Hannaford Bros. Co.

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Hannaford Bros. Co.

145 Pleasant Hill Road
Scarborough, Maine 04074
U.S.A.
(217) 883-2911
Fax: (207) 885-3165

Public Company
Incorporated: 1902
Employees: 17,000
Sales: $2.3 billion
Stock Exchanges: New York
SICs: 5411 Grocery Stores; 5141 Groceries, General Line

Hannaford Bros. Co. is the largest food retail chain in northern New England. Based in Maine, the company operates supermarkets in that state, as well as in parts of New Hampshire, Vermont, Massachusetts, and upstate New York. In addition to the company’s 95 stores in those states, which operate under the names Shop ’n Save and Sun Foods, Hannaford Bros, has staked out new territory in the South with the 1994 purchase of the Wilson’s Supermarkets chain, consisting of 21 stores in North and South Carolina. Aside from its retail operations, Hannaford Bros, sells on a wholesale basis to 19 supermarkets that it does not own.

Hannaford Bros, was founded in 1883 by brothers Howard, Arthur, and Edward Hannaford. The Hannafords were farmers in Cape Elizabeth, Maine, where they grew a variety of fruits and vegetables. They opened their first shop on the Portland, Maine, waterfront as an outlet for the produce they grew on the farm. Over time, Hannaford Bros, became a major produce wholesaler, operating out of their Portland warehouse. The company incorporated in 1902 and enjoyed steady growth during the first few decades of the new century.

The gradual shift from being primarily a wholesaler to primarily a retailer began in 1944, when the company opened its first supermarket. The move began to pick up steam in the early 1960s under the guidance of Walter F. Whittier, who had joined Hannaford Bros, in 1938 and was named president in 1960. Under Whittier, the company began to purchase equity interest in supermarket chains. The strategy was based on the knowledge that these equity partnerships yielded a much higher profit margin than did straight wholesale relationships. The linking of wholesale distributors with retailers in the grocery business was revolutionary at the time, and Hannaford Bros, was at the forefront of this movement.

By the middle of the 1960s, Hannaford Bros, was distributing to about 100 stores, mostly located in Maine. Although that number remained fairly constant over the next several years, the size of the stores grew, as smaller units shut their doors and new, bigger locations were built. In 1966 the company bought the Sampson’s supermarket chain for $4.5 million. Those stores had been Hannaford wholesale customers before the acquisition. Thirty percent of the Sampson stock was then immediately sold off to a group of investors involved in the stores’ operation. This was typical of the equity partnership arrangement with Hannaford Bros.’s other stores, most of which operated under the Shop ’n Save name. By 1970 the company owned majority interest, usually between 51 percent and 70 percent, in 58 of the 103 stores it supplied. The rest were served strictly as wholesale customers, although Hannaford was also landlord to several of them. For 1970 the company returned a profit of $844,000 on sales of $124 million.

In 1971 James L. Moody, a twelve-year company veteran, became Hannaford’s president, with Whittier continuing in his role as chairman and chief executive. Moody took over the CEO spot two years later. 1971 was a landmark year for the company in several other ways. Hannaford common stock was sold publicly for the first time that year, although a large portion of its stock remained in the hands of insiders. It also marked the first time that the company generated net earnings in excess of $1 million. The trend toward retailing continued into the mid-1970s. By 1974 Hannaford was the regional leader in both the wholesale and retail sale of groceries. Company officials attributed this success largely to the equity partnership system, which remained fairly unusual in the supermarket industry. By this time, the company had 58 equity partnership stores, which bought about 65 percent of their merchandise from Hannaford’s distribution center; 16 wholly owned outlets; and 38 independent retail customers. Between those three types of stores, Hannaford was supplying about a quarter of all the food sold in Maine’s supermarkets. Annual sales had reached $200 million by this time.

Around the same time, Hannaford began its push into the retail drugstore business. The company opened three Wellby Super Drug Stores in Maine in 1973, and several more Wellby openings followed during the next few years. Unlike its grocery outlets, all of these initial entrants into the pharmacy business were owned outright by Hannaford.

During the rest of the 1970s, Hannaford Bros, retreated somewhat from its equity partnership concept, choosing instead to purchase full interest in its retail operations. By 1981 the company had 73 stores in its stable, 52 of them wholly owned. The remaining 21 stores operated according to the company’s well-established equity partnership pattern. The 1981 purchase of the outstanding equity in the Sampson chain accounted for a good part of that shift in balance. Hannaford also bought the outstanding equity in Progressive Distributors, a supplier of health and beauty aids and other general merchandise, during 1981. Progressive had been an equity partnership since 1967. As the growth in New England’s population outpaced the national average, new Shop ’n Save and Sampson stores were opened throughout the region, and sales approached $500 million.

Hannaford continued to grow impressively in the 1980s. In keeping with its aggressive expansion program, the company sought innovative ways to stay ahead of the supermarket pack. Technology was one area in which Hannaford’s progressive philosophy was apparent. The company had scanning capability in 18 stores by 1982, and its internally developed computer programs for inventory and other financial procedures was advanced enough to be coveted by other supermarket firms. Hannaford Trucking Company, a wholly owned subsidiary, was founded in 1982, giving the company more flexibility and control over its distribution system. In 1983 Hannaford opened its first superstore. Called Super Shop ’n Save, the outlet was the largest of its kind in the northern New England region. In addition to the usual supermarket products, the 42,000 square-foot unit included a pharmacy, hardware, automotive items, a plant department, and a bulk food area. The Super Store concept, the result of several years’ planning and fine-tuning, was part of a national trend toward larger-format supermarkets. In 1984 Hugh G. Farrington, who had joined the company as a management trainee in 1968, was named president of Hannaford. Moody stayed on as chairman and CEO.

The expansion program continued during the second half of the 1980s. In 1986 Hannaford Bros, stock began trading on the New York Stock Exchange. Sales for that year totaled $910 million. By 1987 the company was operating 66 supermarkets under the names Shop ’n Save, Martin’s, and Sun Foods. In addition, 36 Wellby Super drug stores were in business by that time. Sales at Hannaford broke the $1 billion barrier for the first time in fiscal 1987. Around this time, the company made its move into the upstate New York and Massachusetts markets. Plans for expansion into these areas included a Sun Foods super warehouse store in Lowell, Massachusetts, and New York stores to be located in Glens Falls, Plattsburg, Amsterdam, and Albany. Most of these new stores were either combination or super stores, selling general merchandise as well as groceries, as the trend toward larger facilities continued to gain momentum. At the same time, the company’s home turf of Maine, New Hampshire, and Vermont remained an important part of the mix. In many of those states’ markets, larger stores were built to take the place of small, outmoded locations.

As the 1980s drew to a close, Hannaford continued to thrive, despite a recession that dragged down much of New England’s economy. For the entire decade, the company’s profits had increased by an average of 18 percent annually, compared to 13 percent for the seven companies tracked by Standard and Poor’s Food Chains index. The company’s expansion into upstate New York continued, assisted by computerized marketing surveys that focused on areas where supermarket chains were sparse. By 1989 Hannaford’s sales had grown to $1.52 billion, with a healthy $39 million in net earnings. Part of the company’s success had to do with its adoption of a “socio-technical system” of management, based on Japanese factory management ideas. Under this system, decision-making is decentralized. Small groups including both managers and employees are given a great deal of autonomy in areas such as hiring, pay scales, and general rules.

In December 1990, Hannaford added eleven supermarkets to its collection at once by acquiring the Alexander’s chain in Massachusetts and New Hampshire for $73 million. The deal also brought two free-standing drug stores and three free-standing bakery shops into the Hannaford fold. The early 1990s saw the rise of a new and potent type of competitor: the membership club. With the spread of wholesale clubs such as Sam’s and BJ’s into Hannaford’s home-base states, the company faced more of a threat to its market share than ever before. To remain competitive, Hannaford introduced a number of institutional-size items and other club-style merchandise under the name Budget Values. In spite of the increased competition, Hannaford managed to boost its sales even further, reaching $2 billion for fiscal 1991 and keeping pace with the company timetable.

The Hannaford empire consisted of 129 stores by 1992. That year Farrington added CEO to his existing titles of president and chief operating officer, while Moody retained his chairmanship. As competition from the clubs and from Wal-Mart continued to heat up, Hannaford’s management made the strategic decision to get out of the drug store business, where deep discounting was making it more and more difficult to turn a profit. In May 1992 Hannaford sold 34 of its 41 free-standing drug stores to the Rite Aid Corp. The sale of those Wellby outlets, which had generated less than five percent of Hannaford’s total sales, enabled the company to concentrate its efforts more fully on its core supermarket business.

The ongoing recession and the elimination of revenue from the drug stores led to Hannaford’s first decrease in annual sales in 1993, although the drop was small. Meanwhile the company managed to increase its earnings by 15 percent to $56.7 million. By the end of 1993, Hannaford was operating a total of 93 food stores, more than half of them in Maine. Fifty-seven of the company’s stores were large combination stores offering a broad range of non-food merchandise, four were super-warehouse units, and the rest were conventional supermarkets. Among the company’s new openings in 1993 were two combination food/drug stores in New York state; one in Concord, New Hampshire; and one in Farmington, Maine, that replaced a smaller unit. The Gloversville, New York, store was the first Hannaford store to go head-to-head with a Wal-Mart in the same shopping complex.

In 1994 Hannaford made its first foray out of the Northeast by acquiring Wilson’s Supermarkets, based in Wilmington, North Carolina, for $120 million. Wilson’s, a privately owned 20-store chain with units in both North and South Carolina, had expected sales of over $200 million in 1994. The deal also included five additional store sites (three already under construction) and several shopping centers. By September 1994, Hannaford had already opened a 21st Wilson’s, located in Fayetteville, North Carolina. Day-to-day management of the Wilson’s chain remained in the hands of the Wilson family, which had run the stores since the company’s inception in 1919.

Hannaford’s expansion into the South has opened up new horizons for the company. Now that it has broken free of its former regional constraints, the main challenge facing Hannaford Bros, in the coming years appears to be the ongoing competition from warehouse clubs and other large-scale stores whose sheer volume enables them to offer products at extremely low prices. Thus far, Hannaford has managed to hold its own in those markets where it competes directly with warehouse-type outlets. Its ability to continue competing effectively in that environment will play a large role in the company’s future expansion plans.

Principal Subsidiaries

Analytical Services, Inc.; Cottle’s Shop ’n Save, Inc.; Hannaford Properties, Inc.; Hannaford Trucking Co.; Plain Street Properties, Inc.; Progressive Distributors, Inc.; The Sampson Supermarkets, Inc.; Shop ’n Save Mass., Inc.; Shopping Center Properties, Inc.; Warehouse Properties, Inc.; Boney Wilson & Sons, Inc.