Schultz Sav O Stores, Inc. Business Information, Profile, and History

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.

History of Schultz Sav O Stores, Inc.

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.

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

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.

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.