Raley'S Inc. Business Information, Profile, and History

Company Perspectives:

Our vision is to "Enhance the Quality of People's Lives." Our mission is to be "the Place Where Customers Love to Shop and Employees Love to Work." We value: leadership, accountability, respect, teamwork, excellence, responsibility, learning, and integrity.

History of Raley'S Inc.

Raley's Inc. is the most successful privately owned grocery store chain located on the western coast of the United States. Opened in 1935--at the height of the Great Depression when the Social Security Act was passed by the U.S. Congress, Alcoholics Anonymous was established, and Mutiny on the Bounty starring Clark Gable won the Oscar for best picture of the year--it seemed an inauspicious time for a grocery store to commence operations. However, Tom Raley, founder of the enterprise, possessed an overwhelming confidence in his ability to succeed. His faith was not unfounded. Raley's grew steadily throughout the decade and by the early 2000s, the little grocery store had grown into one of the most prominent chains in the entire nation, with over $3 billion in sales and 135 stores in California, Nevada, and New Mexico. The company oversees its namesake Raley's chain, Bel Air Markets, Nob Hill Foods, and discount warehouse chain Food Source.

Origins

The founder of Raley's Inc., Thomas P. Raley, was born in 1903 in Carrollton Hollow, Arkansas, the 13th in a family of 14 children. Raley's father, a Baptist preacher and farmer, gave his son the opportunity to become a farmer like himself, but when Tom graduated from high school he decided to attend Springfield Business College in Missouri. However, the young man grew increasingly dissatisfied with his studies and dropped out of school after six months. He went to work in a wheat field and, with four of his fellow workers, suddenly decided to travel west to seek his fortune.

Arriving in Los Angeles, California, Raley first worked as file clerk and then as a delivery man who hauled five-gallon jugs of water to local grocery stores. Raley soon tired of the routine and called the vice-president of Safeway grocery stores in hopes of finding a new job. He was hired as a produce receiving clerk at one of the company's distribution centers, but his ambition still was not satisfied. When the president of Safeway made an inspection visit, Raley introduced himself and asked for a chance to learn about the grocery business. The president, M.B. Skaggs, was surprised and impressed by Raley's aggressiveness and, within 13 months, appointed him to manage one of Safeway's store.

Throughout the late 1920s and early 1930s, Raley learned about the grocery business as he worked as a manager for various Safeway stores. By the mid-1930s, he was ready to start his own operation, and he purchased a site in Placerville, California. He arranged for a Sacramento contractor to build a 2,500-square-foot store, and Raley himself built the store's counters and shelves. With only $121 in his pockets, he was unable to purchase food stock for his empty shelves, so he asked M.B. Skaggs to provide a credit recommendation. Skaggs not only gave Raley a glowing recommendation but also guaranteed the young man's debts. The store opened in February 1935, and Raley advertised his new grocery business as "the nation's first drive-in market."

The Placerville store soon garnered a reputation for fresh meat and produce, and by the end of the year the company reported a profit of $4,500. Business grew so quickly that Raley decided to open a second store in Sacramento, California. The beginning of World War II, however, slowed the company's growth. Fresh produce and meat became scarce, and such items as butter and coffee went on the government's list of rationed foodstuffs. Many of the company's male employees were drafted into military service, and Tom Raley was forced to work longer hours on the grocery floor himself. On top of all this, the store at Placerville burned down in 1942. However, Raley remained determined to succeed and opened new stores in Roseville and Grass Valley.

Postwar Growth

At the end of the war, life in the United States returned to normal, yet certain foods and dry goods still remained difficult to purchase. Sorghum was used as a substitute for sugar after the war, and bananas and honeydew melons were almost nonexistent on the shelves of grocery stores. Tom Raley was resourceful, however, and his grocery business thrived under these adverse circumstances. One of the most important changes in the grocery store business after World War II was the introduction of packaged mixes for cakes, pie crusts, and puddings. Before the war, most women cooked from scratch with such items as flour, sugar, and other staples that lined grocery store shelves. With the advent of packaged mixes, women found they had more time for other activities. Merchants such as Raley's were only too willing to accommodate the rising demand for such goods. Another of the more important developments within the grocery industry was the creation of plastic wrap. Before the war, a customer would give an order to the store's butcher, and the butcher would cut a piece of meat to the desired specifications. However, the creation of plastic wrap by E.I du Pont de Nemours & Company revolutionized the perishable grocery market. Raley's was the first store in northern California to use plastic wrap for its meats, which heralded the arrival of the self-service meat counter.

The 1950s was a time of empire building for Tom Raley. Stores were opened and closed at an incredibly fast pace at places like Roseville, Carmichael, Grass Valley, Napa, and Vallejo. By 1953, Raley operated seven grocery stores. Company employees worked long hours, anywhere from 10 to 14 hours per day and almost always six days a week. Raley hired those people whom he thought worked the hardest, equipped them with a pencil, a Garvey price marker, and a box cutter and sent them off to one of his stores. Even under these conditions, employees were extremely dedicated and loyal to the company. In 1956, Raley's counted nine stores in operation and over $8 million in annual revenues.

During the 1960s, flush with cash and heady with the success of his grocery empire, Tom Raley decided to expand his operations and enter the hotel business. Along with three partners, Raley purchased the Mayfair Hotel in Los Angeles and the elegant MiraMar Hotel in Santa Barbara, California. Extensive renovations were required at both hotels, and the partners found themselves sinking more and more money into their venture. When the deal began to lose money, Raley's partners opted out of the agreement, but Raley refused to admit defeat. As the hotels continued to lose money, Raley's own grocery store chain began to suffer, and finally his entire empire was threatened. Undeterred, Raley opened two new 100,000-square-foot combined grocery and department stores. Realizing that he made a mistake, Raley made plans to reorganize the stores and bring his company back to profitability. Along with Charles Collings, a valued and trusted employee, Raley approached the San Francisco Board of Trade with a restructuring plan for his company. The plan was accepted by the board and, slowly but surely, Raley and Collings saved the company from the worst financial crisis it had experienced up to that time.

Never one to dwell on past mistakes, when Tom Raley discovered that the Eagle Thrifty Drug store chain was put up for sale by the Gastanagas family, he immediately sent a team to negotiate its purchase. Whittling the price down from $6.5 million to $3.5 million, Raley acquired the company's ten store chain in 1973. Since the late 1950s, Raley had conceived and implemented a strategy of placing drugstores next to his grocery stores whenever he had the opportunity. Although the two operations had their separate ordering, accounting, and marketing procedures, the physical proximity of a grocery and drugstore was attractive to customers. With the acquisition of Eagle Thrifty Drug stores, Raley began to build combined grocery and drugs stores and to put in place a smooth-running management for both operations.

Branching out into Dairy Processing in the 1980s

During the early 1980s, Raley's combined with Bel Air and Save Mart supermarkets to form a joint venture called Mid-Valley Dairy. The purpose of the enterprise was to reduce the expenses involved in purchasing dairy products from large milk processing plants. Larger grocery store chains were buying dairy products through retailer-owned processing plants, which resulted in a distinct disadvantage for Raley and other smaller retail owners. The joint venture partners acquired the Red Top Dairy production facility in Fairfield, California, funded a comprehensive renovation of the entire plant, and opened for business in 1981.

Just 20 days after starting operations, the remodeled plant burned to the ground when a blowtorch accidentally severed a hydraulic line and the workman using it ran, leaving the still ignited blowtorch on the floor. The joint venture group brought a suit against the workman's company, but it took nearly five years for them to collect money for damages. In the end, a pre-trial settlement provided the group with $23 million in damages, $11 million for the cost of the building and $12 million in compensation for lost profits.

The Mid-Valley joint venture group did not wait, however, to start rebuilding their facility. Approximately two years after the fire, Mid-Valley Diary was rebuilt and housed the most sophisticated computerized fluid milk processing plant in the United States. One of the plant's most important achievements was the bottling and selling of milk in half-gallon plastic containers, the first operation west of Arkansas to do so. The Fairfield plant provided Raley's, Bel-Air, and Save Mart with a competitive edge against larger stores. The joint venture group was so pleased with the results that they decided to open a second dairy processing plant in Turlock, California, in 1988. Products soon expanded from milk, butter, and ice cream to include purified drinking water, orange juice, and, in conjunction with Rainbow Bread Company, the sale of bread at competitive prices.

The founder and guiding light of Raley's, Tom Raley, died in 1992. Tom Raley was still active in various aspects of the company's management up to his death, and then Charles Collings assumed full control of the responsibilities as chief executive officer and president. During the change in leadership, Raley's decided to purchase one of its partners in the Mid-Valley joint venture. The acquisition of Bel Air Markets, a 17-unit local competitor, boosted Raley's annual volume up to sales of nearly $1.8 billion. Bel Air Markets consisted of a group of high-volume superstores that had developed a reputation throughout California for superb quality and excellent customer service. Allowing Bel Air to keep its name enabled Raley's to capitalize on the favorable image of its new subsidiary.

In 1993, Raley's decided to expand its joint venture with the remaining partner of the Mid-Valley group, Save Mart Supermarkets, and construct a 100,000-square-foot frozen food distribution center. The joint venture group had already grown from its two dairy plants to include an ice cream plant and a dry goods warehouse. The purpose of the new facility was to get lower prices through larger volume discounts and eliminate the wholesale agent for each part of the joint venture. The distribution facilities, in addition to a marketing and merchandising division, were handled by the joint venture's wholly owned subsidiary, Super Store Industries.

A Solid Strategy Leads to Success: Mid-1990s and Beyond

During the mid-1990s, Raley's began to move away from the image of a family-run business and implemented management and operational strategies that improved the position of the company as one of the giant superstore chains in California and Nevada. The company made it a priority to hire managers and executives from outside Raley's in order to strengthen its professionalism and broaden the scope of its high-level employees. Raley's also initiated a new merchandising strategy that included in-store, sit-down cafes and customer service centers. With the acquisition of Bel Air Market, Raley's intended to augment its combination store format with an alternative superstore format.

Raley's devised three extremely innovative strategies that began to bear fruit in the mid-1990s. The first of these innovations involved the remodeling of the company's pharmacies to include a consulting area for customers and pharmacists. One of the reasons management embarked upon this innovation was to make it easier for company pharmacies to comply with California legislation that required drug counseling to be given with every new prescription. The second innovation was the development of a very broad health and beauty aid line of products in almost all of its stores. With this additional line of products, Raley's believed it could become more competitive with superstore giants such as Safeway and Kmart. Perhaps the single most innovative strategy Raley's had developed during this time was the child care program. Called Play Care, six of Raley's stores offered child care services for its customers, which resulted in higher sales volumes at those locations. Customers could shop while their children, from ages two through eight, were taken care of in supervised play areas for up to two hours.

In 1995, Raley's total revenues approximated $1.8 billion, and the company operated 81 stores. All of the firm's stores were extremely well managed, and both sales and profits continued to climb. Two significant acquisitions rounded out the decade that secured Raley's position as one of the leading privately owned grocery chains in the United States.

The first major purchase of the late 1990s was that of Nob Hill Foods, a grocery chain established in 1934 by the Bonfante family. Raley's added the 27-store chain to its arsenal in 1998 as part of its strategy to build store count in order to compete with larger chains such as Safeway and Lucky. Raley's then purchased 27 stores from Albertson's and Lucky in 1999 after the two chains were forced to sell off certain stores as part of a merger agreement. The stores were located in Las Vegas and New Mexico, giving Raley's a foothold in two new markets.

In order to facilitate the integration of the new stores, Raley's put its acquisition plans on hold for the next several years. The company continued to look for new ways to increase its market share and bring in new customers. During 2001, it expanded its partnership with Tickets.com Inc. to enable shoppers throughout New Mexico to buy tickets for various events at Raley's operated stores. This service had already been established at its stores in northern California and northern New Mexico. Raley's also opened its first Well for Life Center in Turlock, California. The center was designed to offer health and nutrition classes and to host events such as flu-shot seminars. The company's overall strategy paid off. By 2001, sales surpassed the $3 billion mark for the first time.

Michael J. Teel, the founder's grandson and Raley's president and CEO, resigned suddenly in 2002. He was replaced by William J. Coyne, who took over as president and chief operating officer. Under his leadership, Raley's decided to back out of the Las Vegas market. Coyne explained the move in a September 2002 Supermarket News article, stating, "We see significant opportunities before us in California, northern Nevada, and New Mexico, and we want to focus on those areas. But we occupy the fourth position in Las Vegas, and while we've made some progress there, we haven't made the kind of progress we need to justify significant additional investment to achieve the levels we want to reach." As such, Raley's sold 18 of its Las Vegas stores to The Kroger Co. in 2003.

While Raley's faced challenges in the early 2000s, including heightened competition and problems related to contracts with its unionized pharmacy workers, the company focused on strengthening its market share and growing its business. Its customers appreciated the store's efforts, ranking it the number one grocery chain in the nation in 1997, 2000, and 2003 in a leading national consumer magazine survey. With a longstanding history of success behind it, Raley's appeared to be on track for success well into the future.

Principal Subsidiaries: Bel Air Markets; Nob Hill Foods; Food Source.

Principal Competitors: Albertson's Inc.; Safeway Inc.; Save Mart Supermarkets.

Chronology

• Key Dates:
• 1935: Thomas P. Raley opens his first store in Placerville, California.
• 1956: The company operates nine grocery stores; revenues surpass $8 million.
• 1973: The Eagle Thrifty Drug store chain is acquired.
• 1981: The Mid-Valley Dairy processing plant burns down.
• 1991: Raley's purchases the Bel Air Markets chain.
• 1998: Nob Hill Foods is acquired.
• 1999: Twenty-seven Albertson's and Lucky stores are added to Raley's holdings.
• 2001: Sales exceed $3 billion for the first time.