Stewart's Shops Corporation

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Stewart's Shops Corporation

2907 Route 9
Ballston Spa, New York 12020
U.S.A.
Telephone: (518) 581-1200
Fax: (518) 581-1209
Web site: http://www.stewartsicecream.com

Private Company
Founded: 1921
Sales: $500 million (2005 est.)
NAIC: 445120 Convenience Stores

Stewart's Shops Corporation is a Ballston, New York-based operator of more than 300 convenience stores spread throughout upstate New York and Vermont, all within a 150 mile radius of Saratoga Springs, New York, where the company got its start. The stores are supplied with milk and ice cream from the company's own dairy as well as with chili, macaroni and cheese, and soups prepared in its own kitchens. The company's 260,000-square-foot processing facility produces approximately 10 million gallons of milk and 3 million gallons of ice cream each year. About three quarters of the products sold in the stores are either produced or distributed by the company. In addition to ready-to-go food and basic groceries, Stewart's Shops sell gasoline, and offer free air, ATMs, and public rest rooms in most units. The company is two-thirds owned by the Dake family, with the rest owned by the employees through a profit sharing program that contributes about 25 percent of each employee's annual pay to their individual accounts. In addition, Stewart's is known for giving back to the communities it serves, donating 5 percent of annual profits to charity. As a result, Stewart's has enjoyed double-digit growth for many years, outperforming larger chains operating in their markets.

EARLY 20TH CENTURY ROOTS IN ICE CREAM

Stewart's traces its heritage to brothers Percy W. and Charles V. Dake, who in 1921 began producing ice cream in Greenfield, New York, under the Dake's Delicious Ice Cream label. By the end of the decade they were making 100,000 gallons of ice cream a year, attracting the attention of Sealtest, which acquired the business in 1929. As part of the deal, the Dake brothers agreed to a non-compete clause, but while ice cream was off limits to them, milk was not. In 1935 New York passed a law that would require all milk to be pasteurized and the Dakes recognized a business opportunity. They opened a modern dairy plant in 1935 in a former municipal water works building in Saratoga Springs. Area dairy farmers, who had faced the risk of being put out of business, could now sell their raw milk to the Dakes' Saratoga Dairy. They expanded their operation two years later by acquiring a facility in Greenfield, New York, to produce cheese, powdered whey, and casein. Raw milk that supplied this plant came from all over New England and the Eastern United States.

The non-competition agreement with Sealtest expired in 1945 and the Dakes lost little time in making their return to the ice cream business. They bought the Stewart Ice Cream Company, owned by Donald Stewart of Ballston Spa, New York, picking up his dairy, ice cream freezer, hardening room, and a retail shop located on heavily traveled Route 50 in Ballston Spa. In addition, the Dakes kept the Stewart's name. The year 1945 also saw the arrival of a second generation of the Dake family in the business, as Charles S. Dake, the son of Charles V. Dake, joined the company. The young man had served in the Army during World War II; now discharged, he was eager to make a go of the newly acquired ice cream business, which was set to thrive as servicemen like himself began returning home and raising families. In short order, shops were opened in Saratoga Springs and South Glen Falls, where customers would line up to buy seven-cent single-scoop cones and ten-cent double cones.

Stewart's grew steadily over the next decade. It made a notable contribution to the ice cream trade in 1948, becoming the first to use folding half-gallon takeout ice cream cartons, developed in conjunction with the Sutherland Paper Company. That same year, Charles' wife, Phyllis, conceived of a bar where people could choose from bowls of toppings to customize their sundaes. The "Make Your Own Sundae" feature was then advertised on the first television station in the area, WRGB, and grew extremely popular. In 1950 both Saratoga Dairy and Stewart's Ice Cream Co. were incorporated and ice cream manufacturing was transferred to the Greenfield facility. By the end of 1955 Stewart's was operating more than 50 ice cream shops.

STORES ADD MILK SALES: 1957

The transition from ice cream shop to convenience store began in 1957 when Stewart's petitioned the Department of Agriculture for approval to sell milk produced by its dairy in its ice cream shops. Permission was granted and Stewart's enjoyed immediate success in the retail milk business. Since the company was able to produce its own milk, it could cut retail prices by 25 percent, thereby attracting a good deal of business. It was only a matter of time before the ice cream shops began offering other dairy products—and non-dairy products as well, including what would be considered the three staples of convenience stores: beer, soda, and cigarettes.

In 1959 Charles S. Dake also took over the running of Saratoga Dairy, succeeding his uncle. A year later he convinced his brother, William P. Dake, to join him in turning around the dairy, which at this point was losing money. More than just a trusted sibling, Bill Dake was a Cornell University-trained engineer. He used his expertise to restore the dairy operation to profitability. The business of Saratoga Dairy and Stewart's Ice Cream Co. reinforced one another, so that together they grew into one of the most successful private dairy companies in the Eastern United States.

For a time during the late 1960s and early 1970s, Stewart's ran several Farmer in the Dell Shops, but the growth of the company was tied to the success of its expanding chain of Stewart's Shops and the popularity of its ice cream. Another important factor was the retention of employees. In 1974 Employee Stock Ownership Plans (ESOP) became viable with the passage of the Employee Retirement Income Security Act. Stewart's established its own ESOP, in effect selling part of the company to the employees, a stake that over time would become one-third of the company. With an interest in the business, Stewart's employees stayed longer and proved more industrious, in the end making the two-thirds stake in the business more valuable, in the opinion of the Dake family, than if the family had retained full ownership. To further aid in the retention of employees, Stewart's also offered benefits, such as health care, that were quite liberal compared to what other convenience store chains offered.

Another major step in the evolution of Stewart's shops was the addition of self-service gasoline pumps. The decade also brought sadness to the Dake family, as Charles Dake struggled with cancer, eventually succumbing to it in 1978 at the age of 53. His brother William now assumed the presidency of the company and continued to grow the Stewart's chain. In 1981 the 100th shop opened, located in Schenectady. William's son, Gary C. Dake, joined him in 1984 to relieve some of the burden.

COMPANY PERSPECTIVES

From Plattsburgh to Newburgh, Watertown to Rutland, the company maintains its small-town feel and motto, "We are closer to you."

Stewart's grew at a steady pace in the 1980s, as did the convenience store industry in general, but after nearly 20 years of impressive growth the sector reached a saturation point by the end of the decade as the number of convenience stores in the United States stalled at around 85,000. In addition, industry-wide profits in 1989 fell off 75 percent from the prior year's total. A subsequent recession made matters even worse, and two of the largest national operators, 7-Eleven and Circle K, which had grown too quickly and taken on too much debt, landed in bankruptcy court. Stewart's, on the other hand, continued to prosper and expand. In a 1991 interview with Capital District Business Review, Bill Dake admitted that the recession adversely affected Stewart's, "but nowhere near as much as most companies." Explaining his company's "contrarian" approach that defied the conventional wisdom of the previous two decades, he said, "We never went public when everyone went public; we never got into debt; we went into [refillable bottles] when everyone was getting out of refillables." Stewart's also benefitted from the retention of employees, but the impact of Bill Dake's management could not be underestimated. He kept his management structure lean, relying on just five district managers to supervise 150 shops. He was also known to be demanding and to surround himself with hard-working, aggressive executives. Thin-skinned, underachievers were not tolerated. A little more puzzling was Stewart's reluctance to embrace technology in the early 1990s, holding out as long as possible on adding electronic checkout scanners. But while Stewart's lacked the ability to track product performance and adjust product mix, the stores retained a personal touch that tied it closer to customers. To better serve those customers, Stewart's introduced ATMs in urban locations, and more remote stores were served by "Scrip" cash machines, a machine to performed all bank functions, including cash withdrawal and transfers, with the exception of deposits. To receive cash a customer received a slip of paper, known as "scrip," which could be handed to the store's cashier in exchange for cash out of the register.

In 1993 Stewart's opened its 200th store and a year later added another 40 units in one stroke by acquiring the Bonfare chain, the integration of which proved difficult. To keep up with the company's growth, a new $4 million, 35,000-square-foot dairy was built. In the second half of the 1990s, Stewart's began an aggressive bid to expand beyond the Saratoga vicinity and into New York's mid-Hudson Valley for the first time. In 2000 the 300th Stewart's store opened in West Sand Lake, New York. Annual revenues at this stage topped the $500 million mark. William Dake's success in growing the chain was also recognized in 2000, honored by the New York Capitol chapter of the American Marketing Association as the year's Marketer of Excellence.

KEY DATES

1921:: Percy W. and Charles V. Dake start Dake's Delicious Ice Cream.
1929:: The business is sold to Sealtest.
1935:: The Dake brothers launch Saratoga Dairy.
1945:: The brothers acquire Stewart's Ice Cream Company and reenter the ice cream business.
1959:: Charles S. Dakes, of the second generation, takes charge.
1974:: An Employee Stock Ownership Plan is initiated.
1978:: Charles Dake dies and is replaced by his brother William.
1993:: The 200th Stewart's shop opens.
2003:: William Dake's son Gary assumes the company presidency.

NEW CENTURY REAL ESTATE VENTURES

Stewart's had been involved in the real estate business for a long time, essentially securing land for new stores, but along the way it developed an expertise in the municipal approval process and in 2000 began to dabble in residential and other real estate development activities. It opened a small shopping strip near Saratoga Lake featuring a new Stewart's shop and several rental storefronts. The company also bought a 12,000-square-foot building in central Albany. The former warehouse and mail-order distribution center was converted to include a new Stewart's convenience store, retail rental units, as well as apartments. In Waterford, New York, Stewart's began converting a 14,750-square-foot Grand Union supermarket into a Stewart's Shop plus retail rental units. At 3,600 square feet the convenience store would be larger than the usual Stewart's Shop, which was 2,400 square feet, in order to carry more grocery items and serve area residents—in particular the poor and elderly who would now be without a local grocery store and did not have the means to travel to a distant supermarket. About a dozen other Grand Union supermarkets would also be shut down in surrounding small towns over the ensuing months, due to the sale of Grand Union to another company. The closures may have prompted Stewart's to expand its grocery offering at more than 20 of its stores affected by the closings but in reality it was a move already in the works. "Grand Union is the trigger, but the underlying theme is the big-box player," Bill Dake told Albany's Times Union. "As these stores get bigger and the lines get longer, it gets harder to go to them all the time. Instead of going to Stewart's twice a week and going to the grocery stores once a week, people will come to Stewart's three times a week and go to the grocery stores every two weeks." Stewart's Shop not only acted as a supplement to the grocery store, over the years it took on a new function serving as a local hangout, like the coffee shops and diners of another era where neighbors could swap gossip and exchange views about the weather. In order to accommodate customers, the standard Stewart's store design now included three or more dining booths.

William Dake turned over the presidency to his son Gary in 2003 although he stayed on as chairman of the board. Under the younger Dake's leadership, Stewart's anticipated adding 6 to 12 new stores each year. While Saratoga County was saturated with Stewart's Shops, there were plenty of growth opportunities elsewhere in upstate New York. In order to keep pace, the company opened a 56,000-square-foot warehouse in 2004, and a year later began a phased expansion program to increase ice cream production.