The Stop & Shop Supermarket Company

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The Stop & Shop Supermarket Company

1385 Hancock Street
Quincy Center Plaza
Quincy, Massachusetts 02169
U.S.A.
Telephone: (781) 380-8000
Fax: (781) 770-6033
Web site: http://www.stopandshop.com

Wholly Owned Subsidiary of Ahold USA
Incorporated: 1925 as Economy Grocery Stores Corporation
Employees: 57,000
Sales: $11.17 billion (2003)
NAIC: 445110 Supermarkets and Other Grocery (Except Convenience) Stores; 551112 Offices of Other Holding Companies

The Stop & Shop Supermarket Company runs the largest grocery chain in the New England area of the United States; with more than 340 supermarkets and combination supermarket-general merchandise stores in Connecticut, Massachusetts, New Hampshire, New York, New Jersey, and Rhode Island. In 1996, Stop & Shop was acquired by Ahold USA, the largest grocery retailer on the eastern coast, itself a subsidiary of Dutch retail giant Royal Ahold N.V. Growing from a single corner grocer to a multi-billion dollar supermarket chain, Stop & Shop has offered its customers a wider variety and selection, along with better quality and value, in food and nonfood items than traditional grocery stores for more than 85 years.

Origins as Economy Grocery Stores

When Sidney R. Rabb went into his uncle Julius's business, it was a small chain of stores known as the Economy Grocery Stores Company, founded in Somerville, Massachusetts, specializing in the sale of grocery products. Such specialization was hardly new—the Great American Tea Company (later A & P) had begun to modify the traditional general store as early as 1859, and even the practice of chain store ownership dated back into the 19th century. The chains did not formally begin until after 1912, however, when A & P introduced the "economy store," using efficient management and smaller store size to offer lower prices on a cash-and-carry basis—no credit, and no home delivery. The idea rapidly caught on across the country, and it was this merchandising trend that Julius Robbins, his brother Joseph, and his nephew Sidney Rabb followed after the war. Sidney Rabb introduced self-service to its stores in 1918, which pioneered the concept of modern supermarket. Following a period of instability, their chain, Economy, righted itself and, buoyed by the surging economy of the 1920s, began a program of rapid growth through acquisition in Massachusetts.

As chain store operators gained in strength they were soon able to convince manufacturers to sell to them directly instead of through the usual wholesalers, thus vastly reducing their costs and increasing the competitive advantage they already enjoyed over the traditional independent owner. Consumers preferred the lower prices of the chains; by the mid-1920s, Economy had expanded to 262 stores. In 1925 Sidney Rabb was named chairman, a post he would hold for the next 60 years. In the same year, Economy issued its first shares of public stock, and Norman S. Rabb joined his brother Sidney in the business, now called Economy Grocery Stores Corporation. Ten years later, Irving Rabb, youngest of the brothers, also joined the company. Economy's operations continued to gain momentum; the brothers bought a chain of meat retailers and gave them space in each of their grocery stores.

Although the Great Depression brought many industries to a standstill, the resulting need for tight household budgeting was in many respects a boon to the Economy chain stores. The Rabbs continued to expand with the purchase in 1932 of 106 Grey United Stores located throughout northern New England. The supermarket, a concept that had originated in Southern California, based its customer appeal on rock-bottom prices, increased product selection, self-service (the customer roamed about the store while the clerk remained at a cash register), and intensive advertising. To the storeowner, the new format promised streamlined operation and excellent overall profit. In 1935 the Rabbs opened New England's first supermarket in Cambridge, Massachusetts, in a converted automobile assembly plant. First-year sales were nearly $2 million, equivalent to the revenue of 45 conventional stores.

Full Conversion to Supermarkets after World War II

The Rabbs built more of the new stores as fast as they could, calling them Stop & Shop Supermarkets. The program continued to do well until the onset of World War II in 1941, when the food industry was swept up in the war effort and had little money or manpower with which to expand. The labor shortage during the war years, however, proved to be an unexpected boon to the supermarket business, as customers grew accustomed to serving themselves in all departments of the store, including the meat section. Such total self-service created lower labor costs and an increased number of purchases per customer. When the war ended, Economy was well positioned to proceed with the conversion of its entire chain to the supermarket format, effectively reducing its number of stores while increasing total sales and profits. By 1947 annual sales topped $47 million and the company had changed its name to Stop & Shop, Inc., signaling its total commitment to the supermarket concept.

The postwar boom years saw another period of tremendous growth for Stop & Shop. In order to distribute products more efficiently, between 1948 and 1960 the company built a central bakery, a perishable goods distribution warehouse, and a grocery distribution center, all in strategic Massachusetts locations. Stop & Shop also quickly established itself in Rhode Island and Connecticut, and by the end of the 1950s the company was nearing $200 million in sales. The company made an important decision in 1961 to diversify outside the food business with its purchase of Bradlees, a small chain of discount department stores operating largely in shopping centers that already featured a Stop & Shop supermarket. The Rabbs saw in Bradlees a company based on the same high-volume, low-margin marketing used in the food industry. Their expertise soon turned a few moribund stores into a thriving chain. With the addition of new outlets each year, Bradlees' sales increased from $5 million to $107 million between 1962 and 1968.

Over the years Stop & Shop tried to develop and maintain excellent relations with the communities in which it did business. The company was one of the first to unionize in the 1930s; it created the Stop & Shop Foundation in 1951 to support various civic and cultural projects; and in 1967 it initiated its Consumer Board Program in response to growing public concern about health and environmental issues. In a further move to accommodate changing customer demands, in 1971 the company gave far greater autonomy to each of its store managers, freeing them to respond more directly to the needs of local customers. On the other hand, the company was twice sued for allegedly conspiring to fix the prices of certain grocery, meat, and dairy products. Both suits were settled.

Both Stop & Shop and Bradlees continued their robust growth into the mid-1980s. Building on an ever more sophisticated network of warehouse distribution centers, the two chains expanded their geographic range, their total number of stores, and their total sales. In addition, in 1968 and 1969, respectively, the company established the Medi Mart Drug Store Company and acquired the Charles B. Perkins Company, a 21-unit New England retailer of tobacco and sundries. A year later all four retailing chains were brought together as divisions of a newly renamed The Stop & Shop Companies, Inc., which at that point included 150 supermarkets, 52 Bradlees Department Stores, 10 Medi Marts, and 25 Perkins Tobacco Shops, together totaling about $750 million in sales. Four years later the company celebrated its first $1 billion year; it had doubled that figure by 1980.

Other acquisitions were not as successful. In 1978 Stop & Shop bought Off the Rax, a discount women's clothing store chain, but sold it after six less than spectacular years. Similarly, a venture into a more upscale segment of the department store world ended in 1987 with the sale of Almys, a 19-store chain the company had purchased just two years before. Despite a history of steady growth and good profits, Medi Mart and Perkins were also put on the block in the mid-1980s as Stop & Shop decided to concentrate its resources on its two biggest and most lucrative divisions, supermarkets and Bradlees. Bradlees reached a high of 169 units in 1987, combining with the 113 supermarkets to bring in $4.34 billion in sales.

In 1985 Sidney R. Rabb died and was succeeded as chairman by his son-in-law, Avram J. Goldberg. Goldberg and his wife Carol, who became president of the company, moved decisively to keep pace with the trend toward the "superstore," a greatly enlarged and further diversified model of the traditional supermarket. Superstores typically combined a grocery store with a general merchandise store. Stop & Shop's superstores—known as Super Stop & Shops—were immense, averaging 55,000 to 60,000 square feet in size, and were planned around a "street of shops" concept in which each class of product received its own well-defined and suitably decorated segment of the store and was offered to the consumer in an ever-larger variety of brands and packaging. In 1982 Stop & Shop completed its first superstore—considered to be the first superstore in New England. In certain respects this development brought shopping full circle back to the pattern of 100 years ago, when families made their progress through a series of neighborhood stores, each specializing in a different product line. The "street of shops" had simply moved indoors.

Company Perspectives:

The Stop & Shop Supermarket Company is proud to partner with the communities in which we operate to provide support for thousands of local organizations throughout the region. In addition, Stop & Shop's charitable giving program includes a long standing commitment to supporting hunger relief efforts and cancer research and treatment.

Taken Private in 1988

Stop & Shop took another step reminiscent of its past when, for the first time since 1924, it once again became a privately owned corporation. Responding to a hostile 1988 takeover bid by corporate raider Herbert Haft, Stop & Shop's board of directors enlisted the aid of Kohlberg Kravis Roberts & Company (KKR) in forming a privately held acquisition company to buy all outstanding shares for approximately $1.23 billion. The acquisition company merged with Stop & Shop, whose top management was largely unaffected. To pay down some of its hefty debt, Stop & Shop sold 70 Bradlees stores and eliminated 450 positions. In November 1989 the Goldbergs suddenly quit their jobs, reportedly because of differences between them and KKR officials, ending more than 70 years of family management. Lewis Schaeneman took over as chairman and CEO.

Stop & Shop became a public company once again in late 1991 through a public offering that sold 41 percent of the company for $212.5 million, the bulk of which was used to reduce debt at the still highly leveraged company. KKR retained control of the business following the offering. At the time of the offering Stop & Shop operated 117 stores in Massachusetts, Connecticut, Rhode Island, and New York, 62 of which were Super Stop & Shop combination stores. The company also owned the 130-unit Bradlees chain, but it was spun off to the public in the summer of 1992 in order to further focus on the core supermarkets and to further reduce Stop & Shop's $1.1 billion debt load.

Robert G. Tobin, who had become president of Stop & Shop in March 1993, added the title of CEO in May 1994 and the title of chairman in January 1995, as Schaeneman gradually retired. One day before Schaeneman's last day in office, around 60 FBI agents raided the company headquarters as an outgrowth of an investigation of possible mishandling of merchandise incentive funds paid by manufacturers through brokers to retailers. In June 1997 Stop & Shop—without acknowledging guilt—agreed to pay $700,000 to settle allegations over vendor promotions and temporary price reductions.

As Stop & Shop continued to improve its financial health in the mid-1990s, expansion once again became the watchword. In mid-1995 the company made plans to enter the highly competitive, highly fragmented greater New York City area through the opening of superstores. In November 1995 Stop & Shop acquired Purity Supreme, a chain based in North Billerica, Massachusetts, for about $255 million. To satisfy regulators, the company had to divest 17 overlapping stores, meaning that it gained a net 38 stores through the deal. The purchase also temporarily extended Stop & Shop's territory into New Hampshire, but the units in that state were soon sold off. Also gained with Purity was a 64-unit chain of Li'l Peach convenience stores, but this noncore operation was quickly divested, in mid-1996, to Tedeschi Food Shops Inc. of Rockland, Massachusetts. In December 1995 Stop & Shop spent $87 million for Melmarkets, which ran a Foodtown chain with 17 units on Long Island, thereby gaining its first foothold in the New York region.

New Ownership in the Mid-1990s

By this time the expanding Stop & Shop had caught the eye of the highly acquisitive Dutch global food retailing giant Royal Ahold N.V., which acquired Stop & Shop in its entirety, including the KKR stake, in July 1996 for $2.9 billion. Stop & Shop thus became another in a string of eastern U.S. grocery subsidiaries of Ahold. The Dutch company had first gained a foothold in the United States in 1977 when it bought the Bi-Lo chain in North and South Carolina and Georgia. Ahold then purchased the Pennsylvania-based Giant Food Stores, which operated under the Giant, Edwards, and Martin's brands, in 1981. Finast Supermarkets, of Ohio, Connecticut, New York, and Massachusetts, was bought in 1988. To gain regulatory approval of its purchase of Stop & Shop, Ahold agreed to sell 29 stores in Massachusetts, Connecticut, and Rhode Island, states in which Stop & Shop and Edwards had overlapping operations. Also in July 1996, William J. Grize, who had joined the company in 1967, was named president of Stop & Shop; he added the CEO title as well in December 1997, with Tobin remaining chairman.

Within days of closing the Stop & Shop deal, Ahold reorganized its U.S. operations. The reorganization gave Stop & Shop 35 Edwards stores in Massachusetts, Connecticut, Rhode Island, and New York. The New York stores, however, were located in counties north of the New York City region, as Ahold had decided to halt Stop & Shop's expansion there, turning the Long Island locations acquired in the Melmarkets deal over to Edwards. As a result, Stop & Shop solidified its position as the largest supermarket chain in New England, with nearly 200 units by the end of 1996. The additional stores were expected to push the company's annual revenue to more than $5.3 billion, making Stop & Shop Ahold's largest unit worldwide.

In May 1998 Ahold agreed to acquire Landover, Maryland-based Giant Food Inc. for about $2.7 billion. The purchase of Giant Food Stores LLC—which operated 173 stores in Washington, D.C., Maryland, Virginia, Delaware, New Jersey, and Pennsylvania—made Ahold the fourth largest supermarket company in the United States and solidified its number one position on the East Coast. Stop & Shop, meanwhile, was concentrating on its core New England market and was expanding geographically only in three counties north of New York City: Westchester, Dutchess, and Putnam.

Key Dates:

1914:: The Rabinovitz family began operations of the Economy Grocery Stores Company.
1918:: Sidney Rabb introduces self-service to the stores, pioneering the concept of modern supermarket.
1925:: Known now as the Economy Grocery Stores Corporation, the company goes public.
1947:: Company becomes Stop & Shop, Inc.
1951:: The Stop & Shop Foundation is established.
1961:: Diversification outside the food business begins.
1982:: The first Super Stop & Shop is opened.
1988:: The company is taken private.
1991:: Once again, becomes publicly traded company.
1996:: Stop & Shop is acquired by Ahold USA, a subsidiary of Royal Ahold N.V.

Integration Activities in the Early 2000s

During the year 2000, Stop & Shop purchased the Edwards chain, which previously was a part of Giant Food Stores, LLC (Giant-Carlisle), except for four stores that were transferred to Giant Food LLC (Giant-Lanover). In June 2000, international food retailing and foodservice company Royal Ahold N.V. took a 51 percent ownership of Peapod. Later, in August 2001, Royal Ahold bought the remaining shares of Peapod, making the online grocer a wholly owned subsidiary of the company. Stop & Shop and Peapod teamed up to provide an Internet-based home shopping and grocery delivery service under the name Peapod by Stop & Shop.

Further, in 2001, Stop & Shop aggressively expanded into the New York City metropolitan area, purchasing 36 supermarkets from C&S Wholesale Distributors, which previously acquired the stores from Grand Union, along with the 63 former Edwards stores. In November of that same year, Stop & Shop opened its first low-energy superstore in Foxboro, Massachusetts. The high-efficient store used 30 percent less energy than the average supermarket.

Twenty years after opening its first Super Stop & Shop and creating a new standard for one-stop shopping, Stop & Shop introduced its next-generation supermarkets. With new departments offering products such as party goods, toys, home accessories, and office supplies, Stop & Shop's new superstores offered customers an increased level of one-stop shopping convenience. For example, in early 2002, Stop & Shop partnered with Dunkin' Donuts (Dunkin' Brands Inc.), the world's largest coffee and baked goods chain. By 2003, Stop & Shop had more than 100 full-service Dunkin' Donuts restaurants in its stores.

In 2003, Stop & Shop expanded into the New Hampshire market, where it previously had three stores. Also, Stop & Shop completed the purchase of four store locations in the area of Boston, Massachusetts, from The Great Atlantic & Pacific Tea Company.

Financially troubled Royal Ahold N.V. announced in November 2003, that it would develop a three-year plan to rebuild the value of its global operations. As a result, in January 2004, Ahold began the integration of services within its two key U.S. store chains, Stop & Shop and Giant Food LLC (Giant-Landover), along with the alignment of its retail and corporate managerial and administrative functions. The process combined stores and functions only when it allowed a strong commitment to maintain the strength of each brand, and the knowledge and involvement of the local market and community. The integration and alignment, once complete, is expected to create a company with more than 500 stores, 84,000 employees, and an estimated $16.5 billion a year in sales.

The modern Super Stop & Shop averaged 65,000 square feet (generally between 55,000 to 75,000 square feet), combined specialty food shops with a wide selection of general merchandise, and offered the convenience of one-stop shopping. Stop & Shop stores provided an average of 52,000 items per superstore. Along with the traditional food products, Stop & Shop offers many full service departments such as Foods-To-Go, full-service pharmacy, florist, salad bar, full-service branch banking, bakery, delicatessen, and other services and products such as gas stations, photo processing (including one-hour photo developing), portrait studios, bookstores, and small appliances.

Stop & Shop announced that 2004 net sales growth would only be modest in the U.S. retail business as a result of competitive pressures. However, the continuing integration of Stop & Shop and Giant-Landover was expected to improve the long-term competitiveness and cost-effectiveness of these operations. Although this integration would require an initial investment in 2004, the result was expected to cause significant benefits in 2005 and beyond.