the deal, Ahold had to divest ten stores in Maryland and Pennsylvania, including the Super G outlets in the latter. The addition of Giant Food provided Ahold with another element of its growing eastern U.S. supermarket empire, which included several other chains, among them Quincy, Massachusetts-based Stop & Shop Supermarket Company and Giant Food Stores of Carlisle, Pennsylvania. Ironically, it was the latter company, a firm entirely unrelated to the Landover Giant Food, that had forced Giant to use the Super G banner for its short-lived expansion into Pennsylvania. The two firms continued to operate separately within the Ahold fold.

In early January 1999 Manos retired from Giant Food. Succeeding him as president and CEO was Richard A. Baird, who had been an executive vice-president at Stop & Shop and who became the first outsider to run the 173-unit chain. During his first year, Baird focused on store modernization. More than 70 stores received minor remodels during 1999. Over the next few years, Ahold's deep pockets funded major remodelings of about 25 outlets each year as well as the opening of about a dozen stores. During 2000 Giant also introduced a loyalty card program called BonusCard and teamed up with online food retailer Peapod, Inc. to begin a home delivery service in select areas of Maryland and Virginia. In the first unraveling of its decades-long status as a vertically integrated company, Giant shut down its bakery in Silver Spring in the spring of 2000 after more than 51 years of operation and instead elected to outsource the production of the baked goods it sold. Other changes in the initial years after the Ahold takeover included the slashing of store employee hours and shifts in the products being stocked on store shelves. These cost-containment efforts alienated some customers.

By 2002, Giant's revenues reached $5 billion, and its store count topped 200 the following year. In 2003 Royal Ahold's U.S. Foodservice unit became embroiled in a huge accounting scandal that forced the Dutch company into serious cost-cutting mode. In early 2004 Ahold launched a protracted integration of the administrative functions of Giant Food into those of sister company Stop & Shop, a firm about twice the size of Giant. In July Baird retired, and the head of Stop & Shop, Marc Smith, took charge of Giant as well. Changes came at the store level also as Giant's entire information technology system was replaced with that of Stop & Shop. In order that the two chains could operate with the same technology, Giant gradually, store by store, began adopting Stop & Shop's cash registers, price codes, and product labels. The process went far from smoothly. Computer glitches threw Giant's product reordering system into disarray, undermining customer service, cutting into sales, and depressing employee morale. During 2004 same-store sales at Giant plunged 4.6 percent, and the company's market share fell amid unrelenting competition.

In May 2005 Giant continued its integration into Ahold and its cost-cutting program with the announcement of plans to shut down the firm's remaining manufacturing operations and to reduce its distribution centers to just its centers in Jessup, Maryland, for dry groceries and perishables. The company later sold its corporate campus in Landover with plans to shift to a new regional headquarters nearby. In July 2005 Giant shut down four of its Super G stores in southern New Jersey; one month later the remaining outlets in that state were converted into Stop & Shops. This left Giant with just a handful of Super G stores in Delaware. Also in 2005, Giant launched a private-label line of organic food products under the Nature's Promise brand. Stop & Shop and Giant in 2005 entered into an alliance with office supply superstore giant Staples, Inc. for the eventual addition of Staples departments to all 550 Stop & Shop and Giant Food supermarkets. Giant entered into another alliance in early 2006, signing a five-year deal with Starbucks Corporation to begin opening Starbucks coffee bars inside Giant supermarkets.

In April 2006 Smith retired and was replaced as president and CEO of Giant Food and Stop & Shop by José Alvarez, a 15-year supermarket industry veteran who had headed the supply chain and logistics operations of the two chains. At the same time, Ahold launched a "value improvement program" at the chains featuring lower prices and reduced promotions in its latest effort to strengthen the chains' performance. A little later in 2006 Giant Food opened its first supermarket with a new, larger format offering expanded perishable departments and a greater assortment of prepared foods. During the year, as the start of a multiyear repositioning of the chain through capital investments, Giant opened eight new or replacement stores, some of which were larger prototypes operating under the banner "Super Giant," and completed six major remodels. The company also shut down about a half dozen smaller, outdated stores, including the Someplace Special outlet in McLean, Virginia. While these turnaround efforts unfolded, Ahold was facing pressure from some of its major shareholders to sell its U.S. operations in order to concentrate on its European retail business, leaving the future of Giant Food and its sister companies in some doubt.

Updated, David E. Salamie