Smart & Final, Inc. Business Information, Profile, and History

Company Perspectives:

With over 125 years of success, the same conviction drives the business and future of Smart & Final, its ability to deliver consistent customer satisfaction and value. Smart & Final provides customer value through low warehouse prices, convenient store locations, and personalized customer service. Store personnel help customers with a wide range of services, such as menu planning, special ordering, placing orders via fax and assistance to their car with packages. In addition, all stores scan products at the check-out counter and customers appreciate paying by cash, check, credit and bank ATM cards.

History of Smart & Final, Inc.

Smart & Final, Inc. operates the United States' largest warehouse grocery chain, with more than 140 nonmembership stores in California, and more than 20 stores in Arizona, Nevada, Florida, and in Mexico. Smart & Final stores average 17,000 square feet of selling space, stocking 11,000 items, which range from canned goods to freezer-deli, dairy, produce, paper products, and janitorial supplies, all of which are sold in large institutional sizes and quantities. About 10 percent of this assortment is made up of Smart & Final's Iris, Montecito, Table Queen, and Smart Buy private labels, which together produce nearly one-fourth of annual sales. Small businesses, especially restaurants, and clubs and organizations account for nearly two-thirds of Smart & Final sales, with the remainder contributed by consumer purchases. Smart & Final also operates as a foodservice distributor in its West Coast and Florida markets under its Henry Lee Company and Port Stockton subsidiaries, which together accounted for nearly $250 million of Smart & Final's $1.2 billion in 1995 sales.

Grocery Pioneers

Los Angeles was a dusty town of unpaved streets and wood or adobe buildings when Hellman, Haas & Co. opened as a wholesale grocer in 1871. Founded by Abraham Haas, who had arrived from Bavaria at the age of 16, along with brother Jacob Haas and partners Bernard Cohn and Herman Hellman, the two-story brick building provided bulk staple items such as flour, brown sugar, salt, rope, chewing tobacco, gunpowder, patent medicines, and shepherding supplies to the town's 6,000 residents.

The small store played an important role in the early growth of Los Angeles, adding items catering to the town's many ethnic populations, including Native and Mexican Americans, and a growing Chinese community. As the town grew, Hellman, Haas & Co. grew with it; in 1880, the store was listed among the seven names in Los Angeles's first phone directory. The partners played a role in the area's growth as well. Herman Hellman would later head the Farmers and Merchants Bank and join in the founding of the University of Southern California. Abraham Haas branched out into the flour milling and cold storage businesses and was among the founders of southern California's first gas and electric companies.

In 1889, Jacob Baruch bought Hellman's interest in the company, and the company's name changed to Haas, Baruch & Co. The store continued to prosper and, in 1895, began selling canned tomatoes under its own Iris brand name. Sales by that year had reached an impressive $2 million. By the turn of the century, Haas, Baruch was the leading grocer in a town that, over the next two decades, would swell to a population of nearly one million. Abraham Haas left Los Angeles during this period, opening a successful wholesale operation in San Francisco. Haas's son, Walter, worked in the family business, but later left to join a small clothing company, Levi Strauss, where he would serve as president for the next 30 years. Haas, Baruch continued to thrive; in 1948 the company opened its own 3.5-acre warehouse in Vernon, California.

Meanwhile, J.S. Smart, a banker from Saginaw, Michigan, arrived in California in 1914, where he purchased a small feed and grain supplier, the Santa Ana Wholesale Company, which had been founded two years earlier. Smart was soon joined by H.D. Final, and the partners moved their business to San Pedro, renaming the company Smart & Final Wholesale Grocers. By the end of the decade, the company's sales reached $10 million.

Competition among the area's wholesalers intensified over the next decade. The grocery industry itself was changing, as more and more retailers began purchasing directly from the manufacturers, bypassing the wholesalers altogether. But Smart, on a trip to Ohio, discovered the latest trend in grocery sales--that of allowing the customer to choose their purchases, rather than having the grocery's clerks gather the items. In 1923, Smart brought this innovation to the West Coast, and Smart & Final became the first in the area to offer the "cash and carry" concept. Another key to the company's survival and success was its practice of locating its stores close to the businesses they served, instead of requiring customers to travel to remotely located warehouses.

Smart & Final was helped by the outbreak of the Second World War, winning supply contracts to support the military effort. After the war, the company expanded its customer base to include churches and local clubs and organizations and, by the beginning of the 1950s, had grown to a chain of 65 stores. New changes were occurring in the grocery industry, as improved cold storage and refrigeration techniques were making possible an expanding assortment of foods. A new type of store, the supermarket, became popular during this time, placing still more pressure on the wholesalers. In 1953, Smart & Final acquired Haas, Baruch, adding the latter's popular Iris brand to the Smart & Final name. The new company, Smart & Final Iris Co., moved its headquarters to Haas, Baruch's Vernon warehouse site. Two years later, however, Smart & Final was bought by the Thriftimart supermarket chain, founded by Roger M. Laverty.

Laverty had been active in the grocery trade since 1930, when he bought the small, Los Angeles-based chain Fitzsimmons Stores Inc. In 1947, Laverty acquired Thriftimart Inc., also based in Los Angeles, merging the two chains under the Thriftimart name. The addition of Smart & Final's warehouse stores boosted Thriftimart's sales to $168 million by 1960. When Laverty died in 1969, he was succeeded by his son, Roger Laverty II.

Toward the 1980s

Under Thriftimart, the Iris brand name was expanded to include hundreds of frozen food products, paper and canned goods, and janitorial supplies. The chain of Smart & Final cash and carry stores, which averaged from 4,000 to 10,000 square feet, grew to 86 stores by the 1980s. Together with Thriftimart's 41 supermarkets, sales passed $250 million by the early 1970s and climbed to $500 million by the early 1980s.

Despite this growth, however, Thriftimart struggled for profitability. After posting an $822,000 loss on sales of $260 million in 1972, the company climbed back into the black, only to post a $5.4 million loss on $343 million sales in 1976. Thriftimart fared better in the second half of that decade, rebuilding its bottom line to a $4.5 million net income on sales of $368 million in 1979. The following year, net income rose to a high of $7.2 million, with sales climbing to $431 million. But the growth of warehouse clubs such as Price Club and Costco began to pressure the supermarket industry. By 1982, when Thriftimart's sales peaked at $506 million, its net income fell to $4.8 million. Thriftimart moved to divest its struggling supermarket division, selling 23 California supermarkets to Safeway Stores, Inc. in 1983. By 1984, with sales just under $500 million, net income had dropped to $1.5 million.

In that year, Roger Laverty II, his brother Robert, and their sister Nancy Harris, who together owned 85 percent of Thriftimart's stock, sold their interest in the company to Casino USA and its parent, Etablissements Economiques du Casino Guichard-Perrachon et Cie, a $3 billion French-based operator of supermarkets, convenience stores, restaurants, and food production and processing facilities. Laverty II retired after the sale of the company, and Robert Emmons was named chairman, president, and CEO in 1984.

Thriftimart's 17 remaining supermarkets were liquidated after the Casino acquisition, and the focus was shifted to Smart & Final's 86-store cash and carry operations, which had remained profitable throughout the Thriftimart period. As Smart & Final, Inc., the company moved to refocus, modernize, and expand the chain. The new management, which included Roger Laverty III, developed the strategy that would take the company into the next decade. This strategy targeted smaller, independent foodservice and related businesses with a redesigned store concept offering a product assortment adapted to this market's needs. At the same time, the company moved to modernize its stores, closing a number of its aging stores while relocating dozens more stores to locations featuring parking, convenient access to customers, and larger size (over the next ten years, store size would more than double to an average 17,000 square feet).

Evolving into the 1990s

By 1988, the Smart & Final chain had been pared down to 72 modern stores. Until then, the chain had served exclusively the southern California market. In the late 1980s, Smart & Final began an aggressive expansion into northern California, Nevada, and Arizona. Sales, which dropped to $335 million in 1986, rose to $498 million by 1989. One year later, sales neared $560 million, generating a net income of $9.4 million.

As the country slipped into the recession of the early 1990s, Smart & Final's growth continued. The drop in real estate prices in its core California market proved a boon to the expanding company, which numbered 99 stores by 1989 and 135 stores by 1993. In 1991, with sales of $663 million, Smart & Final went public again, with Casino maintaining a 53 percent share of the company's stock. In that year, Smart & Final expanded into foodservice distribution with the purchase of northern California-based Port Stockton Food Distributors, Inc. The company next launched its Casino Frozen Foods, Inc. subsidiary as distributor both to its own stores and to independent customers. By 1993, that business expanded beyond frozen foods to supply delicatessen and other products as well. In that year, Roger Laverty III was named the company's president and CEO.

While Smart & Final continued to increase its presence in California, growing to 140 stores in 20 counties by the end of 1995, the company began to eye other markets. Encouraged by the passage of the North American Free Trade Agreement, and joining a growing trend among U.S. retailers, in 1993 the company formed a joint venture with Central Detallista, S.A. de C.V. to bring Smart & Final stores into Mexico. The first stores opened in Baja, Mexico, with plans for nine stores by 1995 and as many as 50 stores in the near future. The company next prepared to enter the Florida market, which, with its large Hispanic population, fit well with its Californian customer base. In 1994, Smart & Final added the Henry Lee Company, which served the Florida, Central and South American, and Caribbean markets, to its distribution business. The acquisition of Henry Lee, which ranked among the largest foodservice distributors in the country, paved the way for the expansion of Smart & Final's cash and carry operations into Florida. In early 1996 the company opened its first six Dade and Broward county stores, with plans to grow to as many as 40 stores in Florida by the end of the century.

In Florida, Smart & Final continued its policy of opening stores in inner city areas typically shunned by other grocers--after the 1992 riots, for example, Smart & Final opened 11 stores in Los Angeles--while providing a product assortment geared to its customers' cultures and needs. The company, which boasted of being "125 years old but 12 years young," maintained as well its strategy of updating its stores, so that, of the 161 stores in its chain in 1996, 136 stores were built in the past decade. With revenues soaring to $1.2 billion in 1995, Smart & Final appeared to have many more years of growth to come.

Principal Subsidiaries: Henry Lee Company (90 percent); Port Stockton Food Distributors, Inc.