Village Super Market, Inc. Business Information, Profile, and History

History of Village Super Market, Inc.

Village Super Market, Inc., ranks among the top 100 grocery store companies in the United States. The company operates a chain of 25 supermarkets in New Jersey and Pennsylvania under the franchised name ShopRite. All the stores include traditional supermarket items, such as groceries, meats, fresh produce, dairy products, frozen foods, delicatessen, seafood, baked goods, health and beauty aids, and variety items. Some stores offer prescription pharmacies, cut flowers, in-house bakeries, small appliances, and other items. The company also operates a liquor store and a variety store.

The grocery industry of the 1930s was very different from today's large nationwide chains and distribution networks. When Nicholas and Perry Sumas, two New Jersey brothers, established Village Super Markets (VSM) in 1937, local grocers prided themselves on knowing their customers' needs and finding ways to fulfill them. In addition, grocery stores' markets were, in general, focused on food: meats, dry and canned goods, as well as fruits and vegetables in season.

In its early years, part of VSM's success in the highly competitive mid-Atlantic region can be attributed to the store's participation in the Wakefern-ShopRite food cooperative, which has long been a leader in the food industry. Village Super Market joined the newly formed cooperative in 1949. The cooperative association provided purchasing, warehousing, and marketing services to its stockholder-members, as well as the franchised "ShopRite" private label.

When Village Super Market incorporated in 1955, Nicholas Sumas, a co-founder, was selected as chief executive officer, president and chairman of the board. His son, James, was chosen vice-president, treasurer, and director and served on the board and several committees of the Wakefern-ShopRite cooperative.

Village's growth was strong as the company built and acquired new stores, most of which were located in the cities of Orange, Livingston, and Morris Plains in northeastern New Jersey. The Sumas brothers built their chain of supermarkets in the densely populated New Jersey counties of Morris, Essex, Union, and Somerset, which soon became part of the New York City metropolitan area.

The acquisitions and construction projects required large amounts of capital, which were eventually partially offset with the company's first stock offering.

When Village went public in 1965, it operated six supermarkets in the cities of Orange, Livingston, and Morris. The stock offering provided money for the construction of two new supermarkets in New Jersey--one in South Orange, and one in Livingston that replaced two small stores.

Throughout the 1950s and 1960s, Village Super Market was the smallest of four primary Wakefern members: Supermarkets General, Foodarama Supermarkets, and Mott's Supermarkets. The Wakefern group soon became one of the most efficient and profitable food cooperatives in the industry, with high profit margins, healthy inventory turnover, high sales per square foot, and stable return on stockholder equity.

By 1968 the Wakefern cooperative's success began to stifle its largest member, Supermarkets General. The cooperative's warehouse was too small to handle Supermarkets General's growing volume, and by 1969 the company, a 40 percent member-owner of the cooperative, left the cooperative. The power vacuum benefitted Village Super Markets, which quickly acquired four previously independent ShopRite stores, bringing its total business to eleven supermarkets, two liquor stores, three prescription pharmacy departments, and one discount store. The acquisitions capped a four-year period of growth for VSM: between 1964 and 1968 the company more than tripled its sales and earnings grew from $.75 per share to $1.50 per share during that period.

In 1973 Nicholas Sumas turned over the chief executive officership and presidency of the company to his brother and co-founder, Perry, a longtime director. Nicholas's second son, Robert, had already joined the board in 1969 as vice-president, secretary, and director in charge of finance and administration. Robert was also involved with the management of the Wakefern cooperative.

Village Super Markets encountered economic difficulties and increased competition during the 1970s. A recession, coupled with the emergence of deep-discounting among some national chains, raised the level of competition. Double- and even triple-couponing programs also drew customers from week to week.

In order to compete, VSM offered extended hours and utilized inventory control to keep costs under control; by 1978 VSM's sales were back on the rebound, growing by over 22 percent from 1977 to 1978 during a period of renewed prosperity for many publicly owned supermarkets.

In 1979 the company enjoyed record sales of over $232 million. Management saw Village Super Market's modest company size as an advantage over larger chains whose reaction time would be slowed by bureaucratic red tape. The company proved that assertion correct when, at the end of the decade, VSM was one of the first grocery companies to install computerized scanning check-out counters in its new stores.

The fifth member of the Sumas family joined the board of directors in 1980. William Sumas, son of Perry, became a vice-president and director of Village Super Market, and chaired the Bakery Committee of Wakefern. John Sumas, Perry's second son, became a vice-president and director in 1982, also serving on one of Wakefern's committees.

The new decade saw vigorous efforts to enlarge and update VSM's 19 stores along the new "superstore" format. Groceries of the 1980s and 1990s sought to offer "one-stop shopping," including everything from greeting cards to cut flowers, videotape rentals, banking, pharmacies, and small appliances under one roof. One-stop shopping appealed to the busy lifestyles of many types of consumers, including two-income families, single individuals, and couples with no children.

Village Super Market was committed to the new format. In 1979 the leases on two stores averaging about 7,250 square feet each were allowed to lapse--VSM was building a new store in Stroudsburg, Pennsylvania, over three times as large as those two stores combined. The superstores averaged 46,000 square feet, compared to the 30,000 square-foot area of conventional groceries. The conversions cost from $1.5 million to $2.5 million each but had the potential of adding three to five percent to each store's bottom line, largely by raising per-customer sales. By 1988 VSM had converted fifteen of its nineteen stores to "superstores." The company added only one conventional store to its roster between 1982 and 1986.

In the 1980s, Village Super Markets experimented with warehouse stores, introduced generic "brand" foods, and eliminated select services in order to compete. The company also sought to reduce its labor costs by lowering wages but ran into resistance from organized labor. In 1984 the company was hit with a 24-day strike by its meat cutters, who were supported by local citizens. The strike resulted in a $294,000 pre-tax loss and Village reported that its profits plunged 98 percent in 1984, with earnings per share falling from $3.03 per share in 1983 to $.06 per share in 1984.

In 1986 Village Super Market purchased Starn's Markets, Inc., which operated a chain of three ShopRite superstores and one standard ShopRite market in southern New Jersey. The purchase brought VSM's total number of supermarkets to 25 and gave Village access to the growing Philadelphia-Atlantic City area.

The purchase helped Village Super Market celebrate its 50th anniversary with record sales and profits--and refinancing. In 1987 one million shares of Class A common stock were issued, raising $17.6 million. A private placement of 9.91 percent senior, unsecured notes that same year raised $20 million. The funds were used to pay off loans taken out during the Starn's acquisition and helped provide the company with cash for other acquisitions and new construction.

The Wakefern Food Corp. continued to be an important component of Village Super Market's success. About 85 percent of VSM's inventory was purchased from Wakefern, which grew to become the largest retailer-owned food cooperative in the United States. The cooperative's economies of scale in warehousing, distribution, and marketing gave its 170 member stores the combined buying power of a store with $3.4 billion in sales. The ShopRite label also gained a high level of recognition over the decades through cooperative media campaigns. As an owner of Wakefern, VSM also received over 17 percent of the company's profits.

In 1990 ShopRite introduced its "Price Plus" preferred customer program, which provided electronic discounts to customers through the use of a scannable customer card. One and one-half million households joined the program within its first six months of operation, making ShopRite the national leader in this promotional area. Village Super Market opened its largest store ever, at 82,000 square feet, in Rio Grande, New Jersey, in 1991.

The Wakefern cooperative also expanded in the early 1990s, with a 210,000-square-foot perishable facility in 1990 and a 700,000-square-foot non-food warehouse completed in 1991.

Unfortunately, high unemployment, low consumer confidence, and food price deflation in the early 1990s decimated Village Super Market's profits--earnings per share in 1992 were a mere $.17. Sales in nearly all stores declined by 1.4 percent from 1991. The bright spots in VSM's annual report were its three new and/or remodeled stores in Rio Grande, Elizabeth, and Union, New Jersey. These three stores accounted for the company's entire meager sales increase.

The company continues to be principally owned and operated by six members of the Sumas family, including co-founders Nicholas and Perry. Like the grocers of the 1930s, the Sumases have several advantages over competitors with national scope. They have first-hand knowledge of local demographics and generally congenial relationships with local governments and real estate developers. Despite periods of low profits, Village has managed to pay a cash dividend to its stockholders every year since it first went public in 1965.