Lucky Stores, Inc.

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Lucky Stores, Inc.

Northern California Division
1701 Marina Boulevard
San Leandro, California 94577-4202
U.S.A.
(510) 678-4200
Web site: http://www.luckystores.com

Southern California Division
6565 Knott Avenue
Buena Park, California 90620
U.S.A.
(714) 739-2200
Web site: http://www.luckystores.com

Wholly Owned Subsidiary of American Stores Company
Incorporated: 1931 as Peninsula Stores, Ltd.
Employees: 121,000 (American Stores Co.)
Sales: $19.13 million (American Stores Co. 1998)
SICs: 5411 Grocery Stores

Lucky Stores, Inc. is a wholly owned subsidiary of American Stores Company, one of the largest food and drug retailers in the United States. American Stores is now a division of Albertson’s, the number two ranked company among all U.S. food and drug retail companies. Lucky Stores, which continues to operate as Lucky (grocery stores) and Lucky/Sav-on (grocery/drug store combinations), is composed of two separate divisions: one in northern California, and one in southern California. Each division has its own management team.

The Early Years

The beginnings of Lucky Stores, Inc. can be traced to 1931, at which time a man by the name of Charles Crouch joined forces with four other investors to purchase a small chain of grocery stores in San Francisco, California. Located on the peninsula of San Francisco, the six stores had been named Peninsula Stores, Ltd. upon their inception. After the purchase, Crouch and his investment team operated the Peninsula store chain successfully for a couple of years before making the decision to expand.

When the company began making moves to open additional stores in the East Bay area of San Francisco, the new store locations were even more successful than were their predecessors. Crouch soon began referring to these new stores as his “lucky stores,” and thus the company eventually underwent a name change. In 1935 the identification “Lucky” first appeared on the outside of the company’s store at Shattuck and Bancroft Streets in Berkeley, California. The name stuck, and the store chain has been known as Lucky Stores, Inc. ever since.

The small grocery chain saw success for approximately the next ten years or so. In 1947 Lucky decided to expand its scope. At that time, the company decided to open a larger version of itself—a true “supermarket”—the first of its kind west of the Mississippi River. The new store carried expanded offerings and easily beat out its competitors in terms of its size and the range of its product selection. Almost immediately, the store began receiving accolades. The Wall Street Journal named it the “store of the year,” citing its innovations as being years ahead of their time.

Diversification and Expansion in the 1950s and 1960s

By the early 1950s the Lucky chain was made up of more than 40 store locations. After having achieved great success in the San Francisco Bay area and its surrounding communities throughout the 1930s and 1940s, Lucky decided to expand to other markets throughout California in the early 1950s. By 1956 the company had purchased and converted 48 stores from other companies throughout the state. The Lucky purchases included ten Jim Dandy stores in the Los Angeles metro market, six Food Basket stores in the San Diego area, and a whopping 32 Cardinal stores in the Sacramento area. Not only did the acquisitions double Lucky’s store count, but they also gave the company firmer footing in the California grocery store market. That year, Lucky achieved more than $100 million in annual sales for the first time in the company’s history.

By 1959 Lucky operated 117 stores in the states of California and Washington. That year, the company began building “discount centers”—larger versions of its supermarkets offering everything from food and household grocery items to pharmacy services, liquor, and apparel. The year 1960 marked the beginning of Lucky’s foray into the areas of general merchandise retailing, membership department stores, automotive retailing, and fabric retailing units. The company expanded its scope through the purchase of a membership department store in southern California. Soon, Lucky’s Gemco and Memco membership department stores began appearing throughout the western states of California, Arizona, and Texas, as well as in the eastern and midwestern states of Maryland, Virginia, and Illinois.

Within the next decade, Lucky had advanced to the point that it could expand its supermarket chain on a national level. In 1968 the company negotiated a deal with the Eagle store chain and the May’s drug store chain in Illinois, Iowa, and Wisconsin. Also purchased in 1968 was Tanne-Arden, Inc., which operated multiple retail apparel stores. Within four years, however, the retail apparel stores were divested.

Another area in which Lucky diversified its holdings was in the development of manufacturing facilities. Such activity led to Lucky’s involvement in the L & G sporting goods chain in southern California, Harvest Day bakeries, Lady Lee milk processing plants, and various meat processing plants.

The 1970s and 1980s

Lucky continued to diversify in the early 1970s, through the 1972 purchases of Hancock Textile Co., Inc., Dormán’s, Inc., Kragen Auto Supply Co., and Thurmond Chemicals, Inc. Hancock was involved in the manufacture of fabric goods, and Dormán’s and Kragen Auto Supply both were involved in the retail sale of auto accessories and parts. Thurmond, on the other hand, manufactured and distributed household cleaning products. All four entities, in addition to Lucky’s previous holdings, helped the parent company post sales of almost $2 billion in 1972. At that time, the company announced that it was ranked sixth in size in the United States among food chains, seventh among department store chains, and eleventh among all U.S. retail companies.

Lucky further increased its grocery store count when it entered the Florida market in 1979 through the purchase of 48 Kash ‘n’ Karry supermarkets in Tampa, Florida. The company continued to expand throughout the early 1980s and by 1985 was posting annual sales of almost $6.23 billion.

Unfortunately, Lucky had diversified so much by the mid-1980s that its holdings seemed not to fit under the corporate umbrella quite as well as they once had. The company had gotten to a point where it was dabbling in so many different areas that it could not realistically address the needs of each of its holdings. Thus in 1986 the company initiated a massive multimillion dollar restructuring program.

At the foundation of the restructuring effort was the goal of returning Lucky to its roots as a food retailer. Therefore, the company began selling off its peripheral businesses—a process that was concluded by mid-1987. At the close of its restructuring process, Lucky operated 481 grocery stores in California, Nevada, Arizona, and Florida under the names Lucky, Food Basket, and Kash ‘n’ Karry.

Emerging with a rejuvenated focus on food retailing, Lucky made efforts to improve its customers’ experiences in its store locations. For example, the company introduced its “Three’s a Crowd” service policy, which stated that every time there were three people waiting in a checkout line, the store would open another checkout counter until all counters were in use. Also introduced was EZ-Checkout, which allowed customers to use their bank ATM cards to purchase groceries by deducting directly from their own bank accounts. Lucky also arranged its stores with short aisles, bold and legible signage, and a logical order in the placement of its merchandise, so customers would find shopping at its stores easy and convenient.

These efforts proved successful, and in 1987—Lucky’s first full year after the restructuring—the company posted sales of $6.92 billion. According to company chairman and CEO John M. Lillie in Lucky’s 1987 annual report, “Lucky Stores has emerged from its 1986 restructuring in excellent condition.” Lillie also noted that industry giant American Stores Company had approached Lucky with a takeover proposal.

American Stores had gotten its start in Philadelphia, Pennsylvania in 1891 as Acme Market. After merging with several other Philadelphia area grocery store chains in 1917, the company changed its name to American Stores Company. Throughout the decades that followed, the company grew rapidly until being purchased by Skaggs Drug Centers, Inc. in 1979. The new company stuck with the American Stores name and went on to acquire numerous other grocery chains in the United States, including Jewel Companies, Inc., in 1984. Jewel consisted of Jewel Food Stores, Star Market, Osco Drug Stores, and Sav-on Drug Stores.

In 1988 American Stores completed its negotiations with Lucky Stores and purchased the growing supermarket chain. At the time, Lucky was California’s leading grocery retailer—due in part to the fact that it was the only chain with a significant presence in both northern and southern California. The acquisition catapulted American Stores into the number two position among food and drug retailers in the United States.

In the years that followed the acquisition, American Stores made efforts to improve the overall financial strength of its Lucky holdings. Unprofitable store locations were disposed of, while the company focused instead on increasing the growth and profitability of the stores that it kept within its control. The company split itself into two divisions—a Northern California Division and a Southern California Division—to better address the differing needs of each of its two main regions. Although Lucky continued to exist as one entity under the American Stores umbrella, each of the two divisions gained their own separate management teams and operated from different locations.

Obstacles To Overcome in the 1990s

As Lucky headed into the 1990s, it became the subject of multiple headlines involving labor and human relations disputes. In early 1993 the company endured an impasse during contract negotiations with the International Brotherhood of Teamsters, involving approximately 1,300 truck drivers and warehouse workers in northern California. The issue became so heated at one point that the Teamsters’ union boycotted 188 Lucky stores in the Northern California Bay area and filed a charge of unfair labor practices against Lucky. The problem was settled eventually in March 1993.

Soon thereafter, it was announced that Lucky had agreed to settle a massive class action lawsuit that had been filed against the Northern Division by some of its current and former female employees. The suit alleged that Lucky had forced many of its female employees and prospective new hires into low-paying, nonmanagerial, “dead-end” jobs where they were denied promotion opportunities. After the two sides spent more than a year negotiating the terms of the settlement, Lucky agreed to pay $74.25 million—an average of approximately $5,000 to $14,000 per employee in question. The November 23, 1993 edition of the San Francisco Examiner called it “the second-largest sex discrimination settlement in U.S. history, behind the $240 million agreed to by State Farm Insurance in April 1992.”

Then in late 1994 the Teamsters dispute reared its ugly head again, as more contract negotiation difficulties threatened to force 235 Lucky stores in southern California to close. This time, the problem involved Lucky’s Southern California Division and approximately 1,700 truck drivers and warehouse workers. With the help of a federal mediator, the two sides came to an agreement in December 1994.

Almost six months later Lucky faced another strike situation, this time involving the United Food and Commercial Workers union. During the difficulty, the union led a nine-day strike against one of Lucky’s competitors—Safeway—which then led to a lockout by the Lucky and Save Mart chains. The strike was based on the union’s disapproval of the grocery companies’ new policy changes regarding such things as medical leave and health insurance. In mid-April 1995, however, the store chains and the union were able to reach an agreement.

Meanwhile, Lucky began putting into action plans to create a chain of warehouse-style grocery stores in northern California. The plan, initiated in 1994, was an effort to help Lucky compete with the many discount grocery chains springing up in its home market. The new foray into discounting actually marked parent company American Stores’ entry into the warehouse grocery market as well. The new Lucky discount stores, named Super Saver Food, carried more bulk goods and offered lower prices. Lucky also announced that all of its own new stores would be larger in size and offer more in-store services such as bakeries, deli shops, florists, photo departments, and full-service banks. Up to that point, Lucky’s typical store size was around 25,000 square feet; the new superstores would be approximately 60,000 square feet.

In early 1996 Lucky once again made headlines; this time, however, the topic was a bit more upbeat—the story of a grocery chain doing good deeds and beating the IRS at its own game. Back in 1983, Lucky had begun the practice of donating its unsold four-day-old bread to food banks and other charitable organizations. At the same time, the company kept track of the retail price of all donated bread, and then filed for charitable deductions at tax time. The IRS disallowed the deductions, stating that the bread’s value should have been discounted at the time of the donations. After a battle, in 1996 the U.S. Tax Court sided with Lucky’s interpretations and the years of deductions stood.

The Turn of the Century and Beyond

Near the end of the decade, Lucky continued its efforts at customer satisfaction. In January 1997 a partnership between Lucky and Wells Fargo & Co. was announced, whereby Wells Fargo would open 24 full-service banks within selected Lucky store locations. The arrangement benefited both parties. Wells Fargo gained access to a larger potential customer base, whereas Lucky was able to offer its customers the opportunity to take care of more of their errands in one stop.

Soon thereafter, Lucky once again appealed to its customers with the introduction of the “Rewards Card” frequent shopper program. In basic terms, customers at 540 Lucky and Sav-on stores in California and Nevada could sign up for the cards, which when scanned at checkout would track purchases and lead to rewards. Not only would the cards entitle members to advertised discounts on selected items each week, but they also would help the store chain capture data about individual purchasing habits and trends. It was thought that the chain could better address the needs of its customers through the use of such data. To go along with the introduction of the reward program, Lucky launched a television advertising campaign featuring the slogan “Savings Made Simple.”

In late 1998 Lucky’s parent company, American Stores Company, was purchased by Albertson’s Inc. The $11.7 billion purchase was the biggest in Albertson’s history and helped it at the lead of the pack of U.S. grocery and drug store chains, with more than 2,470 stores in 37 states. Albertson’s stated its intent to retain the store names of most of its new subsidiaries, including Lucky. Company spokespeople predicted that the main differences that customers would notice would be lower prices and a better selection.