Rosauers Supermarkets, Inc.

views updated

Rosauers Supermarkets, Inc.

1815 West Garland Avenue
Spokane, Washington 99205
U.S.A.
Telephone: (509) 326-8900
Fax: (509) 328-2483
Web site: http://www.rosauers.com

Wholly Owned Subsidiary of URM Stores, Inc.
Incorporated: 1934
Employees: 2,500
Sales: $187.2 million (2006 est.)
NAIC: 445110 Supermarkets and Other Grocery (Except Convenience) Stores; 452990 All Other Specialty Food Stores; 446110 Pharmacies and Drug Stores

Rosauers Supermarkets, Inc., is a chain of supermarkets with stores in Idaho, Montana, Oregon, and Washington that operate under the names Rosauers Food & Drug, Super 1 Foods, and Huckleberry's Natural Market. Rosauers, along with its parent company URM Stores Inc., is among the largest private companies in the state of Washington in terms of annual sales. The chain prides itself on the wide selection it offers consumers as well as on its customer service.

1934–90: GROWING FROM A SINGLE STORE TO AN EMPLOYEE-OWNED CHAIN

In 1934, J. Merton Rosauer graduated from high school. With a $1,000 loan from his parents, he bought a little grocery store at the corner of Sprague and Lee Streets in Spokane, Washington. For the next four years, Merton worked hard at his store, but it was not until 1938, when he sold it and reinvested the proceeds from the sale in another grocery store, that Merton was able to pay back the loan.

After selling his second store and reinvesting his earnings in a third, Rosauer opened his first supermarket in 1949. The store, Spokane's first supermarket, was located at Oak and 3rd Streets and had 20 employees. During the next 35 years, Rosauers Supermarket grew to become a chain of 24 stores. The chain became a member of URM Stores, Inc., a major member-owned wholesale grocery distributor serving the inland Northwest that had been founded in 1921. In the 1960s, Rosauers introduced a food-and-drug format to its stores. When Rosauer retired and put his business up for sale in 1984, Rosauers Supermarkets owned and operated 24 supermarkets and was URM Stores' largest member-owner. Nine of the stores were located in Washington, three in Montana, two in Idaho, and one in Oregon.

Rosauers imminent sale raised the unhappy possibility for URM of losing its largest member-client to another distributor. To stave off that eventuality, the wholesale distributor stepped forward to purchase Rosauers; up until then, URM had never owned one of its member clients. However, in 1990, with Rosauers' revenues exceeding $180 million, URM put Rosauers back up for sale, having decided that it was a better wholesale distributor than grocery store operator.

This time, the United Food and Commercial Workers (UFCW) Local 1439, led by Sean Harrigan, president of the union representing Rosauers' employees, voiced its intention to buy Rosauers. Along with Larry Geller, Rosauers' president and chief executive officer, who had been with the company since 1988, Harrigan was concerned that, if the chain sold to a nonunion company, it could result in the loss of one of the largest member groups of the UFCW and lead to a recertification fight at Rosauers. The union-sanctioned employee purchase (92 percent voted in favor of buying the supermarket chain) required both management and labor to set aside a portion of their wages for the next seven years to pay off the loans needed to buy the company; in return for their investment, they received Rosauers stock.

Profitability was an essential part of the employee stock ownership plan (ESOP). Rosauers had to finish each year in the black in order to pay off its loans. Thus, at the time of the purchase in 1990, the new management chose to keep only its 15 Rosauers superstores, those in the 20,000- to 35,000-square-foot range that had been remodeled and expanded in the past six years. It decided to sell the chain's nine smaller, older, less profitable stores.

This decision proved unpopular within the company. Employees at the stores that were sold wound up losing their jobs and feeling betrayed by the union. Union members of other local grocery chains, such as Albertsons and Safeway, also did not like the plan. They saw their union and the Rosauers chain as conspiring to give Rosauers a competitive advantage through cheaper labor costs. Albertsons and Safeway, along with a grocery workers union, filed a lawsuit against Rosauers and the UFCW local 1439 in 1990, accusing both of violating federal antitrust laws. The suit was settled out of court in 1992.

However, once the dust settled, the ESOP proved to be good for Rosauers. "It allowed us to do some of the things that were sorely in need of doing. We became more competitive. We were able to update our stores. And it certainly helped in terms of employee morale," reflected Geller in the Puget Sound Business Journal in 1997. Geller cited the ESOP as a boon to Rosauers' competitiveness in a 1990 article in Supermarket News: "We can now borrow money at a better rate than was possible under the previous ownership. … Because payments under ESOP are classified as contributions to a qualified pension fund, the debt structure is based on pretax earnings rather than after-tax earnings." In addition, the store began to reduce prices slightly, taking advantage of the opportunity it had "to react more quickly to changes in the marketplace."

Before the creation of the ESOP in 1990, Rosauers had begun innovations in two of its newer Spokane stores. Immediately afterward, in an effort to boost sales of its prepared foods, it installed a "big pan" cooking operation in two of its deli departments to serve hot foods to order. It also installed open food preparation areas to catch customer attention, a service island in its produce department, a live trout tank, and an upscale wine department. Despite the fact that these changes were made with energy conservation in mind, management was concerned that they might make the stores look too fancy. "If customers perceive that we have spent so much money on the stores that our prices will be high, then we've failed. So we tried not to overpower them with luxury. The store should be understated enough so that the product is the show, not the store itself," explained the chain's vice-president of retail services in a 1990 Progressive Grocer article.

1991–97: DEVELOPING AS A VENUE FOR ONE-STOP SHOPPING

Throughout the early 1990s, Rosauers continued to revamp its stores. In 1991, it placed an emphasis on kitchen gadgets, replacing its four or five lines of implements with a single brand, Ekco, in an attempt to draw customer attention to its displays. In 1992, it added more than two dozen varieties of muffins made in the store on a rotating basis in direct competition with Costco's large-size muffins. In 1993, it added espresso machines and began serving espresso, cappuccino, steamed milk, and hot chocolate in its deli department.

COMPANY PERSPECTIVES

Rosauers principles of treating the customer as royalty and taking care of employees are and will continue to be permanent guides to direct our company's future.

In mid-1993, Rosauers also started work on a large-size, new outlet in Lewiston, Idaho, that introduced two new concepts for the chain. The 54,000-square-foot store, which opened in 1994, had a department devoted to espresso and ice cream and a sit-down restaurant. In addition, there was a short-order grill at the deli and an expansive frozen foods department running down the center of the store. These innovations were in keeping with the chain's intention of introducing more restaurant-style food service items. According to Geller in a 1993 Spokane Journal of Business article, "A grocery store and a restaurant are in the same business of trying to feed someone. We'd like to be a customer's choice for food regardless of whether it's prepared at home or at the store." The new, larger store also had a bank and a pharmacy.

Rosauers' 17th and 18th stores followed within a short span of time. In 1995, the company purchased a 52,000-square-foot market in Spokane, its second Super 1 Foods store. In 1996, Rosauers bought the 17,000-square-foot Monroe Street Market in Spokane, which it converted to a new-format store that it called Huckleberry's. Huckleberry's responded to rising consumer demand for healthful foods and featured organic fruits and vegetables, fresh breads, wines, and cheeses, a juice and espresso bar, and in-store services, such as massage therapy and aromatherapy. When it opened in late 1996, it also offered health education materials and classes.

In March 1997, after seven years of wage set-asides, the company's employees made their final payment on the $25.5 million ESOP deal and owned the supermarket chain outright. According to the company, the ESOP had been a success; not only had the chain become more competitive, but Rosauers was also able to make a deliberate attempt to suit each of its stores, old and new, to the community it served. The seven stores in Spokane were mostly upscale, but those in Montana, Idaho, and Oregon catered to the local population. What all stores shared was their emphasis on variety. According to the chain's grocery buyer in a 1997 Supermarket News article, "Our niche is not the same as an Albertsons or Safeway, which … only carry best sellers. … We try to have as wide a variety as possible. That is what we are known for. If you can't find it anywhere else, go to Rosauers."

1997–2007: EXPANDING SELECTION, GROWING THE CHAIN, AND RENOVATING STORES

This variety was extended further among certain nonfood items in 1997 as part of a move to compete more effectively against mass merchandisers and specialty stores. With health and beauty care and general merchandise representing 12.5 percent of total sales, Rosauers focused on makeovers for three of its departments—pet care, lightbulbs, and hair colorings—more than doubling the aisle space for its pet supply and hair coloring kits and switching to Sylvania as its lightbulb supplier. It also replaced its Ekco kitchen gadgets with more upscale Norpro items that carried larger profit margins. The resulting increase in gadget sales was so impressive that Rosauers continued to upgrade its kitchenware offerings in 1998.

The chain also continued to close and add stores. In 1997, Rosauers purchased its third Super 1 Foods outlet, bringing the number of stores it owned to 19. In 1998, it closed a 34,000-square-foot store in Spokane. Two years later, it closed its 60,000-square-foot Coeur d'Alene, Idaho, store. In 2001, it purchased two Excell Foods stores, and a store in Yakima, Washington, was added in 2002.

The company itself was also sold in mid-2000. URM repurchased Rosauers after 97 percent of the chain's more than 1,800 owner-employees voted in favor of giving up their shares in the company. By this time, URM served 1,500 member-owners and had annual revenues of $500 million. Greg Tarr, president and chief executive of URM, forecast in a 2000 Missoulian article that "[t]he combined strength of URM and Rosauers [would create] a powerful competitive edge for us." Despite the fact that URM had hopes of keeping the management team intact, three top executives left Rosauers after the acquisition; those leaving included Geller, Rosauers' chief executive, as well as the company's executive vice-president and chief financial officer. Jeff Philipps succeeded Geller.

KEY DATES

1934:: J. Merton Rosauer buys a little grocery store on the corner of Sprague and Lee Streets in Spokane, Washington.
1949:: Rosauer opens the first supermarket in Spokane, Washington.
1984:: Rosauer retires and sells his business to URM Stores, Inc.
1990:: URM sells Rosauers to its employees.
1996:: Rosauers opens its first Huckleberry's Natural Market.
1997:: The company's employees make their final payment on the $25.5 million ESOP deal and own the company outright.
2000:: URM repurchases Rosauers.

Soon the chain experienced other changes as well, both to conserve resources and to expand selection. In 2001, it reduced hours at its 24-hour stores, closing from midnight to 5:00 a.m. and turning off outdoor signs and parking lot lights when closed, reducing light levels while stocking, and turning down thermostats two degrees during the day and five degrees when closed. The next year, it began to install the Huckleberry's concept as a store-within-a-store natural food section in its Rosauers markets. "We will look at adding the Huckleberry's concept to all of our stores as we get ready to remodel them," announced Philipps in a 2002 Supermarket News article.

By 2003, Rosauers was planning major renovations to its stores and a shift in direction from acquiring new locations to finding a new strategy for appealing to consumers. The changes at its flagship supermarket in the Five Mile Shopping Center in Spokane, which were anticipated to cost $2 million, included a fireplace in the deli department, decorative copper roofing within the store, and backlit faux windows intended to brighten the building's appearance. At the same time, Rosauers continued to focus on making each store suit its particular location.

In 2005, the 21-store chain continued to remodel locations, to add organic foods departments, and to enhance bakery-manufacturing areas in its older stores. Additionally, it had returned to increasing the number of supermarkets in 2006. That year, it acquired three locations of a defunct grocery chain. In 2007, it opened its 22nd store, a 60,000-square-foot supermarket that contained a Huckleberry's Natural Market department, with plans to spread its Huckleberry's concept to other Rosauers Supermarkets in the near future.

Carrie Rothburd