Grand Union Company

views updated

Grand Union Company

201 Willowbrook Blvd.
Wayne, New Jersey 07470
U.S.A.
(201) 890-6000
Fax: (201) 890-6671

Wholly Owned Subsidiary of Grand Union Holdings Corporation
Incorporated: 1928
Employees: 20,000
Sales: $3.00 billion
SICs: 5411 Grocery Stores

When Grand Union began as a one-store operation in Scranton, Pennsylvania, the shelves were stocked with coffee, tea, spices, baking powder, and flavoring extracts. Today the $3 billion company’s supermarkets carry thousands of items in more than 250 stores.

Cyrus, Frank, and Charles Jones founded what was to become Grand Union in 1872. They called the business the Jones Brothers Tea Co. The brothers expanded the business steadily, branching out with new stores in eastern Pennsylvania, Michigan, and New York. By the time it built its headquarters and warehouse in Brooklyn, New York, the company was known as the Grand Union Tea Co.

In 1912 Grand Union was a 200-outlet chain store with operations across the country. In addition to its business establishments, the company supported a small army of 5,000 door-to-door salesmen and delivered goods in horse-drawn wagons. The brothers incorporated the Jones Brothers Tea Co. in 1916.

Grand Union used its financial strength through the 1920s to acquire other food businesses, including Progressive Grocery Stores, the Union Pacific Tea Co., and Glen wood stores. After merging with the Oneida County Creameries Co. in 1928, the Jones brothers reincorporated under the Grand Union name.

During the 1930s Grand Union grew to be one of the country’s most thriving food chains. In 1931 the company had 708 small stores and $35 million in sales.

The next decade saw the development of the “supermarket” concept. The idea was to house a range of groceries, including meat, dairy products, and inedible packaged goods, under one roof. When Lansing P. Shield took over as Grand Union president in the early 1940s, he embraced the supermarket format and plunged the company forward into a new era of food marketing. Grand Union was one of the first companies to utilize the format.

Shield helped evolve the supermarket concept by demanding that the spacious supermarkets be designed carefully so as not to overwhelm customers used to smaller shops. Shield suggested breaking down the open spaces by building more walls and dispersing special product displays throughout the aisles. By the mid-1950s, Grand Union operated about half the number of stores it did in the 1930s, but the stores turned out nearly seven times the volume of sales. By then the company had outgrown its Brooklyn headquarters. It opened a new facility in Elm wood Park, New Jersey, in a red brick tower that was later to become a community landmark.

When grocery stores became involved in the discounting business, Grand Union was again one of the first in the food business to welcome the idea. The first Grand Union general merchandise discount store, called Grand Way, opened in 1956 in Keansburg, New Jersey. After the Keansburg store proved a success, the company opened another in Albany, New York. By 1962 Grand Union was operating 21 discount stores. To keep the stores running smoothly, Chairman Thomas Butler hired Joseph L. Eckhouse, formerly the head of the Gimbel Bros, department store in New York, to oversee them. Eckhouse envisioned the Grand Way stores as a place to buy quality goods and fashionable clothing at lower prices than department stores. Eckhouse died, however, before his vision could be fully realized.

Grand Union, which reached $1 billion in sales in 1968, continued to open additional Grand Way stores and enter new retail businesses, including convenience food stores, trading stamps, and catalog showrooms for discounted general merchandise. As competitive pressures increased in the early 1970s, Grand Union entered another phase of supermarketing: the so-called superstore. These shopping emporiums sought to provide customers with myriad products of every kind at one locale. A Grand Union superstore, for example, offered consumer items in such diverse areas as prescription drugs, auto parts, clothing, shoes, and household gadgets, as well as the usual mix of groceries. By 1973 Grand Union was operating 10 such superstores. While these new businesses were not failures, they did not contribute enough to the company’s bottom line to justify their continued existence. By the early 1970s they had begun to lose their luster and Grand Union began divesting itself of many of them.

In 1973 Grand Union stock was trading at less than half of book value and the company seemed to be stagnating. The company’s status attracted the interest of Cavenham Ltd., a British food conglomerate, which made a $19 a share tender offer for control of the company. The move by Cavenham, which was owned by financier James Goldsmith, marked the first significant foreign investment in U.S. food retailing. When the $64 million deal was finalized in December 1973, Cavenham quickly appointed Englishman James Wood as president. Wood wasted little time in shaking up what was then the ninth-largest supermarket chain in the country.

Wood sparked the divestment of Grand Union’s nonfood businesses, reorganized its management structure, and established a new image for the store based on low prices. Wood oversaw a Grand Union that had 534 supermarkets in New York, New Jersey, Connecticut, Massachusetts, Vermont, New Hampshire, Pennsylvania, Maryland, Virginia, West Virginia, Florida, Puerto Rico, and the U.S. Virgin Islands. The company’s nonfood operations consisted of 23 Grand Way stores, 18 Grand Catalog discount stores, 18 E-Z shop convenience stores, a food equipment subsidiary, and the Stop & Save Trading Stamp division. After only a year Cavenham stripped Grand Union of 31 supermarkets, pulled back its trading stamp operations, and closed nine Grand Way outlets. Grand Union’s performance for fiscal year 1974 was $2.3 million in net income, down from $8.4 million the year before. Sales, however, climbed for the year from $1.4 billion in fiscal 1973 to $1.5 billion in fiscal 1974. The following year Grand Union sold its E-Z shop division and closed five of its catalog showrooms.

The divestitures did have their price. In 1975 Wood stated that phasing out trading stamps completely would result in a $5,750,000 charge against earnings. In addition, the elimination of the nine Grand Way stores cost the company a $10 million pre-tax write-off. By 1978, however, Grand Union was ready to expand again. The company started opening new stores and acquired several regional supermarket chains in the Southeast and Southwest, including Colonial Stores in 1978. Three years later, Grand Union merged with J. Weingarten Inc., a Texas supermarket chain, which became an affiliate of the company. By 1982 the chain boasted 856 stores with outlets as far west as Texas, as far north as Canada, and as far south as Florida. The expansion was a gamble that eventually cost Grand Union more than it bargained for. In the fiscal year 1982 the company reported a record sales level of $4.1 billion, twice as much as what was recorded just three years ago. The drain on earnings proved to be just as drastic, with a drop of 30 percent to $24 million. “We screwed it up,” said James Goldsmith in an article for Business Week.

After that calamitous financial performance, Grand Union again entered a phase of heavy consolidation. The biggest drop in the number of stores came in the fiscal year 1982, when it closed 150 stores. By November 1982 another 62 units were gone, leaving the company with just 671 supermarkets. The revamped organization was centered in New England and New York, with a few sites in Virginia, Georgia, and the Carolinas.

By ridding itself of money-draining nonfood operations and trimming the number of its outlets, Grand Union showed a renewed devotion to food marketing. In 1979 it introduced its Food Market prototype, a 45,000-square-foot supermarket with specialty departments featuring gourmet foods such as stuffed artichokes, specially blended coffees and teas, baked goods, and imported cheese. The company planned to spend the bulk of its $700 million capital improvement budget over six years to convert most of its units to the Food Market prototype.

Food Markets were a hit with shoppers. Imported wines and ready-to-cook dinners like fish and poultry were finding steady buyers, but the conversion project proved to be very expensive. The average cost of turning a store into a Food Market was $1.5 million. By 1982 70 stores had been converted at a cost of $100 million. The project contributed to another poor performance for the fiscal year ended April 1983. The store reported operating losses of $20 million, although it posted a $226,000 bottom-line profit. As Goldsmith put it in the Business Week profile, “We managed to turn a dull but fairly profitable chain into an exciting loss-maker.” Some rivals blamed Grand Union for not doing enough research before converting a store to a Food Market. The converted sites that did well were located in areas with higher incomes rather than working class neighborhoods.

Other supermarkets were selling gourmet foods, but they covered the cost with profitable general merchandise departments, a business Grand Union abandoned after Cavenham Ltd. bought the company. Nonetheless, Goldsmith hoped that the expensive luxury food items would eventually make the store some money.

Ever on the lookout to maintain and improve upon the slim profit margins of the supermarket industry, Grand Union introduced another marketing innovation in 1983 to help increase its business. To help convince shoppers they were getting the lowest prices at Grand Union, the store began publishing a free booklet listing prices on some 9,000 products. The company hoped that shoppers would use the booklet if they found themselves in a competitor’s store and could see for themselves that Grand Union’s prices were cheaper. If a shopper found an item at a cheaper price, Grand Union promised to match it. Despite the expense of the new program, which cost about $80 million to create and promote, some stores reported an increase in sales as high as 25 percent.

Meanwhile, the company was still struggling in its efforts to return to profitability. In the fiscal year ended in April 1984, it posted a $115.2 million loss due to store closings concentrated in Florida, Washington, D.C., and Texas, a strike at its New Jersey stores, and the start-up costs of the new pricing program. Sales for the year dropped 2 percent from the previous year’s $3.52 billion to $3.44 billion.

All efforts to put the supermarket giant back on track were not enough to keep Goldsmith from finally deciding to sell it. In 1989 Grand Union was bought for $1.2 billion by an investor group headed by Salomon Brothers Inc. and Miller Tabak Hirsch & Company, two New York investment banking firms. At the time, Grand Union was the llth largest supermarket chain in the country with $2.7 billion in sales, 306 Grand Union and Big Star stores, and 21,000 employees. The two buyout partners each received a 40 percent interest in the company, with the remaining 20 percent held by senior management. The buyout of Grand Union added another $325 million to the company’s $300 million in high-yield debt and another $545 million in bank loans.

Under its new owners, Grand Union set another course to improve its business. This meant offering more items in bulk and larger sizes and more competitive pricing through discounting, price freezes, and buy-one, get-one-free offers. In 1991 the company introduced its own line of environmentally-sound paper products.

Three years after the 1989 deal Grand Union’s ownership shifted again when Salomon Bros, sold its interest in the company to Miller Tabak Hirsch & Company’s affiliate, GAC Holdings L.P., which owns 41 percent of the GND Holdings Corp., the parent company of Grand Union. In fiscal 1991 Grand Union’s numbers were still disappointing, with a loss of $53.8 million on $2.92 billion in sales. Grand Union was sold again in 1992 when a group led by Gary Hirsch, a principal of Miller Tabak, bought GND Holdings and formed a new holding company, Grand Union Holdings Corp.