Shaw’s Supermarkets, Inc.

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Shaw’s Supermarkets, Inc.

750 West Center Street
West Bridgewater, Massachusetts 02379
U.S.A.
Telephone: (508) 313-4000
Fax: (508) 313-3112
Web site: http://www.shaws.com

Wholly Owned Subsidiary of J Sainsbury PLC
Founded: 1860
Employees: 30,000
Sales: $4.4 million (2002)
NAIC: 45110 Supermarkets and Other Grocery (except Convenience) Stores

A wholly-owned subsidiary of U.K. supermarket giant J Sainsbury PLC, Shaw’s Supermarkets, Inc. is the second-largest supermarket company in New England, behind Stop & Shop. Shaw’s employs approximately 30,000 in over 185 stores in Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island, and Vermont. With the purchase of Massachusetts-based Star Market stores and that company’s natural food line Wild Harvest in 1999, Shaw’s began operating Wild Harvest in-store departments in over 100 of its Shaw’s locations.

19th-Century Humble Beginnings and Early Success

In 1860 Vermont native George C. Shaw moved to Portland, Maine, to embark on a business venture with starting capital of a little more than $900. He opened a small shop in downtown Portland and called it Shaw’s China Tea Store. In a move to attract customers, Shaw employed an Asian man named Ah Foo who stood in a high profile window to serve as a tea expert. Soon, people came flocking to purchase teas at the China Tea Store. With success carrying tea and coffee, Shaw expanded the shop to include fresh foods and groceries. By 1872, Shaw opened a second store at 580 Congress Street in Portland. Increased sales prompted the company to open a larger facility at 585 and 587 Congress Street in 1881.

At the time George C. Shaw was expanding his stores in Portland, Maynard A. Davis of Poland, Maine, left the Pine Tree State in 1880 with $23 in his pocket. Davis journeyed to Pawtucket, Rhode Island, where he worked as a store clerk. By 1896, Davis and a friend had opened a public market in Providence, Rhode Island. However, Davis sold his interest in the company in 1899. At that time he moved to Massachusetts and started the Brockton Public Market (BPM). Soon after, he opened additional stores in New Bedford, Bridgewater, and Rockland, Massachusetts.

Shaw’s and BPM’s Growth and Expansion: 1919–79

In 1919 Davis bought controlling interest in George C. Shaw’s, establishing it as a subsidiary of BPM. Davis remodeled the Shaw’s stores to compete with national and other regional chains. Following the remodel, Shaw’s stores were considered the most modern grocery store in New England and featured such items as fresh-baked bread, fresh roasted and ground coffee, and roasted turkeys. Clayton Baker and Elmer Batchelder operated the Shaw’s chain in its early years as a subsidiary of BPM, building on the reputation established by George C. Shaw for specialty foods and services including telephone orders and delivery service.

In 1935 Maynard Davis’s son, Halsey Davis, was named head of the George C. Shaw Co. in Portland, while his brother, Stanton Davis, became BPM president in Massachusetts. In 1947, in order to increase their private-label items and add a high quality house brand that could compete with national chain private-label brands, the Davis brothers entered their stores as charter members of the New England Food Buyers Association, a buying cooperative that later became known as Topeo Associates of Chicago. By the mid-1970s, Topeo would become the third-largest food distribution company in the United States.

As the population began to shift from the downtown urban centers to the suburbs, the Davis brothers saw the importance of expanding in shopping centers located outside the cities. In 1951, Shaw’s opened its first supermarket outside of a downtown district in South Portland, Maine, at the Mill Creek Shopping Center. Soon after, other Shaw’s supermarkets began to open in southern Maine. During that same period, BPM also continued to grow. In 1961, Stanton Davis initiated one central warehouse for both companies with the purchase of a three-story warehouse in Brockton, Massachusetts. By the late 1960s Shaw’s supermarkets had expanded beyond the greater Portland market into other areas of the state, as well as northern Massachusetts and New Hampshire. With the combined growth of the Shaw’s stores and the growth of BPM in southern Massachusetts, the brothers were prompted to build a new distribution center in East Bridgewater, Massachusetts, in 1972 that would serve both companies’ stores.

Shaw’s boasted $71 million in sales in 1973, and by 1974 Shaw’s operated 19 stores and employed 1,500 full- and part-time employees. By 1979 Shaw’s operated 22 stores in Maine, New Hampshire, and Massachusetts, and BPM operated 13 stores under the Shaw’s name in Massachusetts for a total of 35 stores earning over $300 million in annual sales. That same year, the Bridgewater distribution facility was enlarged from 257,000 square feet to 434,000 square feet. Also in 1979, George C. Shaw Co. and BPM merged to form Shaw’s Supermarkets, Inc.

J Sainsbury Acquisition: 1980s

By 1983, Shaw’s had 41 stores in New England. In September of that year, Shaw’s announced that it had entered into an agreement with J Sainsbury PLC, England’s largest supermarket company with sales of $3.5 billion in 1982, to sell up to 25 percent of its stock, opening the door for Sainsbury to purchase up to 251,845 shares at $100 per share. Stanton Davis, chairman of Shaw’s, maintained that controlling interest of the company would remain in the Davis family. At the time of the sale, Shaw’s board grew from ten members to 12 to allow for two new spots to be occupied by Sainsbury representatives.

In 1986 when Shaw’s owned 47 stores in New England and boasted 1985 sales figures of $14.8 million, the company announced it would go public with its stock. It was speculated that Sainsbury would retain 25 percent of the stock, Shaw’s would retain 51 percent, and 24 percent would be available for the public, including a percentage of that offered to Shaw’s employees.

This public offering never fully developed, and in early 1987 Sainsbury controlled 28.5 percent holdings of Shaw’s. By mid-1987, Sainsbury gained majority control of the company with the purchase of 20 percent of the Davis family stock, bringing Sainsbury to hold 49.4 percent of Shaw’s in the first stage of a two-stage sale. Shares were sold through Sainsbury’s U.S. subsidiary Cheyne Investments of New York for $30 a share. Following the completion of this first sale through Cheyne Investments, a tender offer of $30 a share was made that would guarantee Sainsbury 74 percent of Shaw’s. At the time Shaw’s president and chief executive officer, David B. Jenkins, maintained that “Shaw’s management team looks forward with enthusiasm to drawing on Sainsbury’s experience and resources as we pursue our growth strategy to become a more important factor in the supermarket industry.” Sainsbury treasurer Ewan Davidson asserted in Supermarket News that while Sainsbury recognized the growth potential of Shaw’s, they would continue to grow the company as a regional chain rather than on a national level. According to analysts at that time, while Sainsbury seemed to acquire Shaw’s at a “cheap” price, Shaw’s stood to benefit from Sainsbury’s expertise in private-label sales.

Growth and Expansion: 1990s

Sainsbury invested $90.7 million in Shaw’s in fiscal 1990, and the chain’s profits rose significantly enough for the parent company to open five Shaw’s stores in Massachusetts and one in New Hampshire. These store openings increased the total number of Shaw’s stores to 74. With a recessionary climate in New England in 1992, Shaw’s showed a profit loss of 16.5 percent in the first half of that year. Despite this loss, Shaw’s opened three new stores by mid-1992 and planned an additional uve new openings by year-end. By 1992 Shaw’s was the third-largest supermarket chain in New England behind Stop & Shop and Hannaford Brothers.

As supermarkets faced stiffer competition from such discount store giants as Wal-Mart and warehouse clubs, Shaw’s stood out with a comfortable growth record. At year-end 1994 Shaw’s had $1.97 billion in sales and had plans to expand from 87 stores in Maine, New Hampshire, Massachusetts, and Rhode Island to over 110 by 2000. This forecasted growth was expected to come from the company’s acquisition of small independent chains in the Boston area.

Company Perspectives:

Shaw’s is committed to being the supermarket of choice by satisfying the diverse and changing needs of our customers, associates, communities and business partners. We define “supermarket of choice” as follows: 1.) To our customers, we are a merchant who provides consistently high quality, innovative products and services, at competitive prices, in an environment that is safe, clean, convenient, and friendly; 2.) To our associates, we are an employer who provides opportunities for personal growth and long-term success based on performance and a work environment which respects differences and individual needs; 3.) To our communities, we are a neighbor who is socially responsible, charitable, and environmentally conscious; and 4.) To our business partners, we are a colleague who fosters relationships which are mutually beneficial and based on respect, honesty, and trust.

In 1995 Shaw’s opened five new stores with a 45,000-square-foot format, purchased two stores from rival Stop & Shop, and bought eight former Almacs units in Rhode Island. In 1996 Shaw’s operated 100 stores in New England, including stores in Connecticut, and boasted a 10.5 percent sales increase to $2.29 billion by March of that year. Also in 1996 Shaw’s acquired 12 Edwards stores in Connecticut from rival Stop & Shop’s parent, for $52 million. In 1997 Shaw’s purchased four sites in New York state, planning to extend its reach beyond New England. The chain began site work on its first New York store, a 50,000-square-foot unit, in Nanuet, New York, in July 1997, and had begun pre-construction work for the opening of a 65,500-square-foot store in New Rochelle, New York, to be completed in 1998. By February 1998, however, Shaw’s canceled its plans to enter New York and announced plans to sell its New York properties. Shaw’s spokesman Bernie Rogan told Supermarket News, “We decided not to go into New York, and instead to focus on Connecticut and the Boston area. We felt it was the smart thing to do, since this is our core market and we are gaining market share there.” In April 1998, the six sites Shaw’s held in New York were purchased for an undisclosed sum by the Stop & Shop Supermarket Co., officially ending Shaw’s move into the New York market. Following Shaw’s departure from New York and the company’s aggressive growth in Connecticut, Sainsbury executives revealed that growth plans for Shaw’s would slow in order for the company to focus on increasing profitability of its New England stores, including new stores in Vermont.

By late 1998, Shaw’s slow growth received a quick boost when the company announced plans to acquire 53 Star Market stores in Massachusetts for $490,000 million. In operation since 1915 in urban locations in Massachusetts, Star Markets had been operating at a loss of $8 million to $9 million. When complete, the acquisition would place Shaw’s just 20 stores short of New England’s leading supermarket chain Stop & Shop. A significant gain for Shaw’s in the acquisition also included Star Market’s natural food line Wild Harvest. The Star Market sale was approved in July 1999. As part of the deal, Shaw’s was required to sell three Shaw’s stores and seven Star Market stores in Massachusetts, leaving Shaw’s with a total of 44 Star Market stores that remained under the Star Market banner. In 2001 Shaw’s had converted seven Star Market units to the Shaw’s banner and had fully-integrated Shaw’s private-label items and technology into Star Market stores, and were involved in converting the remaining 37.

Industry Innovators Past and Future

Dating back to George C. Shaw’s hiring of Ah Foo to promote his specialty teas, Shaw’s was at the forefront of industry innovations. In 1941, Shaw’s was one of the first grocers in the United States to offer self-service in its stores. In 1947, the company began selling house label products and became a leader in private-label business. After Sainsbury—known as a leader in store brand business in the United Kingdom—acquired Shaw’s in 1987, Shaw’s grew its store brand program even more significantly. By 2002, Shaw’s made up to 40 percent of net sales from private-label goods and produced over 5,000 private-label items. In January 2002, Shaw’s introduced Signature brand, a line of higher quality private-label items. With its introduction, Shaw’s carried 300 Signature brand food items and projected to carry 100 more items by year’s end.

In 1967 BPM participated in a project known as COSMOS, an acronym for Computer Optimization and Simulation Modeling for Operating Supermarkets, an early computerized pricing strategy that was ultimately abandoned as computers of that generation did not have the file capacity to handle the multiple computations of COSMOS. Later, with the evolution of PC technology, the concept of COSMOS was reborn with the introduction of Direct Product Profit (DPP), a technology that Shaw’s helped pioneer to improve store’s space management.

Perhaps the most significant innovation for which Shaw’s is recognized is its testing of cashier scanning in 1972. Data General Corporation approached BPM stores in 1972 looking for supermarkets to test their scanning system technology for checkout counters. Only two months behind Marsh Supermarkets of Yorktown, Indiana, BPM was the second supermarket company to test scanning technology. In 1974 BPM’s Stoughton store became the third store in the United States to be outfitted with a pre-production supermarket scanning system. After two years of testing, Data General signed an agreement with Sweda to market their scanners. In 1977 the BPM store in Randolph, Massachusetts, went live with the Sweda Superscanner. By 1980 Shaw’s had installed scanners in all of its stores and by 1982 had begun testing a computer-based replenishment system known as Supervised Re-Ordering (SRO).

Later developments in SRO allowed stores to gather and process sales and inventory data to create store orders for replenishment. Having experience in SRO and establishing paperless transactions of invoices and purchase orders through Electronic Data Interchange (EDI), Shaw’s was in a solid position to benefit from cross-docking. By 1995, Shaw’s moved 5 to 10 percent of weekly grocery shipments through its warehouses with minimal warehouse handling.

Attesting to Shaw’s diligence in industry innovation, the company was awarded the Supermarket Business Award for Retailing Excellence in 1992. Shaw’s was praised by the magazine, which stated, “We honor the management and people of Shaw’s for their historic role as a leader in supermarket technology and for their often frustrating and costly work on the leading edge … which… might better be termed ‘the bleeding edge.’”

Key Dates:

I860:: George C. Shaw opens small tea shop in Portland, Maine.
1872:: Shaw opens second Portland store on Congress Street.
1899:: Maynard A. Davis founds small grocery stores in Brockton and New Bedford, Massachusetts, calling stores Brockton Public Market (BPM).
1919:: Davis buys the George C. Shaw Company, establishing it as a subsidiary of BPM.
1961:: Stanton Davis purchases three-story warehouse in Brockton, Massachusetts, that both BPM and George C. Shaw’s stores utilize.
1972:: BPM becomes second supermarket in the United States to test scanning technology.
1978:: Massachusetts BPM stores change name to Shaw’s Supermarkets.
1979:: Shaw’s Supermarkets, Inc. is formed with merger of BPM and the George C. Shaw Co.
1983:: England’s largest supermarket company J Sains-bury PLC purchases 21 percent of Shaw’s outstanding stock.
1987:: Sainsbury acquires controlling interest in Shaw’s.
1999:: Sainsbury buys Massachusetts-based Star Market stores and distribution center to operate under Shaw’s name, launching Shaw’s to second-largest supermarket company in New England.
2002:: Shaw’s introduces self-checkout lanes, an industry first in New England.

In the late 1990s Shaw’s again moved to stay ahead of its competitors with the testing of self-checkout systems, the first such system in New England. Shaw’s began a pilot program of self-checkout lanes in 2000, and by early 2003 the company had self-checkout lanes in 52 store locations. Shaw’s predicted that by year-end 2003, over 120 stores would be equipped with self-checkout systems.

Shaw’s also sought to pioneer the grocery industry in terms of corporate environmental standards. In 1992, three years prior to governmental deadlines, Shaw’s initiated the first existing store refrigeration system conversion to ozone-friendly refrigerants. In July 2001 Shaw’s East Boston store received the first Energy Star label awarded by the Environmental Protection Agency for voluntary measures to increase energy efficiency and reduce air pollution. In 2003 Shaw’s received the Climate Champions Award for corporations in the Northeast. Award presenter Michael Bradley maintained that Shaw’s “has continually pursued energy-efficiency through measures in their stores and by seeking new technological solutions with their suppliers and vendors.” While the environmental benefits of energy efficient practices proved significant, energy conservation also proved an added bonus to Shaw’s bottom line. As reported in PR Newswire in 2003, “The Company estimates that Shaw’s has helped to reduce air pollution by 50,000 tons of carbon dioxide per year and saved a total of more than $10 million in operating and energy costs since 1996.”

In 2002 Shaw’s announced its growth strategy for the next three years, which included plans to open 30 new stores at a cost of over $400 million as well as remodel and upgrade over 90 percent of its existing 186-store base. Analysts speculated whether the company must also secure a major acquisition to remain competitive with not only Stop & Shop but also warehouse clubs, Wal-Mart, and Target stores for grocery and nonfood item sales. Shaw’s had earned a solid position with its parent company, having generated 17 percent of 2001 Sainsbury sales and 20 percent of its parent company’s profits. President and Chief Operating Officer Paul T. Gannon maintained, “Some of the important factors [in targeting an acquisition] would be proximity to Shaw’s, a willing seller and a company that’s No. 1 or 2 in its markets in terms of market share.” In April 2003 Shaw’s opened a 56,000-square-foot-store in Boston’s Back Bay in the Prudential Center. To keep abreast of the growing market for prepared foods, the store offered stir fry, sushi, olive, and pasta bars. With the opening of this showy Boston flagship store, Shaw’s continued to carve its niche in the New England market and make new inroads into the urban market.