Spartan Stores Inc. Business Information, Profile, and History

Company Perspectives:

The company's mission is to consistently satisfy customers with quality food and related retail and distribution products and services. Spartan's new strategic focus is based on the customer and they are working to become a total consumer driven organization and to accumulating the best total knowledge of consumers and independent retail operators in their market.

History of Spartan Stores Inc.

Once a wholesale grocery cooperative, Spartan Stores Inc. now operates as the eighth-largest grocery distributor in the United States. The company supplies over 40,000 name brand and private label products to 330 independent grocery stores in Michigan, Ohio, and Indiana and operates warehouse facilities in Grand Rapids and Plymouth, Michigan. Spartan is also involved in retailing--the company owns and operates 54 supermarkets and 21 discount food and drug stores in Michigan and Ohio.

Early History as a Cooperative

Seeking to lower grocery prices by providing greater economies of scale, a group of nearly 100 independent store owners met at the Livingston Hotel in Grand Rapids, Michigan, on December 27, 1917. The meeting had been prompted by a recent increase in competition from emerging national grocery store chains, such as A&P, which were able to provide customers with one-stop shopping and lower prices. By the end of the day, 43 of the grocers decided to form a cooperative whose purchasing power they hoped would help their business. Signing Articles of Incorporation, the grocers formed the Grand Rapids Wholesale Grocery Company. Only 27 bought stock in the corporation.

Stock in the company was privately held. Stores becoming members of the cooperative were required to maintain a stock investment, which could be sold back should a store decide to leave the cooperative. In 1957, the wholesale company changed its name to Spartan Stores Inc., a name management believed would achieve wide recognition in the area due to the popular association in Michigan between the name Spartan and the state university. The Spartan logo, featuring a warrior of ancient Sparta holding sword and shield, colored in a bright green, was reproduced on labels, grocery bags, and on the sides of the company's trucks. Although the retailers for whom Spartan acted as distributor did business under different names, the stores were united under this logo, which was displayed on the doors of all Spartan stores and also featured on the neon-lit signs of many.

Changes in the 1970s Lead to Success in the 1980s

In 1973, Spartan's status changed from that of a cooperative to a Michigan business corporation. During this time, the grocery business changed considerably, as the rate at which new products became available and the competition among grocery chains increased. Product volume at the Spartan warehouses also increased dramatically, and a new computerized vending system, known as Big Blue, was installed at the Grand Rapids complex, helping to distribute around 174 million pounds of fresh produce, 115 million pounds of meat, and four million cases of frozen foods in 1984. As both sales and the company's stock, available to businesses and individuals who operated grocery retail outfits, steadily climbed, the wholesaler expanded its membership to 475 stores.

Over the next ten years, Spartan also became involved in several humanitarian projects, including sponsorship of several area food bank and youth programs and a golf tournament to benefit the American Cancer Society. The company's most notable community project, however, has been its exclusive sponsorship of the Michigan Special Olympics Summer Games, which it took on in 1984. Spartan's role as sponsor is highly publicized every year through television, radio, and newspapers. Furthermore, Spartan designates around 200 products that are carried by its retailers as Special Olympics items; the products are advertised and five cents from each sale of these items goes to the support and promotion of this annual event. In addition to paying the way for athletes to travel to and participate in the games, Spartan provides printed programs and entertainment, as well as food for the hundreds of volunteers who supervise and officiate the games.

The 1980s were a very productive and successful period for Spartan Stores. Annual sales rose by nearly 10 percent through 1989. In 1985, sales reached $1.3 billion, up from $1.2 billion the year before. By 1986, Spartan controlled 20 percent of the Michigan grocery market, and its sales had risen to $1.4 billion. That year, the company was ranked as Michigan's largest grocery wholesaler, and the 12th largest in the country. Sales steadily increased to $1.7 billion in 1988.

Although financially successful during this time, Spartan began to receive complaints from some of its member stores, who charged that Spartan seemed more interested in maintaining the status quo than fostering communication and cooperation between retailer and distributor. Agreeing that management lacked a vision for the company's continued growth and improvement, the board decided to elect a new president. When Patrick Quinn, formerly a vice-president at the 14-store chain of D&W Food Stores, became Spartan's president and CEO in 1985, he was the third person to fill the post in four years. Quinn was charged with reestablishing positive relationships and developing a specific and detailed long-term plan for the company.

When questioned about his lack of background in retailing, Quinn told Supermarket News that "it puts me in a naive position, so I can ask questions that may not have been asked in a long time, such as why something is done a certain way. It causes people to think, reexamine why things are done as they are." Quinn proceeded to reexamine nearly every aspect of the company and determined that distribution centers needed expanding and that both Spartan's data processing system and its policy of owning corporate stores needed further consideration.

Considering himself a "visible" manager who would strive to be available and responsive, Quinn pledged to visit stores and warehouses in an effort to establish good relations with employees and become better educated about retailers needs. Quinn's vision for the company was characterized as "getting back to basics," a practice realized through several of his early decisions as Spartan's president. He eliminated the computerized vending system in Spartan's Grand Rapids distribution center when he found numerous bugs in the system and noted the increasing expense of its maintenance. He also brought back the conventional wooden pallet, used to move boxes in and out of the company's truck trailers, when he observed that newer high-tech metal mechanisms were more cumbersome and less reliable. Quinn also stressed the importance of keeping Spartan retailers happy. Toward that end, he created the position of a customer service director who, by reporting directly to Quinn, could help improve communication and solve problems in all areas of the business.

In September 1985, hoping to gain more warehouse and office space, Spartan entered negotiations to purchase Eberhard Foods, a Grand Rapids chain of 22 stores. The following month, negotiations were indefinitely postponed, however, when Eberhard was faced with a lawsuit filed by union members and employees charging the company with mishandling their stock option plan. Plans to acquire Viking Food Stores Inc. of Muskegon, Michigan, fell through two years later when an agreement could not be reached regarding the purchase price and several other terms.

Focusing on Wholesale Operations in the Late 1980s

In 1987, Spartan disclosed plans to sell some of its corporate retail stores. Not only did the company wish to refocus its business as that of wholesale and not retail, but it was also concerned that the role it had assumed in both supplying stores and operating competing stores represented a conflict of interest. Thus, Spartan decided to auction off 80 percent, or 22 of its 25, retail stores. The stores were first offered to Spartan's retail members, and in October 1987 D&W Food Stores, Inc., announced its intention to purchase six of the stores. Other stores were bid on by smaller local chains.

At this time, Spartan's operations were generally divided into four segments: distribution, insurance sales and underwriting, real estate and finance, and retail stores. As a distributor of groceries and grocery related items, Spartan carried over 46,000 items, including general merchandise and health and beauty care products, which it received from suppliers. Spartan made available to its retailers both nationally advertised brands and Spartan's own private label items. Products reached individual stores via Spartan's fleet of over 300 trucks, one of the largest private fleets in Michigan. Insurance was offered to retailers through Spartan's subsidiaries, which made group health plan programs available for store employees and provided Spartan stores with fire, casualty, liability, and several other types of insurance. Those in the Spartan network who wished to either expand or remodel their stores could petition to borrow funds from Spartan's real estate and financing division.

The retail store segment, having been scaled back under Quinn's leadership, consisted of one corporate store in 1993, which was maintained through the company's Valueland subsidiary. In addition to its four main business segments, Spartan offered numerous support services to its retailers including market research, training programs, advertising design and printing, and accounting services. The company strengthened its wholesale convenience holdings in 1993 with the purchase of J.F. Walker Co. It began its foray into the wholesale convenience market with the 1987 purchase of L&L Jiroch.

In the early 1990s, the Spartan board voted to allow individual employees of Spartan Stores, its subsidiaries, and its retailers, as well as certain "approved shareholders," to purchase Spartan stock. In 1992, the company expected to generate more than $27 million from the sale of 175,000 shares of its Class A stock, which would be used for working capital. Quinn was characterized by Progressive Grocer magazine as cautiously optimistic in his projections for the company's success in 1993. While planning to expand Spartan's network to include more stores in the Midwest, the company faced tough competition from the larger chain supermarkets as well as the challenge of recovering from a national economic recession. Nevertheless, by continuing to reevaluate and improve its procedures and products, while maintaining the image of its stores as unique, local alternatives to the giant supermarket chains, the company expected to see continued growth in sales and earnings.

Mid-1990s and Beyond

After Quinn retired, Jim Meyer was appointed president and CEO in 1997. The company had just experienced the one of the worst financial losses in its history--$21.7 million--due to restructuring costs. A July 1997 Supermarket News article quoted the new leader, who proclaimed, "Growth is not an option for the 80-year old company, it is imperative for our long-term survival." Meyer firmly believed that the company needed to expand back into retailing in order to remain competitive. According to a November 2000 Grand Rapids Press article, his decision was based on several industry and demographic changes: consumers were spending over half of their food dollars outside of the home; a slowdown in the U.S. population, and therefore new customers, resulted in a need for a growth through acquisition policy; aggressive competition by large companies like Wal-Mart was wreaking havoc on the market share of smaller grocers; and industry consolidation made it nearly impossible for small chains to secure efficiencies of scale.

In view of these factors, Spartan acquired a handful of neighboring chains in 1999. It added eight central Michigan-based Ashcraft Markets, 23 Glen's Markets, Family Fare Supermarkets, and Great Day to its arsenal. The company marked its entrance into the new century with the acquisition of Ohio-based Seaway Food Town Inc., an operator of 39 supermarkets and 21 discount drug stores. Upon completion of the merger, Spartan Stores made its debut on the NASDAQ, going public at $11 per share. In 2001, it purchased Prevo's Family Markets, a ten-store chain in western Michigan.

The company's aggressive return to retailing proved to be problematic on several fronts. As a result of its recent acquisition spree, Spartan found itself in direct competition with many of its customers. Its largest client, D&W Food Centers, took issue with Spartan's strategy and opted to use a different distributor in 2000. At the same time, a faltering economy and intense competition coupled with major operational changes began to put a strain on the company's financials. Sales were stagnant in 2002, and net income began a downward spiral. In 2003, the company posted a net loss of $122.4 million. As a result, Spartan announced that it would shutter its Food Town stores in an attempt to shore up profits and reduce debt. It also sold convenience wholesalers L&L Jiroch and J.F. Walker. The sale of United Wholesale Grocery Co. in early 2004 signaled the company's exit from convenience operations.

Meyer retired in 2003, leaving Craig C. Sturken, a grocery business veteran, at the helm. He immediately set plans in motion to restore Spartan's profits. The company's retail stores were consolidated under the Family Fare Supermarkets and Glen's Markets names. Sturken hoped to revitalize the brand with a new logo, replacing the Spartan soldier with a green and white banner-style logo. Spartan also planned to add more pharmacies to its stores and convert to a 24-hour format. While Spartan's fortunes appeared to be changing, only time would tell if its new leader could orchestrate a successful long-term turnaround.

Principal Subsidiaries: Spartan Stores Distribution, LLC; JFW Distributing Company; LLJ Distributing Company; United Wholesale Grocery Company; Market Development Corporation; Spartan Stores Holding, Inc.; Spartan Stores Fuel, LLC; Family Fare, LLC; Prevo's Family Markets, Inc.; Spartan Stores Associates, LLC; MSFC, LLC; MDP, L.L.C.; Seaway Food Town, Inc.; The Pharm of Michigan, Inc.; Buckeye Real Estate Management Co.; Valley Farm Distribution Co.; Port Clinton Realty Company; Gruber's Food Town, Inc.; Gruber's Real Estate, LLC; Custer Pharmacy, Inc.; SI Insurance Agency, Inc.; Spartan Insurance Company Ltd. (Bermuda).

Principal Competitors: D&W Food Centers Inc.; IGA Inc.; Meijer Inc.

Chronology

• Key Dates:
• 1917: A group of 43 grocers decide to form the Grand Rapids Wholesale Grocery Company.
• 1957: The company changes its name to Spartan Stores Inc.
• 1973: Spartan's status changes from a cooperative to a Michigan business corporation.
• 1986: Spartan controls 20 percent of the Michigan grocery market and is ranked the largest grocery wholesaler in the state.
• 1987: The company begins to sell of some of its corporate retail stores.
• 1993: J.F. Walker Co. is acquired.
• 1999: The company re-enters retailing by acquiring eight Ashcraft's Markets, 13 Family Fare stores, and 23 Glen's locations.
• 2000: Spartan goes public after its purchase of Seaway Food Town Inc.
• 2003: The company sells off non-core assets in order to focus on retail and distribution.