WinCo Foods Inc.

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WinCo Foods Inc.

650 Armstrong Place
Boise, Idaho 83704-0825
U.S.A.
Telephone: (208) 377-0110
Fax: (208) 377-0474
Web site: http://www.wincofoods.com

Employee-Owned Company
Incorporated: 1968 as Waremart
Employees: 7,400
Sales: $1.82 billion (2002)
NAIC: 445110 Supermarkets and Other Grocery Stores

WinCo Foods Inc. is a warehouse-type grocery chain with 43 stores in five western states: Idaho, Washington, Oregon, California, and Nevada. WinCo's goal is to be the low-price leader in every area they serve. The company began in 1967 with one store under the name of Waremart. In 1999, Waremart changed its name to WinCo.

Beginnings: 1960s–1970s

WinCo's history began in 1967, when Ralph Ward and Bud Williams opened Waremart, a discount warehouse grocery store in Boise, Idaho. Ward and Williams founded their store with the goal of providing a wide selection at very low prices. By the following year, the company had two stores. In 1972, a Waremart store in Vancouver, Washington, was completely destroyed by a tornado. This destruction in no way represented the future of Waremart, as it picked up the pieces and moved on to expand immensely.

In 1978, Bill Long, an employee since 1968, was named president of the company; in 1985, he was named CEO. Also in 1985, employees purchased the Waremart Foods Employee Stock Ownership Trust, an employee pension plan, from the Ward family. The company believed this would create more dedicated employees, since they would have a personal stake in the company's success.

Rapid Growth in the 1980s and 1990s

Between 1985 and 2000, Waremart replaced a majority of its retail stores with updated and expanded facilities, a majority of which became 85,000-square-foot facilities. In addition, new stores were built and sales figures rose dramatically. By 1987, the company had sales of $198 million and 850 employees. The following year, sales jumped to $212 million. By 1991, the number of employees doubled, to 1,750, with sales just under $300 million. In 1993, sales exceeded $350 million. By 1994, Waremart had 21 stores, 2,900 employees, and sales of $419 million. Waremart's formula for growth involved buying up sites, then waiting two to five years before putting the stores in. This allowed the company to grab the best sites without committing a store until the time was right. While a site was empty, Waremart monitored such factors as population growth and business growth to determine the best time to build the store.

Throughout the 1990s, Waremart also bought eight Cub Foods stores, a franchise from SuperValu, Inc. in the Pacific Northwest. By 1998, the Cub Foods franchise was running out and Waremart did not wish to make royalty payments for the name. At the same time, Waremart was considering changing its name, since they noticed customer confusion with other large "mart" stores, such as Kmart and Wal-Mart. The company decided to use the name "WinCo," which stood for "winning company." Some employees of the company suggested that the name be an acronym for the five states that had WinCo stores—Washington, Idaho, Nevada, California, and Oregon—but the first suggestion won in a vote. The company first tried the new name on a Cub Foods store in Reno and found that customers were accepting of the change. The corporate name change, which was enacted in 1999, was a costly one, requiring new bags, aprons, hats, in-store signage, as well as the large names on and in front of its 27 stores. Still, the company thought it was worth the expense, as large profits and a growing number of dedicated customers followed.

WinCo earned the loyalty of thousands of bargain shoppers. Because it bought in bulk, sometimes whole truckloads from factories, WinCo consistently saved up to 7.5 percent over what it would normally pay a distributor. Therefore, it could sell its products for significantly less than its competitors. Furthermore, unlike wholesalers such as Sam's Club and Costco, WinCo did not require a membership fee from its shoppers. Another difference between WinCo and warehouse stores was that WinCo customers were not required to buy in bulk. Other factors that contributed to WinCo's low prices included its bag-it-yourself system, with the customer bagging her own groceries, and its no-frills, warehouse-type stores. Other cost-saving policies were the fact that the company did very little advertising and did not accept debit or credit cards, which charge a fee per transaction.

In 1998, with sales around $900 million, the company ranked 281st on the Forbes list of the nation's largest 500 private companies. Sales had been growing 20 percent per year. At this time, the company opened a new 900,000-square-foot grocery and perishable distribution center in Woodburn, Oregon, with further construction around the corner. At the time, six new stores were being built: in Reno, Nevada; Sacramento, California; Eugene and Covallis, Oregon; and Idaho Falls and Boise, Idaho. The Idaho Falls store, employing around 170 people and costing $2.3 million to build, opened in 1999 to a large crowd of shoppers. At 85,000 square feet, the new WinCo was more than twice as large as the old Waremart it replaced. It featured a larger produce department, a delicatessen, and a 24-hour bakery. Still, not everyone was happy with WinCo's growth.

In 1999, union members from Sacramento's Central Labor Council and the Coalition for the Advancement of Working Women gathered in front of the Sacramento WinCo to protest. The union members claimed that WinCo abused its employees, especially working mothers who, the union claimed, were often fired without warning. They also protested WinCo's wages, calling them below average. In 2000, members of the United Food and Commercial Workers (UFCW) 588-Northern California—through leafletting stores, picketing, staging rallies, going door-to-door, and a phone campaign—persuaded WinCo to withdraw plans to build a store in Folsom, California. Union members claimed that non-union stores such as WinCo posed a threat to working people's wages, benefits, working conditions, and job security.

Continued Growth in the New Century

In 2000, WinCo did some protesting of its own when it filed a lawsuit against the Missionary Church of the Disciples of Jesus Christ, based in Covina, California. WinCo claimed that the church violated the company's no-solicitation policy from 1998 to 2000 and that customers had been complaining about being approached for donations. With 32 stores, each averaging about $750,000 in sales a year, WinCo continued to expand. It opened a new store in Federal Way, Washington, as well as a 110,000-square-foot health and beauty, gourmet, and non-food distribution center in Myrtle Creek, Oregon. Total company sales for 2000 were in the $1 billion range.

Also in 2000, WinCo hired its first public spokesperson, Mike Read, a former corporate spokesperson for Albertson's Inc. This marked a shift for WinCo, which traditionally did not make public many of its business matters. At the same time, the company installed Image Data LLC's True ID service in six stores after a three-month test program of the service eliminated check fraud in a Portland, Oregon, store that previously had been plagued by fraudulent checks.

To end 2000, Winco sold $65 million of its shares to six investors who were eager to invest in the company. Strong management, WinCo's dominant market position, and its lowleveraged profile were among the factors that appealed to investors. The senior-notes deal had a seven-year final maturity.

In 2001, WinCo opened its 36th store, located in Richland, Washington. In 1999, Washington's governor initially voted against the deal to sell WinCo, for $2 million, the city-owned land the company pursued. There were worries about traffic congestion, as well as concerns that WinCo would conflict with the city's vision of a resort-style community. More than 100 city residents had signed a petition against WinCo, while 18 citizens spoke out against it in a town meeting. In the end, WinCo got the city's vote, and it opened its fourth Washington store. The 92,700-square-foot store opened its doors to hundreds of customers for its sneak preview, with a jazz band performing and employees giving out free food. The new store sported eighteen two-sided checkout stands, a concept of WinCo's that allowed one cashier to check out a new customer while the other bagged the customer's groceries.

Later in 2001, in Federal Way, Washington, UFCW members protested, vowing to keep picketing until WinCo left or joined the union. WinCo claimed the picketing did not hurt the store's profits, and they had no plans to join the union. Of its 35 stores at the time, only one—in Kennewick, Washington—had union workers. The protestors had no overall impact on WinCo's expansion, which continued full-throttle. In Roseville, California, the company began construction for a new store, while a Twin Falls, Idaho, WinCo expanded, adding 14,000 square feet to the store and several improvements, including a larger entrance, more checkstands, and greater space for shoppers to move around.

In 2002, WinCo began plans to build a new store in Brentwood, California. While the local planning commission first voted to approve WinCo's construction, it was later voted down after the local United Food and Commercial Workers Union appealed the project. The union claimed that WinCo's environmental impact report failed to fully comply with the California Environmental Quality Act. Yet, in the following month, after WinCo worked to fully comply with California's environmental obligations, the planning commission reinstated its approval of WinCo's construction. The 96,000-square-foot store, upon completion, became Brentwood's first discount warehouse supermarket, as well as its first non-union one.

Company Perspectives:

WinCo has fostered a 35-year tradition of success by focusing on very large stores with a huge selection of national brands at prices below our competition. In addition, the very nature of having employee stockholders that have seen their Employee Stock Ownership Plan (Pension Plan) grow at a 19.3 percent annual compound growth rate creates extremely dedicated employees. This has made WinCo a very successful company.

Later that year, WinCo endured another legal difficulty when a former employee charged the company with criminal racketeering. Lino Paul, a Sudanese refugee, had been fired as a cashier in Boise, Idaho, when he sold beer to a customer at 5:59 a.m. The state enforced a nightly ban on selling retail alcohol before 6:00 a.m. Mr. Paul, who was black, claimed that another employee, who was white, authorized the sale. WinCo disputed that there was any racial bias involved in its decision, claiming that company policy required termination of any employee who did not comply with state alcohol laws. Paul had received money from the United Food and Commercial Workers International Union to help pay his lawyer fees. Part of Paul's complaint involved WinCo's employee association, which was set up to provide support to employees, independent of management. Paul claimed the association was a "sham" union working directly under management and that it did nothing to help him when he was fired.

Meanwhile, a new WinCo store opened in Stockton, California, drawing record crowds. As cars searched for empty spaces in the parking lot, customers waited at checkout stands for as long as an hour and a half. The store's 92,000 square feet far exceeded the second-largest store in the region, Raley's, at 62,000 square feet. The new WinCo was stocked with eighteen checkout stands—with dual conveyor belts—and 600 grocery carts. However, the cheap prices were the biggest crowd-drawer. The downturn in the economy since 2000 reportedly contributed to WinCo's success, as consumers sought ways to save money. By 2002, with an economy still suffering, WinCo had grown into a 37-store chain.

In 2003, WinCo continued its amazing growth. A new store, employing 200, opened in Modesto, California. The company also began plans to build a 720,000-square-foot food storage and distribution center in Ceres, California, further expanding its presence in the state. Distribution centers allowed the company to buy in bulk directly from food processors. This resulted in a reduced dependence on food brokers, thus decreasing buying costs and allowing WinCo to sell products cheaply. This was one way WinCo made the company more efficient and price conscious.

While planning construction for the Ceres distribution center, WinCo already had 11 stores in California. The distribution center, which was planned for completion by 2004, would employ 200 to 250 people. In the meantime, WinCo made plans to open several new stores throughout California, as well as in Nevada, which could increase the number of employees at the distribution center to somewhere between 500 and 600. Earlier in the year, WinCo's opening in Modesto, California, had attracted 2,850 phone applications for its 200 jobs. Similar interest was expected in Ceres. WinCo offered its full-time employees an above-minimum wage, as well as medical, dental, and retirement benefits and paid vacations. Meanwhile, the new distribution center would allow WinCo to expand beyond its previous borders, as far south as Los Angeles and San Diego and as far east as Las Vegas.

Further expansion plans in 2003 included a 93,000-square-foot store in Kent, Washington. The company also expressed interest in further expansion in the Puget Sound, Washington, area. The biggest obstacle in finding a new site there was size, as new WinCo stores ranged between 92,000 and 96,000 square feet (nearly twice as large as the average major grocery store).

With over 80 percent of the company owned by employees, WinCo was named the largest employee-owned company in the Pacific Northwest and the 21st largest in the country. WinCo prided itself on its community involvement, and the primary focus of its donation program, since WinCo's beginning, were local school districts.

WinCo filled an under-represented niche in the supermarket business by providing a large choice of goods at very cheap prices and eschewing the traditional grocery store's customer services. Others caught on to the idea, and competition began to rise. For instance, Top Food & Drug started expanding in Washington's Puget Sound area. Top Foods also sold at a discount, though perhaps not as much as WinCo, since Top Foods provided more services than the typical WinCo. For example, Top Foods' clerks bagged customers' groceries. Nevertheless, WinCo's rock-bottom prices brought in customers. One informal comparison found that WinCo beat its competitors' prices by more than a dollar on some items, while customers have claimed that, on average, WinCo's prices were between 50 cents and a dollar cheaper per item. This was the principal factor in WinCo's impressive growth since it opened its first store in 1968. By 2003, WinCo owned a total of forty-three stores, including eight in Idaho, six in Washington, 16 in Oregon, 11 in California, and two in Nevada, with total company sales looming in the $2 billion range.

Key Dates:

1967:: Waremart is founded by Ralph Ward and Bud Williams.
1978:: Bill Long is named president of the company.
1985:: The company's employees buy Waremart Foods Employee Stock Ownership Trust from the Ward family.
1994:: Waremart grows to 21 stores and 2,900 employees.
1998:: The company ranks 266th on the Forbes list of the nation's largest 500 private companies.
1999:: Waremart changes its name to WinCo.
2000:: WinCo sells $65 million of its shares to six investors.
2002:: A former employee charges the company with criminal racketeering.
2003:: WinCo sales hit the $2 billion range.