Schultz Sav-O Stores, Inc.

views updated Jun 11 2018

Schultz Sav-O Stores, Inc.

2215 Union Avenue
P.O. Box 419
Sheboygan, Wisconsin 53082-0419
U.S.A.
(414) 457-4433
Fax: (414) 457-6295
Web site: http://www.shopthepig.com

Public Company
Incorporated: 1911 as The Schultz Brothers Company
Employees: 1,550
Sales: $453.92 million
Stock Exchanges: NASDAQ
SICs: 5411 Grocery Stores; 5141 Groceries—General Line; 5149 Groceries & Related Products, Not Elsewhere Classified; 2086 Bottled & Canned Soft Drinks

Schultz Sav-O Stores, Inc. is a major presence in the wholesale and retail grocery industries in the upper Midwest. The company operates 16 company-owned retail supermarkets under the name Piggly Wiggly across eastern Wisconsin and northeastern Illinois. Under the name Sav-U Foods, Schultz operates warehouse food supermarkets throughout the same region. In addition to its 16 company-owned Piggly Wiggly and Sav-U stores, Schultz’s wholesale operation supplies about 68 independently owned franchise stores of the same names, as well as 25 independent retail supermarkets that go by other names in the same geographic range.

Schultz Sav-O has risen to a prominent position among grocery chains through careful positioning. The company tends to locate stores in small to mid-size markets, while providing the kind of product variety, pricing, and promotional savvy usually found only in bigger cities. In addition, Schultz benefits from its unique structure as a sort of hybrid of retailer and wholesaler. As a result of this split personality, the company refers to itself as a “virtual chain,” meaning that all stores, whether franchised or corporate, share a single identity through unified looks, advertising, merchandising, and, above all, products. The combined buying power of the “virtual chain” enables the company to provide its services as a wholesaler more effectively.

Early Growth

The company was founded in 1911 by brothers Herman, Arthur, and Oscar Schultz, and called appropriately, The Schultz Brothers Company. They set up their wholesale grocery business in a Sheboygan, Wisconsin, building purchased from their father, Martin Schultz, who had previously run a general store in the space. After several years of steady growth, the brothers expanded the official name of their business in 1920 to Schultz Brothers Company Wholesale Grocers. During most of the 1920s, the company thrived by dealing primarily in national brands of grocery products. By 1928 they were ready to begin distributing their own brands as well. The two grocery brands initially added to the mix at Schultz Brothers were Schultz’s Finest and Pine Hills.

Soon, the retail stores that the company was serving were loosely organized into a voluntary retail group called Buy Low. As the Schultz Brothers’ distribution network continued to grow, various expansions took place at their Sheboygan warehouse. Primarily a wholesaler of canned and dry goods through the mid-1940s, the company decided in 1945 to begin dealing in fresh produce and frozen foods—a rapidly growing segment—as well. To accommodate these new departments, the warehouse was given a major overhaul, and the new products were added to the distributing operation the following year. With the addition of produce and frozen foods to the Schultz operation, a new position, manager of produce and frozen foods, was added. One of the first employees to hold this position was Howard C. Dickelman. Dickelman’s ability was recognized immediately, and he quickly made his way up the corporate ranks, from merchandising manager of all divisions, to vice-president/general manager, to president, and eventually to chairman of the board. Dickelman’s vision helped shape the company’s direction through several decades of growth and prosperity.

The Piggly Wiggly 1950s

The name Piggly Wiggly came into the picture in 1949. That year, Schultz Brothers signed a franchise agreement that gave the company the right to use the Piggly Wiggly name in southern and eastern Wisconsin. The company soon began to sell franchises throughout the region. Early store locations included the Wisconsin towns of Sturgeon Bay, Manitowoc, Green Bay, and Kaukauna. The following year, the Schultz Brothers opened their first company-owned Piggly Wiggly store right at home in Sheboygan. These early Piggly Wiggly stores, both franchises and company-owned versions, formed the core of what went on to become a hugely successful regional supermarket chain.

As the Schultz’s chain of Piggly Wiggly stores continued to grow, the need to associate itself with a solid, nationally known private label program became evident. In 1954 the company joined Topco Associates, a large purchasing cooperative. This move gave the Piggly Wiggly stores access to Topco brands such as Food Club and Top Frost, assuring both the stores and their customers of consistent quality and competitive prices for these grocery items. Topco provided other services as well, including on-site meat selection at the processing plants and produce selection at the agricultural source.

The Schultz Brothers company purchased a new facility in 1957. This site, located on an eight-acre plot in Sheboygan, remained the company’s main distribution center into the 1990s, eventually doubling in size to 20 acres. In 1962 Schultz Brothers bought out the Sav-O Corporation, a trading stamp operation, and merged it into the existing company to form Schultz Sav-O Stores Inc. Schultz Sav-O went public the same year, with an initial public offering of 75,000 shares at $6.36 a share. Those shares went so quickly that an additional 85,000 were offered to the public almost immediately.

In 1969 Schultz Sav-O shifted gears entirely with its retail operation. That year, all of the company’s retail stores were converted from standard supermarkets into total discount food stores. The move resulted in record retail sales for the company. The following year the company purchased the Springtime Beverage Company, a bottler of carbonated beverages. Within a decade, the bottling plant was relocated to Schultz’s main distribution center in Sheboygan, and refitted with state-of-the-art, high-speed bottling equipment. By 1972 there were 30 stores in the chain, up from 24 the previous year.

The 1980s: The Warehouse Era

As warehouse food stores began to seize an increasing share of the retail grocery market, Schultz Sav-O looked for ways to survive, and even prosper, from that trend. In order to compete in the warehouse food store battle, the company formed Sav-U Foods, its own answer to the rise of large format, inexpensive chains that were appearing in Schultz’s Wisconsin home territory. In 1982 that territory was expanded to include northern Illinois and Michigan’s Upper Peninsula as well, through the purchase of Piggly Wiggly/Sav-U franchise rights in those regions.

By the 1980s, another Dickelman, Howard’s son James Dickelman, was playing an important role in company affairs, serving as president and chief executive officer, while father Howard retained the board chairmanship. While the company was extending its geographical reach, it was strengthening its grip on company control as well, by purchasing back 51 percent of the company’s then-outstanding stock from a shareholder. During the mid-1980s, Schultz launched a major facility expansion program, costing $4.6 million, centered around the construction of a one million cubic foot freezer facility. Upon the project’s completion in 1987, the company’s Sheboygan office and distribution complex was approximately 400,000 square feet in area.

As the company celebrated its 75th anniversary in 1986, sales reached a record $406 million, with healthy net earnings of $2.39 million. By the end of that year, Schultz Sav-O operated 28 Piggly Wiggly company stores and 11 Sav-U company stores. It also serviced 40 Piggly Wiggly and Sav-U Warehouse franchise stores, and provided wholesale products to about 90 independent groceries. Around this time, the company also took steps to unify the appearance of the Piggly Wiggly stores in its region. Among those steps was a new floor care program, developed with the help of Johnson Wax, that awarded incentives such as trips and parties to stores maintaining high standards of floor appearance during the sloppy Wisconsin and northern Illinois winter months.

Focus on Wholesaling in the 1990s

During the early 1990s, the company began to place more emphasis on the wholesale end of its business. As a result, Schultz began selling off some of its less profitable stores. In 1992 alone, stores in Milwaukee, Janesville, Muskego, Fond du Lac, and Ripon—all in Wisconsin—were sold, mostly to managers within the corporation. Initially, the move created a bit of conflict with employees, since some of the new owners were hesitant to rehire all of the stores’ existing employees. By the end of 1992, however, the majority of the labor grievances had been settled, and most workers retained their jobs, albeit at somewhat lower salaries than under corporate ownership. As a result of this reduction in the number of company-owned stores, sales in 1993 dropped to $470 million, down from $490 the previous year. Net earnings, on the other hand, nearly doubled, reaching $4.75 million for 1993. By the end of 1994 there were 20 corporate stores in the Schultz empire, and 65 franchised outlets.

Company Perspectives:

A strong entrepreneurial spirit complemented by an 85-year tradition of quality, value and customer service has continued to guide the strategic plan for Schultz Sav-O Stores, Inc., as a successful regional supermarket wholesaler and retailer.

In 1995 Schultz introduced a new electronic card marketing program called the Piggly Wiggly Preferred Club Card. The card-club concept offered several advantages for customers. In addition to providing coupon-less discounts, cardholders were able to receive incentives for high-volume purchasing and special savings on future “Pig Deals” during subsequent visits. Meanwhile, the company continued to streamline by either closing or converting to franchises those corporate stores that were not performing up to par. The company also invested resources into helping its franchise owners maintain the quality of their stores, providing financial assistance in addition to the advertising, marketing, and merchandising efforts it was already contributing. For 1995 the company’s sales again declined a bit, to $440 million. By years end the chain consisted of 66 franchised stores and 19 company-owned units.

As the 1990s continued, Schultz took steps to try to reverse its downward trend in sales. It was hoped that the electronic card program would create greater customer loyalty as it spread to more and more Piggly Wiggly markets. In 1996 the company restructured its retail supervisory organization in order to better coordinate developments at its corporate and franchise stores. Whereas in the past franchise operations and corporate operations were each supervised by a separate officer, now both branches were united under veteran executive Bill Jacobson, who was given the newly created title senior vice-president of retail operations. Lines between meat, deli, and bakery departments at the corporate level were also eliminated, placing greater emphasis on whole-store operations. 1996 also brought the development of the internet segment of the company’s multimedia “Shop the Pig” campaign, in the form of Schultz Sav-O’s “Shop the Pig” site on the World Wide Web. The web site featured information about store locations, hours, specials, and contests and other promotions. It also gave background information on the company’s history and offered links to Ticketmaster, which has outposts in over 30 Piggly Wigglys.

Sales at Schultz Sav-O increased in 1996 to $454 million, representing the first time since 1992 that the total was greater than the previous year, and in spite of the closing of two outdated corporate stores and the conversion of another into a franchise store. The company also reported net income for the year of $6.5 million, the highest total in company history. By the end of the year, 50 Piggly Wiggly stores had installed the necessary equipment to support the electronic card program, the success of which was given much of the credit for the sales turnaround. In fact, management directly traced increases in same-store sales and average transaction amounts to the card. Focus remained on improving operations through technology, including business systems upgrades and work on installing the card-club equipment at the remaining stores. The company also continued to increase emphasis on it fresh food departments, including produce, meat, bakery, and deli, at both the retail and wholesale levels.

In the closing years of the century, management at Schultz Sav-O hoped to maintain its niche in the small and medium-sized towns of the upper Midwest by offering high-quality supermarket items at competitive prices and with superior service. As Schultz’s “virtual chain” approach evolves further, the company expects to find further ways to take advantage of the unique relationship it has cultivated between its franchise stores and its own wholesale operation. If that relationship remains fruitful, the success of this “virtual chain” will continue to be more than a “virtual” reality.

Schultz Sav-O Stores, Inc.

views updated May 23 2018

Schultz Sav-O Stores, Inc.

2215 Union Avenue
P.O. Box 419
Sheboygan, Wisconsin 53082
U.S.A.
Telephone: (920) 457-4433
Fax (920) 208-5180
Web site: http://www.shopthepig.com

Public Company
Incorporated: 1912 as The Schultz Brothers Company Wholesale Grocers
Employees: 1,700
Sales: $484.9 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: SAVO
NAIC: 42241 General Line Grocery Wholesalers; 42242 Packaged Frozen Food Wholesalers; 42243 Dairy Product (Except Dried or Canned) Wholesalers; 42247 Meat and Meat Product Wholesalers; 42248 Fresh Fruit and Vegetable Wholesalers; 44511 Supermarkets and Other Grocery (Except Convenience) Stores

Schultz Sav-O Stores, Inc., distributes food and other grocery items through 69 franchised and 18 corporate retail supermarkets, which operate under the trade name “Piggly Wiggly.” All of Schultz’s stores are located in eastern Wisconsin and northeastern Illinois, but the company also has marketing rights to all of Wisconsin, additional counties in Illinois, and portions of Michigan, Minnesota, and Iowa. Schultz serves as a wholesaler to its corporate-owned and franchised Piggly Wiggly stores, as well as to a number of independent food retailers in its market area.

The company distributes grocery, dairy, produce, and frozen food products from its distribution and warehouse center in Sheboygan, Wisconsin. Fresh and processed meat and deli products are provided by a third-party distribution center in Milwaukee. Through contracts with a number of third-party vendors, Schultz also bottles and distributes its own line of carbonated soft drinks, fruit drinks, and water under the trade name “Springtime.”

1911–50: The Schultz Brothers Meet Piggly Wiggly

The predecessor to Schultz Sav-O Stores was formed in 1911, when three brothers in Wisconsin teamed up to become a wholesale grocery distributorship. The brothers, Herman, Arthur, and Oscar Schultz, first called their new enterprise “The Schultz Brothers Company,” but soon changed the name to the more descriptive “Schultz Brothers Company Wholesale Grocers.”

The brothers began by distributing nationally branded non-perishable products to local grocers. By 1928, they had developed their own brands—Schultz’s Finest and Pine Hills—which they distributed along with the other, national brands. In 1946 the Schultzes expanded their wholesale operation to include fresh produce and frozen food products, adding a new building to their original facility to accommodate the expansion.

Three years later, Schultz Brothers entered into an agreement with the Tennessee-based Piggly Wiggly Corporation. The agreement, which gave the company the right to franchise the Piggly Wiggly name in Wisconsin, was to greatly influence the course of the business. Piggly Wiggly had been founded in Memphis in 1916 as an innovative “self-serve” grocery store. In most grocery stores of that era, shoppers did not select items from the shelf themselves. Rather, they gave their orders to a clerk, who then retrieved the specified items for them. In a radical departure from this method, Piggly Wiggly let the shoppers do the shopping. Customers carried baskets around the store, choosing items from the open shelves, then taking their purchases to the check-out stand to pay for them. Despite dire forecasts of failure, the new model was a success. Soon, Piggly Wiggly began granting franchises to independently owned grocery retailers in other counties and states who wanted to use the concept and the name.

Schultz Brothers, however, was not just another franchisee. Rather, it was a Piggly Wiggly regional franchiser, able to grant franchise rights to individual supermarket owners within the designated geographic territory. The company granted its first Piggly Wiggly franchises in Sturgeon Bay, Manitowac, Green Bay, and Kaukauna, Wisconsin. A year later, in the early 1950s, Schultz opened its first corporate-owned Piggly Wiggly in Sheboygan.

1950s-80s: Expansion on Multiple Fronts

By 1954, the Schultz operation had expanded in terms of both franchised and corporate-owned stores. To enable its stores to offer a line of lower-priced, private-label products, the company became a member of Topco Associates, Inc. Topco was a large purchasing cooperative that had been formed in the 1940s by several grocery retailers and wholesalers who wanted to combine their purchasing power and take advantage of economies of scale. Membership in the cooperative allowed Schultz to purchase and retail several lower-priced Topco brands, including the Food Club, Top Crest, and Top Care product lines. The company was also able to buy store and warehouse equipment and supplies at bulk-purchasing prices.

In 1957, to support its growing chain of supermarkets, Schultz Brothers purchased 16 acres of land and a warehouse facility in Sheboygan, Wisconsin. The Sheboygan purchase was, over the years, to evolve into a 364,000-square foot headquarters and distribution center. A few years later, in 1962, Schultz made the transition to public ownership. At that time its name was changed to “Schultz Sav-O Stores, Inc.”

In the early 1970s, Schultz opened a small bottling operation within its Sheboygan warehouse facility and began bottling soft drinks, juices, and water under the trade name “Springtime.” The bottling business supplied product to Schultz’s franchised and corporate-owned Piggly Wiggly stores, as well as to independent supermarkets. Eventually, Schultz also began bottling soft drinks for various regional beverage distributors on a contract basis.

After 70 years of operating solely within Wisconsin, in 1982 the company purchased franchising rights for an expanded territory that included designated areas of Michigan and Illinois. Schultz soon crossed its southern border, expanding into Illinois. The company followed the same strategy in its new territory that it had followed since its inception: avoiding major urban areas and carving out a market niche in small to mid-sized cities. The company’s stores themselves were scaled to fit these smaller communities: ranging in size from 8,340 to 47,000 square feet, the average Schultz Piggly Wiggly was approximately 25,000 square feet. By comparison, the huge superstores that were proliferating in the larger metropolitan areas often sprawled over more than 40,000 square feet. By keeping store size modest and catering to smaller communities, Schultz was able to avoid head-on competition with these retail giants.

Early 1990s: Fewer Corporate-Owned Stores

By the beginning of the 1990s, Schultz had grown into an 86-store chain, with more than one-third of the units corporate-owned. Sales were hovering around $480 million, with earnings approximately $2.5 million. The new decade brought a slowdown in the inflation of food prices. Whereas the 1980s had seen annual price increases of six to eight percent, the rate slowed to two to three percent in the 1990s. This meant that grocery retailers were unable to justify raising their product prices, which hurt their bottom lines.

Faced with this difficult retail environment, Schultz sought to trim costs by shedding several of its corporate-owned stores. According to Schultz board member Bernard Kubale, wholesaling product to franchisees was more economically viable for the company than running its own retail locations. “Cost cutting can be done more efficiently by franchisers,” he was quoted as saying in the Business Journal Serving Greater Milwaukee. In 1993 the company closed one corporate store and converted four others into franchise operations. Between 1994 and 1996, two more company-owned stores were closed, and two others sold to franchisees. By the end of 1996, Schultz operated only 18 corporate-owned stores, with dramatically improved results: although the company’s sales declined, its profits more than doubled between 1991 and 1995.

Mid-1990s: Focus on Marketing

In the mid-1990s, Schultz focused its attention on an aggressive marketing campaign designed to attract new shoppers and build customer loyalty. The program provided customers with an electronically read “Preferred Club Card” that, when scanned at the checkout, registered automatic price reductions on monthly and weekly store specials. The Preferred Club Card, which was valid in any Piggly Wiggly supermarket in any location, also served as identification for cashing checks and renting videos. Schultz provided additional savings to customers by aligning its Club Card system with a national marketing program operated by an outside company. Each time a Card Club customer made purchases at a Piggly Wiggly, the computer system used the UPC information from their purchases to identify related items that might interest the customer and print manufacturers’ coupons for those items right at the store checkout. Schultz’s card program was a progressive one, especially for a smaller supermarket chain. At the time of the program rollout, only 25 percent of all U.S. supermarkets had similar systems.

Schultz got underway with its electronic card system in 1995, installing it in 11 of its stores. By the end of 1996, 50 of the company’s locations were using the system, and the remainder were up and running by the end of 1997. The card program was bolstered by a single, corporate-coordinated “Shop the Pig” advertising campaign that included weekly newspaper inserts, outdoor billboards, and radio and television spots. In 1996 Schultz unveiled its Web site, which offered location and contact information, weekly specials, contests, recipes, and product information.

Company Perspectives:

Our mission is to be the premier food distribution organization to our defined market to achieve optimum results for both our customers and the corporation by providing exceptional customer service through a highly efficient distribution network.

The card program, in tandem with the ad campaign, proved an almost immediate success. Sales for 1996 increased 3.2 percent over the previous year—the first such increase since Schultz began selling off its corporate-owned stores in 1993. 1997 sales also showed improvement, climbing 4.2 percent over the previous year. Earnings also continued to increase, growing more than 30 percent between 1995 and 1997.

Another of Schultz’s major initiatives in the mid-1990s involved upgrading and expanding the produce sections of its distribution center. In a multi-million dollar renovation, the company installed controlled atmosphere areas that created optimum storage environments for all types of produce and ensured that “fresh” foods were truly fresh when they reached their destination. These improvements at the wholesale level were echoed by similar upgrades at the retail level. Schultz began to focus on expanding the “fresh” areas of its stores, offering wider selections of fresh fruit, vegetables, meats, and bakery and deli goods. The company also began placing greater advertising emphasis on its fresh departments.

Becoming more focused on building and marketing the Piggly Wiggly brand, Schultz decided to outsource the bottling of its Springtime beverages. In mid-1997 the company shut down its bottling operation, and production of the beverage line was outsourced to several other vendors.

Late 1990s: Building up the Wholesale Business

As the 1990s drew to a close, Schultz was committed to developing its wholesale business by attracting new franchisees. The company marketed itself to potential franchisees as a “virtual chain,” meaning that although stores were operated by different owners, each store received the advertising, administrative support, and purchasing power usually associated with corporate-owned stores.

In the summer of 1998, Schultz significantly enhanced its franchise growth potential by negotiating a territory expansion agreement with the Piggly Wiggly Company. Under the terms of the agreement, Schultz acquired the right to franchise or open corporate Piggly Wiggly stores in the 31 Wisconsin counties not already in its operating area. The agreement also included rights to 5 counties in southeastern Minnesota, 18 counties in eastern Iowa, 9 counties in Michigan’s Upper Peninsula, and 13 additional counties in northern Illinois. The expansion gave Schultz the chance to establish a presence in 128 counties in five states. “We are very excited about gaining this additional area to expand our successful Piggly Wiggly program with either corporate or independent franchise units,” Schultz CEO James Dickelman said in a June 8, 1998, press release. “We believe this will afford us many opportunities to expand our store base through a combination of new store construction, acquisition of existing stores, or conversion of stores from other wholesale programs.”

Another strategy Schultz used to bulk up its wholesale business was investing in major expansions at several of its franchise locations. By increasing the selling space of stores that were performing well, the company sought to increase the amount of product those franchises purchased from the wholesale operation.

Sales and earnings continued to show modest but steady gains. In 1998 the company posted a 2.5 percent increase in sales and an 11.5 percent hike in earnings. At the midpoint of 1999, the company’s sales were up by 2.3 percent over the first two quarters of 1998. Before-tax earnings were up 3.5 percent.

Looking at the Future

As Schultz prepared for the new millennium, the company planned to increase its traditionally conservative growth rate. “Clearly, our challenge is to grow this company faster than we’ve been able to do historically,” Dickelman said in an address at the company’s 1999 annual meeting. In addition to growing by opening or acquiring new Piggly Wiggly stores, the company intended to actively seek out more independent grocery retailers as customers for its wholesale operation.

Principal Subsidiaries

PW Trucking, Inc.

Principal Competitors

Albertson’s, Inc.; Copps Corporation; Cub Foods Stores; Fleming Companies, Inc.; Kmart Corporation; Kohls Food Stores; Nash Finch Company; ShopKo Stores, Inc.; Supervalu Inc.; Wal-Mart Stores, Inc.

Key Dates:

1911:: Herman, Arthur, and Oscar Schultz form a wholesale grocery distributorship.
1949:: Company enters into franchise agreement with Piggly Wiggly Corporation.
1954:: Schultz Brothers Company becomes a member of Topco Associates, Inc.
1962:: Company is incorporated as Schultz Sav-O Stores, Inc., and goes public.
1982:: Company expands its Piggly Wiggly franchise territory to include select counties in Illinois and Michigan.
1995:: The Piggly Wiggly Preferred Club Card marketing program is implemented.
1998:: Company expands its franchise territory to include portions of Iowa and Minnesota, as well as more counties in Michigan, Illinois, and Wisconsin.