Winn Dixie Stores, Inc. Business Information, Profile, and History

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History of Winn Dixie Stores, Inc.

Winn-Dixie Stores, Inc. is one of the largest supermarket chains in the southeastern United States. The company operates more than 1,070 stores in 12 southeastern states and the Bahamas in two general formats: more than 1,000 combination food and drugstores under the Winn-Dixie, Marketplace, Thriftway, and City Markets banners and about 60 grocery warehouse stores under the Save Rite and Sack & Save brands. About three dozen of the supermarkets also feature gas stations, while 44 contain separate liquor stores. The company maintains 16 facilities to produce or process such products as soft drinks, frozen pizza, sausage, eggs, milk, ice cream, crackers, and cookies. As the company has increasingly emphasized larger stores--the average one now taking up more than 44,000 square feet--Winn-Dixie outlets have added additional services, including banking, ATMs, photo processing, and restaurants. The fifth largest supermarket operator in the United States as late as the mid-1990s, Winn-Dixie Stores saw its position rapidly fall over the next several years as a massive consolidation drive in the industry bypassed the company, in large part, and left it in the number 13 position by the early 2000s.

Early History

Winn-Dixie's founder, William M. Davis, was the owner of an old-fashioned charge-and-deliver general store in Idaho before World War I. The advent of self-serve, cash-and-carry chain stores after the war drove many old-fashioned independent grocers out of business. Davis, however, saw the potential of this new kind of grocery store. He moved his family to Miami, Florida, and, borrowing $10,000, entered the self-serve grocery business. He bought his first store, the Rockmoor Grocery, in the Miami suburb of Lemon City in 1925. Davis, his wife, and their four sons ran the store; the Davis family has provided the leadership for Winn-Dixie ever since.

In the early years Davis found it difficult to expand. Three times he attempted to open a second store and three times the store failed. Chain stores had demonstrated their ability to deliver a wider variety of high-quality goods at lower prices than had ever before been possible, but many a tradition-bound consumer preferred the old way of doing business. Independent grocers had local support and political connections, but life could be made rather difficult for a chain store or supermarket operator. After consumers' initial resistance was overcome, however, it was impossible to deny that supermarkets were the wave of the future. By 1927 the Rockmoor Grocery had expanded to five stores, which were renamed Table Supply Stores that year. Having expanded to Tampa in 1931 with the $10,000 purchase of Lively Stores, the company operated 34 stores in south Florida by 1934, the year W.M. Davis died.

Davis's four sons took control of the company at their father's death and set out on a course of further expansion. In 1939 they acquired control of the 78 stores of the Winn & Lovett Grocery Company of Florida and Georgia, and in 1944 the company established its headquarters in Jacksonville, Florida, and officially adopted the Winn & Lovett name.

The war years brought a lull in the supermarket industry. Food rationing, labor shortages, and price increases forced supermarkets to tighten their belts with the rest of the nation. Winn & Lovett, along with most of the supermarket industry, cooperated with the government by maintaining a lid on prices during and immediately following the war. During this time nonfood products filled what would otherwise have been empty shelves, and began to assume a more prominent place in supermarkets. The higher profit margins on nonfood products allowed supermarkets to maintain food prices at relatively low levels without jeopardizing overall profitability.

Merger with Dixie Home Stores in 1955 Creating Winn-Dixie

Once the economy had returned to normal, Winn & Lovett picked up where it had left off before the war. In 1945 the company expanded into Kentucky with the purchase of 31 Steiden Stores. An additional 46 Florida stores were gained in 1949 through the acquisition of Margaret Ann Stores. Winn & Lovett became the first Florida industrial corporation to gain a listing on the New York Stock Exchange in 1952. Three years later the company added several more grocery chains to its company rolls: Penney Stores in Mississippi and two South Carolina chains, Ballentine Stores and Eden Stores. Later in 1955, Winn & Lovett merged with Dixie Home Stores of Greenville, South Carolina, which operated 117 stores, and changed its name to Winn-Dixie Stores, Inc. With this merger, Winn-Dixie broke into the top ten supermarket chains and from the mid-1950s through to the mid-1960s was the most profitable company in the industry. Profits in the supermarket industry are more dependent on high volume than high profit margins, but Winn-Dixie's profit margins in this period were exceptionally high. This was due to both an increase in sales (fourfold between 1954 and 1964) and lower labor costs in the nonunion South.

Winn-Dixie continued to expand and prosper in the late 1950s and early 1960s. In 1956 alone, Winn-Dixie acquired 24 North Carolina stores from Ketner-Milner Stores, Inc.; 42 Hill Stores in the New Orleans area; and nine Kings outlets in Georgia. In 1962 the company acquired Hill Grocery Co., Inc. and its 35 stores in the Birmingham, Alabama, area. In addition to acquiring more retail outlets, Winn-Dixie also branched out into processing, manufacturing, and distribution, producing a wide variety of store brand products from these support facilities. With profits increasing each year and with 23 consecutive years of cash dividend increases, Chairman J.E. Davis (one of W.M. Davis's sons) could confidently predict in the Wall Street Journal in 1966 that Winn-Dixie would shatter all previous sales and profit records in fiscal 1967.

The year 1966 also brought some bad news, however. The Federal Trade Commission (FTC) had been investigating the increasing concentration in the supermarket industry and had concluded that mergers and acquisitions in the industry had unfairly limited competition, in violation of the Clayton Anti-Trust Act. Winn-Dixie, as the most profitable and one of the fastest-growing chains, was an obvious target. The investigation showed that, in fact, a third of Winn-Dixie's increase in sales over the previous ten years had been generated by stores acquired during that period. As a result, the FTC ruled that for ten years Winn-Dixie was forbidden to acquire any retail grocery stores in the United States without FTC approval. The ruling was not as much a punishment of Winn-Dixie as it was a settlement between the firm and the FTC. "The principal practical effect," Winn-Dixie President Bert L. Thomas told the Wall Street Journal at the time, "is to clear all Winn-Dixie's past mergers and acquisitions from future challenge." All that was required of Winn-Dixie was obedience to the ruling. Winn-Dixie used the ten-year period for "internal" expansion, adding stores by leasing new stores and improving existing retail and support facilities. Winn-Dixie did acquire 11 City Markets in the Bahamas that were not covered by the FTC order.

When the ban was lifted in 1976, Winn-Dixie acquired the 135 stores and the support facilities of Kimbell, Inc. in Texas, Oklahoma, and New Mexico. The stores in New Mexico, which were unionized, posed a problem for the traditionally nonunion Winn-Dixie. After the company refused to negotiate with the union and a pro-union boycott began, Winn-Dixie sold its New Mexico stores in 1979.

Reacting to Increased Competition in the 1980s

In 1983 J.E. Davis stepped down as chairman of Winn-Dixie, and a member of the third generation of the Davis family, Robert D. Davis, assumed control. Robert's five years at the helm were marked by a virtually flat rate of growth in gross profits, although net earnings did not suffer because of lower tax rates. Winn-Dixie faced increasing competition in the 1980s, not only from its traditional competitors--the other large chains--but also from convenience stores, which made a large dent in the market. In 1988 Robert stepped down as chairman (but remained vice-chairman) and his cousin, A. Dano Davis, was elected to succeed him.

Dano Davis's new management team implemented measures to cut operating costs and raise gross profit margins. Management costs were also pared, and 60 management positions were eliminated. Winn-Dixie began selling off its smaller, less efficient stores and also unloaded some of its less productive baking facilities. The prevailing trend was toward larger, more modern stores offering more merchandise.

Despite these very positive moves, Winn-Dixie faced some problems in the late 1980s. It was notified by the Environmental Protection Agency that it was a PRP (potentially responsible party) for the cleanup of two dumping grounds designated as "superfund sites" in Florida; the company estimated cleanup costs at about $200,000. Winn-Dixie also spearheaded a battle between grocery retailers and large producers of packaged goods over who would determine the shape of the market for retail food. Winn-Dixie announced in 1988 that it would no longer accept promotion allowances for products on a market by market basis, but only chainwide. Winn-Dixie demanded a consistent national pricing policy from major suppliers such as Campbell Soup, General Mills, Quaker, Procter & Gamble, and others. The companies initially refused to meet Winn-Dixie's demands and Winn-Dixie retaliated by dropping certain of their products from its inventory. According to Fortune, Winn-Dixie's crusade was a response to the declining profitability of the preceding five years. Winn-Dixie negotiated with each of the producers separately, hoping to solve the impasse and preserve its market position.

Emphasizing Low Prices and Building Larger Stores in the 1990s

In January 1990 Winn-Dixie abandoned the acquisition of 24 B&B Cash Grocery Stores in the Tampa, Florida, area that had been announced the previous October. The Federal Trade Commission was concerned about the antitrust implications of the deal, which could have provided Winn-Dixie a virtual monopoly in a couple of southern Florida counties, and launched an investigation. The deal was called off when both parties became concerned about the cost of complying with the FTC's inquiry.

By the early 1990s, Winn-Dixie had essentially won the producers over to its position, a victory that was crucial to the company's emphasis on chainwide low prices that began in 1991. The chain quickly became the "low price leader" within the markets it served. Keeping prices low helped Winn-Dixie compete in the increasingly crowded markets it served.

That accomplished, Winn-Dixie next aimed to attain a further leg up on the competition by increasing the size of its stores. During the previous decade, the company had increased average store size from 22,000 square feet in 1982 to 30,000 square feet in 1989; it had also introduced larger, 44,000-square-foot "Marketplace" stores, which were grocery stores with the addition of such services as pharmacies and photofinishing. After the first had been opened in Valdosta, Georgia, in 1984, about 55 Marketplaces had been built by the end of the 1980s.

Starting in 1991, Winn-Dixie increased its store sizes even further, renovated or closed hundreds of its older and smaller stores, and altered the layout and conception of the Marketplace stores, some of which were as large as 55,000 square feet. By 1996, average store size was up to 38,800 square feet. Although Winn-Dixie did open a number of new stores during this period and also acquired in early 1995 the Thriftway Food Drug chain, which had 25 units in the greater Cincinnati area, overall Winn-Dixie actually had fewer stores in its chain in 1996 (1,178) than in 1991 (1,207) thanks to the large number of older stores it closed. The company spent large sums of money on renovations and new store openings--$650 million in fiscal 1994 alone--and converted more and more of its stores to the new Marketplace design. By 1996 there were 504 Marketplaces in the chain (compared to 634 Winn-Dixies), and many of these larger format stores included a "Food Pavilion," which was a large single aisle featuring a bakery, produce, deli, a combination meat-seafood service area, and a sit-down eating area. The Food Pavilion was aimed to offer customers a convenient layout and more convenience food, especially targeted for the more time-stressed customer. Also in 1996, Winn-Dixie began experimenting with self-checkout lanes.

After net income hit a peak of $255.6 million in the fiscal year ending in June 1996, Winn-Dixie saw its earnings steadily erode in the face of heightening competition. In addition to its traditional rival Publix Super Markets, Inc., which was aggressively targeting many of Winn-Dixie's main markets, Winn-Dixie saw two new competitors enter its territory in the late 1980s: Food Lion, Inc., which expanded into Florida, and Wal-Mart Stores, Inc., which began a massive move into the grocery trade through its combination discount and grocery outlets that were eventually dubbed Supercenters. Given that the Arkansas-based Wal-Mart's main territory was in the South, Winn-Dixie was hit particularly hard by the discount giant's food foray. Despite Winn-Dixie's shift to the Marketplace format, same-store sales were constantly on the decline in the late 1990s. During fiscal 1999, the company's 52-year streak of increasing its dividends came to an end, and the following year the company's overall revenues fell for the first time in more than 60 years. Further bad news came in mid-1999 when the company reached an agreement to spend $33 million to settle a class-action discrimination lawsuit. The suit was similar to suits filed against other large grocery chains, charging the companies with systematically discriminating against female and African American workers in hiring and promotion.

Restructuring in the New Century

Late in 1999 Dano Davis relinquished his position as chief executive to Allen Rowland, who was named president and CEO, with Davis remaining chairman. The first Winn-Dixie leader ever to be hired from outside the company, Rowland had most recently been president and COO of Smith's Food & Drug Centers, Inc. Just a few months later, in April 2000, Winn-Dixie announced a major restructuring involving the shuttering of more than 110 underperforming stores, the slashing of the workforce by 8 percent (or 11,000 employees), the closure of paper bag and detergent manufacturing plants, and the consolidation of some division offices and warehouse facilities. The company also centralized its procurement, marketing, and merchandising, and it began a $144 million remodeling program to overhaul about 650 of the remaining 1,000-plus stores. Winn-Dixie also wanted to exit from the Texas and Oklahoma markets, where operations were only marginally profitable and market share was falling, but a deal to sell the 74 stores in those states to the Kroger Co. was nixed by the FTC, which was concerned about the potential erosion in competition in the Fort Worth, Texas, market. In connection with the restructuring, Winn-Dixie recorded charges of $396 million; as a result, Winn-Dixie suffered a net loss of $228.9 million for fiscal 2000.

At the same time that this strategic downsizing was being implemented, Winn-Dixie took the unusual step of expanding through two acquisitions. In October 2000 nine supermarkets in the Orlando, Florida, area were acquired from Gooding's Supermarkets, Inc., and in January 2001 Winn-Dixie spent $85 million to acquire 68 grocery stores from the bankrupt Jitney Jungle Stores of America, Inc. The latter outlets were located in Mississippi, Alabama, and Louisiana, and that deal also included gas stations that operated in conjunction with 32 of the stores. Later in 2001 Winn-Dixie announced that it was slashing its dividend from $1.02 per share to 20 cents in order to improve earnings and free up cash for debt reduction and reinvesting in the business. In October 2001 the company launched a new advertising campaign called "The Real Deal" that touted "real good food, from real good people, at a real good price." The next year Winn-Dixie followed an industry trend by launching a customer loyalty card.

During the early 2000s Winn-Dixie converted more than 50 of its stores to the Save Rite Grocery Warehouse format. Typically located in lower-income neighborhoods, Save Rites sold a limited selection of low-priced groceries in sparsely furnished stores. The biggest shift to this format was in Atlanta, where 38 locations began sporting the Save Rite banner in 2002. Also in 2002 the manufacturing operations were reduced still further with the sale of Deep South Products, Inc., operator of a cheese plant in Gainesville, Georgia, to Schreiber Foods, Inc. Winn-Dixie also divested its troubled operations in Texas and Oklahoma, which included 76 stores, a dairy plant, and a distribution center. This cut the workforce by another 5,300 jobs and also resulted in a $172.8 million net loss from discontinued operations, which cut net earnings for fiscal 2002 to $86.9 million.

As it looked toward the future, Winn-Dixie aimed to increasingly tailor its stores to the particular neighborhoods in which they were located. This was a growing trend among food retailers attempting to differentiate themselves from the likes of Wal-Mart. The Save Rite chain was a step in this direction, as were newer more upscale Winn-Dixie outlets--serving more affluent communities--that included special features, such as sushi bars, full-time wine stewards, and organic food sections. Early in 2003 the company said that it would accelerate its development of new stores, with this neighborhood-focused strategy in mind. In June of that year Rowland retired from the company. Rowland had certainly succeeded in stabilizing the company's financial position, but observers were not entirely convinced that Winn-Dixie had been fully turned around. The new president and CEO was Frank Lazaran, whom Rowland had brought onboard as COO a little more than a year earlier. Lazaran had previously been president of Randalls Food Markets, Inc., a division of Safeway Inc. Net earnings of $239.2 million for fiscal 2003 represented the company's best showing since 1996. In June 2003 Winn-Dixie also announced that it would consolidate its private-label product lines from the more than 60 brands that had been in use to just three: the premium-quality Prestige line; the new Winn-Dixie brand, which would be used for moderately priced items; and the value-priced Thrifty Maid brand.

Principal Subsidiaries: Astor Products, Inc.; Crackin' Good, Inc.; Deep South Products, Inc.; Dixie Packers, Inc.; Economy Wholesale Distributors, Inc.; Save Rite Grocery Warehouse, Inc.; Superior Food Company; W-D (Bahamas) Limited; Winn-Dixie Charlotte, Inc.; Winn-Dixie Logistics, Inc.; Winn-Dixie Louisiana, Inc.; Winn-Dixie Montgomery, Inc.; Winn-Dixie Procurement, Inc.; Winn-Dixie Raleigh, Inc.; Winn-Dixie Supermarkets, Inc.

Principal Divisions: Bahamas; Charlotte; Jacksonville; Montgomery; New Orleans; Central Florida; South Florida; Raleigh.

Principal Competitors: Wal-Mart Stores, Inc.; Publix Super Markets, Inc.; Ahold USA, Inc.; Delhaize America, Inc.; Costco Wholesale Corporation; The Kroger Co.; Albertson's, Inc.

Chronology

• Key Dates:
• 1925: William M. Davis enters the self-serve grocery business through the purchase of Rockmoor Grocery in Miami, Florida.
• 1927: The company, now operating five stores, changes its name to The Table Supply Stores.
• 1939: The company gains control of the Winn & Lovett Grocery Company, which operates 78 stores in Florida and Georgia.
• 1944: The company adopts the Winn & Lovett name and moves its headquarters to Jacksonville, Florida.
• 1952: The company lists its stock on the New York Stock Exchange.
• 1955: Dixie Home Stores of Greenville, South Carolina, is acquired; the company changes its name to Winn-Dixie Stores, Inc.
• 1966: The Federal Trade Commission forbids Winn-Dixie from acquiring any retail grocery stores in the United States for ten years.
• 1976: Kimbell, Inc. and its 135 stores in Texas, Oklahoma, and New Mexico are acquired; the New Mexico outlets are soon divested.
• 1984: The first Winn-Dixie Marketplace store opens.
• 1995: Winn-Dixie acquires the Thriftway Food Drug chain, operator of 25 outlets in the greater Cincinnati area.
• 2000: The company launches a major restructuring involving the closure of more than 110 stores and the elimination of 11,000 workers from the payroll.
• 2002: Winn-Dixie divests its operations in Texas and Oklahoma.